Presentation Notes for Take It to the Bank- A Guide to Saving and Investments
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Take It To The Bank
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A Guide to Saving and Investments
Take It to the Bank
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Copyright
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Take It to the Bank
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Pay Yourself First
• So you have your first job. Before you
spend money, “Pay Yourself First”
• Why Save?
– Emergencies
– Unforeseen opportunities
– Retirement
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One of the most important things to learn about money management is to learn (or get
into the habit to) “Pay Yourself First”. This means you put a portion of your income to a
savings before you start spending money. It is a good idea to get into the habit of saving
5%-10% of your income. You do not have to limit yourself to 10%. If you are living at
home and do not have living expenses, you should try to save more. If you are paying
your own living expenses, 5%-10% is a good goal. It is a good idea to divide this into
short-term savings for things like vacations, down payments on cars as well as
emergencies. Some money should go into long-term goals such as retirement or to
meet educational goals. When you are young, it seems like retirement is a long way off;
but if you start saving a little for retirement when you are young, the money has a long
time to grow and you will have more money when you retire. You want to have money
when you retire because you have more time and more opportunities to try new things.
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What is a bucket list?
Why are people deciding to retire at an older age?
Do you have a savings account? What are you saving for?
Take It to the Bank
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Time and Money
• The more money you invest, the more
money it will earn.
• The higher the rate of interest, the more
money it will earn.
• The sooner you invest, the more time your
money has to earn more money.
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The time value of money refers to the relationship between the money, time, and rate of
interest. When you invest or save money, you earn interest. This is money paid to you
for the use of your money. If you save money over a long period of time, you earn
money on the interest you have earned and we call that compounding interest. This is
the key to making good long-term investments.
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How does compound interest work?
Take It to the Bank
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Slide 5
Worth the Wait
• Yes, it does take discipline and
commitment to save money, but there is
satisfaction in watching your money grow
and having the money to make some
dreams come true.
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It takes discipline to save your money when there is always something you would like to
spend it on. This discipline will give you satisfaction later when you have enough money
to make your dreams come true.
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What is a dream vacation?
What is your dream car?
Take It to the Bank
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Slide 6
Ways to Save
• Savings Account - lower rate of interest,
but you can withdraw money whenever
you want to without penalty.
• Money Market - works like a checking
account but pays you interest.
• Certificates of Deposit -You agree to
keep your money on deposit for a specific
length of time for a higher rate of interest.
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Three common ways to save through banks or credit unions is savings accounts,
money market accounts and certificates of deposit, commonly called CDs.
Let’s talk about the advantages and disadvantages of each.
The savings account is often the first account a person has. Sometimes, parents set
them up for children. The federal government guarantees the accounts up to
$100,000.00 so these are considered low-risk. You can take the money out when
needed without a penalty so they are considered a great liquid asset.
Money market accounts work like a savings account and usually pay a higher rate of
interest than a savings account; but lower than a CD. They are also insured by the
federal government. They require a larger minimum balance and you may be limited to
how many times you can withdraw from the account without paying a penalty fee.
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Certificates of deposits are like a bank’s version of a savings bond. You agree to keep
your money on deposit for a specific length of time for a higher rate of interest. When
you buy a CD, you are agreeing to let the bank use your money for a set period of time
and in return, they pay you a higher rate of interest. You will pay a penalty if you cash
them in early.
Take It to the Bank
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Slide 7
Savings vs. Investment
• Saving is used for short-term goals or
emergencies.
• Investing is for long-term goals and it is
riskier business. There is no guarantee
the money will grow, but there is potential
for great growth.
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Typically, savings is something you do to have liquid assets; where investing is done for
long-term savings. Investing is a great way to save for long-term goals such as
retirement and educational goals for children. When you invest, you are looking to make
money off of the money you are saving and you are committed to letting someone else
use it for a longer length of time. When you invest in retirement accounts such as 401k
or 403b, you are investing that money with the expectation of letting it grow until you are
at least 59 ½ years old, because withdrawal before that age results in penalties with
exception of a few circumstances.
Take It to the Bank
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Slide 8
Rule of 72
• This is a simple way to see your money
grow:
– Divide 72 / your interest rate = the number of
years for your money to double
– Divide 72 / by years = the rate of interest
needed to double your money
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Rule of 72 is a way to watch your money grow. Have you ever wondered how long it
will take to double your money? Well, you can figure it out with the rule of 72. You can
use it a couple of different ways. Divide 72 by the interest rate you are receiving and the
answer is the number of years it will take you to double your money. If you have an
investment paying 8% interest on your money and you have invested $1,000.00 it will
take 9 years to have $2,000.00 even if you do not add any more money to the account.
This shows you how important it is to invest when you are young. You can also use it to
determine what interest rate you need to have to double your money in a certain period
of time. For instance, what rate of interest would you have to earn to turn $20,000.00
into $40,000.00 in 10 years?
Take It to the Bank
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Slide 9
Risky Investments
• When we think of investments, we think of
“stocks” and risks involved - but all
investments have risks.
• The risk also comes with the potential for
greater rewards.
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All investments have risks. Even a savings account that is guaranteed by the
government has the risk of the interest not keeping up with inflation. The greater the risk
you take, the potential for greater rewards exists. The key is to find the investment right
for you. Some people are willing to take greater risks than others. If you have a long
time before retirement, you have time to take a greater risk. As you get closer to
retirement and that money has earned a lot of interest and you do not want to chance a
loss, you may move it to a safer investment that will have lower returns, but less chance
of loss.
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What are some risks that could affect the interest rates or investments?
Some examples are:
• Economy falls due to natural disasters
• Poor job market
• New technology that makes older technology companies obsolete
• Politics
• Wars
• Major world events
• Dishonest investment managers
Take It to the Bank
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Slide 10
Other Investments
•
•
•
•
•
•
U.S. Savings Bonds
Money Market Mutual Funds
Corporate and Government Bonds
Real Estate
Mutual Funds
Collectibles
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These are some other types of common investments that we will talk about individually.
Take It to the Bank
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Slide 11
US Savings Bonds
• A bond is an agreement where the
borrower (usually the Federal
Government) uses your money for a set
period of time.
• Time of investment is two to thirty years
• If you take out money before the end of
the agreed time, you pay a penalty
and lose some money.
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Each bond has a face value with a stated rate of interest that will be paid annually until
the bond matures or reaches its full value. A typical length for a bond to mature is five
years, but it can be much longer. Let’s say the face value (or the amount you invest) is
$1,000.00 at 9% interest that matures in five years. Each year the company would pay
you $90.00 for five years. At the end of five years, the bondholder will pay you the face
value ($1,000.00) of the bond. Typically the longer the bond is held, the higher the rate
of interest.
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How much will you have earned over the five year period?
Answer: $450.00
Take It to the Bank
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Slide 12
Money Market Mutual Funds
•
•
•
•
Offered by banks and credit unions
Works like a checking account
You can take out money without penalty
May limit number of checks written each
month
• Usually requires a minimum balance
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Money Market Mutual Funds are offered by banks and credit unions. One advantage is
that they are insured up to $100,000.00 in deposits. They work much like checking
accounts except you are paid interest. You might think this is a no-brainer. I can get
paid interest and the services of a checking account, why would I not have a money
market account? One reason is that they do require a minimum balance that you must
keep in the account. Often, individuals do not have the money required as the minimum
balance. The other reason might be that some funds limit the number of checks you can
write each month.
Take It to the Bank
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Slide 13
Corporate or Government Bonds
• U.S. Savings bonds are safer than
corporate bonds
• Corporate bonds yield higher rate of
interest
• Time of investment is two to thirty years
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Although many bonds purchased are U.S. Government bonds, you can also purchase
corporate bonds which normally yield a higher rate of interest, but may be riskier. Some
government bonds do not pay regular interest payments. At the end of the maturity date,
the bond is redeemed in full. For instance, let’s say you invest $500.00, then at the
maturity date, (say seven years), you are paid $1,000.00. The U.S. treasury issues
treasury bonds to finance the debt of the United States Government.
Take It to the Bank
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Slide 14
Real Estate
• Property investors purchase real estate in
hopes of generating a profit when it is sold
• This is less liquid than other investments
because you have to sell it to gain a profit
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Many people invest in real estate by buying their own home. After all, you need a place
to live and you will either pay rent or have a mortgage payment. If you expect to live in
the same area for a long time, you may choose to invest in a home. The hope is that
should you decide to sell at a later date, you will be able to sell the property for more
than you paid for it. This often happens, but it is dependent on the housing market. The
longer you live in a home, the likelihood of generating profit increases.
Take It to the Bank
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Slide 15
Mutual Funds
• Offered by mutual fund companies which
are companies that invest shareholders’
money in a variety of ways
• Considered to be very safe, but are not
insured by the federal government like
bank accounts
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Mutual funds are considered a very safe investment because they should be managed
by expert investors. The money is diversified into many investments so the money is
safer. The expert manager will move money around to get the greatest return. Interest
rates vary with how well the investments do. These are considered very safe, but they
are not guaranteed like an account at a bank or credit union.
Take It to the Bank
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Slide 16
Collectibles
• Items that are rare in number such as
paintings, sculptures, antiques, baseball
cards or coin collections
• They are less liquid than other
investments
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Collectors buy these items in hopes they will increase in value over time and they can
sell them at a profit. They are less liquid than other investments because you have to
find a buyer to sell the item to and then you have to sell it for more than you invested or
you will take a loss. Many people will invest in collectibles that they enjoy themselves,
and then it is not as important to sell.
Take It to the Bank
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Take It to the Bank
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