Saving

Saving

This module emphasizes the importance of saving and explains the three reasons to save: emergencies, large purchases, and wealth building.

In This Unit

• You are going to learn the beginner steps for establishing and maintaining financial peace: The Five Foundations.

• You do not need to have a large income to save money and that saving money is the first step in building wealth.

• You will learn about the three basic reasons to save money.

Key Terms

• Compound interest: Interest paid on interest previously earned; credited daily, monthly, quarterly or semiannually

• Emergency Fund: Five hundred dollars in readily available cash to be used only in the event of an emergency; the goal of the First Foundation

• Interest Rate: Percentage paid to a lender for the use of borrowed money (in debt); percentage earned on invested principal (in investing)

Key Terms Con't

• Five Foundations: The five steps to financial success

• Sinking Fund: Saving money over time for a large purchase

Learning to Save

The Five Foundations are the beginner steps for establishing and maintaining financial peace. These steps will serve as your compass or framework for your financial success.

Five Foundations

• Save $500 in an Emergency Fund

• Get out of Debt

• Pay Cash for your Car

• Pay Cash for College

• Build Wealth and Give

Things to Consider

"Discipline yourself to do the things you need to do when you need to do them, and the day will come when you will be able to do the things you want to do when you want to do them."

— ZIG ZIGLAR

Video 1.1a: The Five Foundations

Saving Money the American Way!

• The First Foundation is saving an emergency fund.

• You'll have many financial goals throughout your life

• Money magazine says 78% of us will have a major negative event in a given 10-year period of time.

• Regardless of the emergency, having money set aside—$500 at your age—will ensure that those life events do not financially devastate you.

Are Americans Good Savers?

• When the economy is strong, we prosper through lower unemployment and higher incomes. When it is weak, we suffer with high unemployment and lower incomes.

• When things are good, Americans tend to behave as though things will always be good.

• The reality is, whether it's an economic downturn or a personal money emergency, you have to be prepared

• You need an emergency fund!

Video 1.1b: The First Foundation

The First Foundation

• Save $500 in an Emergency Fund

• An emergency fund allows you to have money available for any surprise expenses.

• If you don't have money saved to pay for these things, then debt will start looking like an easy answer.

• Debt never solves problems. At best, it just delays one problem while creating another one!

The First Foundation con't

• When you're older and out of school, you'll need to increase your emergency fund

• Increase your emergency fund into a full three to six months' worth of expenses.

• Make sure this money is kept in the bank and that you only use it for emergencies.

• Keep your emergency fund in separate savings account away from your spending money.

How Can I Save $500 Quickly?

• You'd be amazed at how quickly you can pile up some cash! 

• First, make it a goal.

• Next, set a target date. 

• Goals need a timeline

Saving Tips

What about you? Think of a way you have saved money or could save money.

Video 1.1C: Make Saving a Priority

Three Basic Reasons to Save Money

Things to Consider

• If I can only save $20 or $50 a month, is it really worth it?

• Absolutely! By starting now, you're giving your money time to grow

• When you start young, you'll end up with more cash than someone who waits.

Video 2.1a: Save Money for Three Basic Reasons

Save Money for Three Basic Reason

• Save $500 for an Emergency Fund

• For Purchases

• Wealth Building

Video 2.1b: Emergency Fund

Video 2.2a: Purchases

Purchases

• Instead of borrowing to purchase, pay cash by using a sinking fund approach.

• Calculate the expected cost of the item and how long you have until you need to purchase it. 

• Divide the total cost of the item by the number of months until the purchase.

• Saving over time means you will never need to go into debt for a large purchase.

Sinking Fund Approach Example

• Purchase a iPhone 12 Pro Max

• Goes on Sale November 13th

• Purchase Jan 13, 2021

• Cost of Phone: $1100.00

Maybe You Can Afford that Car!

• Like to have a car with NO car payments?

• Let's show you how!

Video 2.2b: Wealth

Quick Review of Wealth Building

• Discipline is the KEY ingredient when it comes to Wealth Building

• Building Wealth is a marathon not a sprint

Ready to Start Saving?

• A bank is one of the safest places to keep your money. 

• An interest-bearing account

• The convenience of a bank account comes at a cost.

• Inflation can eat up the interest you earn on an interest-bearing bank account.

What is the Secret to Saving?

• You Must Be Focused

• Practice Discipline

• Prioritize Money when you Budget

• Give, Save, Spend

• Stay on Course

The Story of Ben and Arthur

Video 2.3b: Wealth Building

The Power of Compound Interest

Anyone Can Be A Millionaire!

• How long does it take to become a Millionaire?

• On the Average = 17 Years

• 8 out of 10 are first generation rich

• Typical American goes unoticed in America

• Millionaire Skill: Perseverance - They Never Quit

Video 3.1b: Rate of Return on Interest

What is Interest?

• In investing, it is the money the principal (original amount invested) earns. 

• It is typically a percentage of the principal, paid on a monthly, quarterly or annual basis.

  
  

• Compound interest is interest paid on interest previously earned.

• Examples:

• As time passes, the amount you earn from interest grows.

• The most powerful force in the universe is compound interest! — Albert Einstein, German physici

How to Calculate Compound Interest

Show Example

Video 3.1c: Not a Win - Win

Time Value of Money

• A certain amount of money today has different buying power than the same amount of money in the future.

• Because there is an opportunity to earn interest on the money and because inflation will drive prices up, thereby changing the "value" of the money.

• The trade-off between money now and money later depends on the inflation rate and the rate of interest you can earn by investing or saving.

• The rate of return, or the interest rate, on your investment is important to consider.

Video 3.1d: Balancing Cups

Case Studies

Review for Test