Saving 100 saving for goals
It does not matter how slowly you go so long as you do not stop. Confucius Saving 100 1 Since your savings can grow substantially over time, now is the perfect time to get started. The earlier you save, the more money you ll have in the future. There are many choices when it comes to saving money. First, identify whether your goals are long term or short term. Short-term goals are goals you want to reach in five years or less, or money you ll need to access in an emergency. A down payment for a house or car would be considered a short-term goal as would saving for a vacation. Long-term goals, like funding your retirement or a child s college education, are goals you plan to reach in 10 or more years. If you have long-term goals, then investing might make more sense. The reason for the five-year timeline is that investing may be riskier than saving. If you re saving to put a down payment on a house, you may not want your money in the stock market because you could lose 10 percent or more in value just before you need it. When saving with a bank or credit union, your money is insured and protected against losing value. Saving vs. Investing n Saving for short-term goals n Less than five years n Emergency fund n Car or house down payment n Vacation n Investing for long-term goals n More than five years n Retirement n College education Saving Goals Goal Savings goal Amount to save each month # of months to achieve goal Emergency Fund $1,000 $83 12 2009 EdFund. All rights reserved. EdFund and its associated graphic are registered trademarks of EdFund. Provided courtesy of EdFund. www.edfund.org
2 Rule of 72 Imagine you have $1,000 and put it in a savings account or invest it. How long will it take to double? The rule of 72 tells how many years it will take to double your investment. Take 72 and divide it by the interest rate you re earning. If you re earning 8 percent, then 72 8 is nine years your money will double in nine years. 12% 6 Years 72 Interest Rate 8% 4% 9 Years 18 Years 2% 36 Years 0 5 10 15 20 25 30 35 40 Years Needed for Money to Double Rule of 72 Worksheet (Example at 8% Interest) Your Age Savings Your Age Savings A 25 $1,000 B + 9 = 34 $2,000 C + 9 = 43 $4,000 D + 9 = 52 $8,000 E + 9 = 61 $16,000 Suppose you re earning 8 percent interest on your savings. The rule of 72 allows you to estimate how many years it will take for your money to double. 72 divided by 8 equals 9. As you can see in the example above, this means $1,000 today will grow to $2,000 in 9 years. In another 9 years, that $2,000 will grow to $4,000 at 8 percent interest. Follow the steps below to discover how your savings today can grow over time at 8 percent interest. Step 1. Write your age and an amount that you have saved today in line A. Step 2. In line B add 9 to your age and double the savings amount from line A. Step 3. For lines C through E, in each line, again add 9 to your age and double the savings amount. Step 4. Line E shows how old you will be and how much your initial savings will be worth without making additional deposits. 2009 EdFund. All rights reserved. EdFund and its associated graphic are registered trademarks of EdFund. Provided courtesy of EdFund. www.edfund.org
Never leave that till tomorrow which you can do today. Benjamin Franklin Saving 100 3 Where to save Banks and credit unions offer the following places to save for short-term goals. Checking account A checking account is a way to start accumulating money. It pays you the lowest interest rate of all the options but allows the most transactions. Savings account If you have $100 or more, you might want to look at a savings account. Savings accounts usually pay higher interest rates. Money market accounts Once you have a larger amount of money, other options become available that pay you more interest. Money market accounts have higher interest rates than checking or savings, but money market accounts limit the number of times you can withdraw your money. Certificate of deposit (CD) If you don t need your money for six months or longer, then a CD is a good option. A CD pays you more interest the longer you agree to lock away your money. Most CDs require a minimum deposit (usually from $250 to $1,000), pay a higher interest rate, and don t allow any additions or withdrawals from the CD for the period of the CD (usually six months to five years). If you take your money out of a CD early, you could be charged a penalty, usually equal to three months worth of interest.
4 Savings Calculator Now is the best time to save for the future. Saving today can lead to significant rewards down the road. The opportunity to enjoy a house, car, travel and a secure retirement is within reach. Use this savings calculator to see how savings put aside today can grow substantially over time. For example, if you save $100 a month after graduation at 8 percent interest for 30 years, you ll have $149,036. Estimated time: 30 minutes to calculate different savings scenarios 5 Years 4% 5% 6% 7% 8% 9% 10% $25 a month $1,657 $1,700 $1,744 $1,790 $1,837 $1,886 $1,936 $50 a month $3,315 $3,400 $3,489 $3,580 $3,674 $3,771 $3,872 $75 a month $4,972 $5,101 $5,233 $5,370 $5,511 $5,657 $5,808 $100 a month $6,630 $6,801 $6,977 $7,159 $7,348 $7,542 $7,744 $250 a month $16,575 $17,002 $17,443 $17,898 $18,369 $18,856 $19,359 $500 a month $33,150 $34,003 $34,885 $35,797 $36,738 $37,712 $38,719 10 Years 4% 5% 6% 7% 8% 9% 10% $25 a month $3,681 $3,882 $4,097 $4,327 $4,574 $4,838 $5,121 $50 a month $7,363 $7,764 $8,194 $8,654 $9,147 $9,676 $10,242 $75 a month $11,044 $11,646 $12,291 $12,981 $13,721 $14,514 $15,363 $100 a month $14,725 $15,528 $16,388 $17,309 $18,295 $19,351 $20,485 $250 a month $36,813 $38,821 $40,970 $43,271 $45,737 $48,379 $51,211 $500 a month $73,625 $77,641 $81,940 $86,542 $91,473 $96,757 $102,423 20 Years 4% 5% 6% 7% 8% 9% 10% $25 a month $9,169 $10,276 $11,551 $13,023 $14,726 $16,697 $18,984 $50 a month $18,339 $20,552 $23,102 $26,046 $29,451 $33,394 $37,968 $75 a month $27,508 $30,828 $34,653 $39,069 $44,177 $50,092 $56,953 $100 a month $36,677 $41,103 $46,204 $52,093 $58,902 $66,789 $75,937 $250 a month $91,694 $102,758 $115,510 $130,232 $147,255 $166,972 $187,842 $500 a month $183,387 $205,517 $231,020 $260,463 $294,510 $333,943 $379,684 30 Years 4% 5% 6% 7% 8% 9% 10% $25 a month $17,351 $20,806 $25,113 $30,499 $37,259 $45,769 $56,512 $50 a month $34,703 $41,613 $50,226 $60,999 $74,518 $91,537 $113,024 $75 a month $52,054 $62,419 $75,339 $91,498 $111,777 $137,306 $169,537 $100 a month $69,405 $83,226 $100,452 $121,997 $149,036 $183,074 $226,049 $250 a month $173,512 $208,065 $251,129 $304,993 $372,590 $457,686 $565,122 $500 a month $347,025 $416,129 $502,258 $609,986 $745,180 $915,372 $1,130,244 2009 EdFund. All rights reserved. EdFund and its associated graphic are registered trademarks of EdFund. Provided courtesy of EdFund. www.edfund.org
Building Futures Financial Literacy PO Box 419045 Rancho Cordova, CA 95741-9045 www.edfund.org General Information 877.233.3863 2009 EdFund. All rights reserved. EdFund and its associated graphic and Building Futures are registered trademarks of EdFund. All other trademarks are the property of their respective owners. This workbook is intended to be a guide that introduces various financial planning topics. It s not intended to provide financial advice and it s not meant to be professional guidance. Materials provided courtesy of EdFund. S100 03.2009