HUMS 202: Module 5: Pay Yourself First- What you can do to start savingo Differentiate between spending for needs and wants. Cut back on unnecessary spending  Such as food, monthly subscriptions, and other expenseso Pay bills on time to avoid monthly feeso Shop around, including for financial services. Consider opening a checking account instead of using check cashing services. Shop for the account that best meets your needso Monitor your bank accounts to avoid fees. Keep track of how much money is in your checking account. Don’t forget to record debit card purchases.o Have part of your paycheck direct-deposited into a savings account or ask your bank how to establish automatic transfer to savingso Keep making the monthly payments to yourself once you have paid off a loano Save atleast part of any cash gift, bonus, or raise- How your money can growo Interest Amount of money banks or other financial institutions pay you for keeping money on deposit with them Expressed as a percentage Calculated based on the amount of money in your account.o Compounding How your money can grow when you keep it in a financial institutions that pays interest Annual Compounding- Start with $1000 at 1% compounded annually- At the end of the first day, you still have $1000- At the end of the year, you have $1010o $10 or 1$ of $1000 is added to your original budgeto TOTAL : $1010.00 Daily compounding- Start with $1000 at 1% compounded daily- At the end of the first day, you have $1000.03- On the second day, add the interest earned, $.03, and the compounded total amount $1000.03- At the end of the year, you have $1010.05o Rule of 72 Divide 72 by the current interest rate to estimate the number of years that it will take to double your initial savings amounto Saving Options Two types of tools to help you grow and save money- Bank deposit accountso You can make money by earning interest. The bank pays you for the opportunity to use your money.o Your money is safe. Since the creation of the FDIC in 1934, no depositor has every lost penny of insured depositso You have easy and quick access to your funds- Non-deposit investment productso Long-term savings option that you purchase for future income or financial benefit o Types of Product Investment U.S. Treasury Securities- I Savings Bondo Purchased at face value - EE Savings Bondo Purchased at half of their face value- Treasury Billso Sold at a discount from their face valueand range in terms from a few days to a few years.- Treasure Noteso Pay interest every 6 months- Treasury Inflation-Protected Securitieso Provide protection against inflation and the interest rate is tied to the Consumer Price Index. Pay interest twice a year- Treasury Bondso Pay interest every 6 months. Issued for a 30 year term. Stocks- When you buy a stock, you are part owner in the company, called a share.- Company may pay you o Saving Products Savings account- Easy and safe place to save money Certificate of Deposit (CD)- You agree to keep the money in an account for a set term – a few weeks to several years. In return the bank agrees to pay you a higher interest rate than you would receive from a checking or a savings account. If you need the money, earlier, you can arrange that but expect to pay an early withdrawal penalty. Money Market Deposit Account- Like a basic savings account- You are often required to keep a higher balance in the savings account to earn a higher rate of interest than you would in a traditional savings account. Bonds- Lending money to issuer for a certain period of time. Mutual Funds- Offered by companies that combine money from many investors to purchase numerous separate investments.- Exchange-Traded Fundso Company that pools money from investors to buy stocks , bonds or other investmentso Retire Investments Individual retirement arrangements- Provide tax advantages for retirement savings. 401(k) and 403(b) plans- 401(k)o Retirement savings plan established by an employer that lets its employees set aside a percentage of their pay for retirement before taxes are taken out. This can help you lower your tax bill.- 403(b)o Retirement savings plan for employees of public schools and certain tax-exempt organizations Variable annuities- Insurance contract that invests your premium in various mutual-fund like investments.o Additional Saving Options Individual Development Account- Matched savings account- Allowable purposeso Job trainingo College educationo Small business start-upo Home purchase 529 College Savings- Education savings plan operated by a state or educational institution - Designed to help families set aside funds to pay for future college costs- Advantageso Investments grow tax deferredo Plan assets are professionally managed either by the states treasury office or by an outside investment firm hired as the program managero Everyone is eligible; there are no income limitations or age restrictionso How to choose the best investment Learn as much as you can about the investment from the prospectus Remember that past performance is not guarantee of future performance Consider how long you plan to keep your money in the investment You ca protect yourself the risk of investing all of your money at the wrong time by following a consistent pattern of adding new money to your investment over a long period of