VCU HUMS 202 - HUMS 202 Module5 (4 pages)

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HUMS 202 Module5



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HUMS 202 Module5

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Pages:
4
School:
Virginia Commonwealth University
Course:
Hums 202 - Choices in Consumer Society
Choices in Consumer Society Documents
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HUMS 202 Module 5 Pay Yourself First What you can do to start saving o Differentiate between spending for needs and wants Cut back on unnecessary spending Such as food monthly subscriptions and other expenses o Pay bills on time to avoid monthly fees o 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 needs o 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 savings o Keep making the monthly payments to yourself once you have paid off a loan o Save atleast part of any cash gift bonus or raise How your money can grow o 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 1010 o 10 or 1 of 1000 is added to your original budget o 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 05 o 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 amount o Saving Options Two types of tools to help you grow and save money Bank deposit accounts o You can make money by earning interest The bank pays you for the opportunity to use your money o o Your money is safe Since the creation of the FDIC in 1934 no depositor has every lost penny of insured deposits o You have easy and quick access to your funds Non deposit investment products o Long term savings option that you purchase for future income or financial benefit o Types of Product Investment U S Treasury Securities I Savings Bond o Purchased at face value EE Savings Bond o Purchased at half of their face value Treasury Bills o Sold at a discount from their face value and range in terms from a few days to a few years Treasure Notes o Pay interest every 6 months Treasury Inflation Protected Securities o Provide protection against inflation and the interest rate is tied to the Consumer Price Index Pay interest twice a year Treasury Bonds o 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 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 o o o 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 Funds o Company that pools money from investors to buy stocks bonds or other investments 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 Additional Saving Options Individual Development Account Matched savings account Allowable purposes o Job training o College education o Small business start up o 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 Advantages o Investments grow tax deferred o Plan assets are professionally managed either by the states treasury office or by an outside investment firm hired as the program manager o Everyone is eligible there are no income limitations or age restrictions 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 time


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