Where does the “Pay Yourself First” money go???

Risk: the probability that you’ll lose money if an investment you make provides a
disappointing return

Principal: the original amount of money being borrowed or lent

Liquidity: the ease that an asset can be converted into cash

Rate of Return: the ratio of money gained or lost on an investment compared to the total
amount of money invested

Inflation: the rate at which the prices for goods and services rise

Capital Gain: the profit that results from an investment when the selling price is higher
than a purchase price

Interest: the return earned on an investment

Dividends: part of a company's net profits paid by the company to its stockholders

Asset: an item of economic value either owned by an individual or corporation which
could be converted to cash

Diversify: acquiring a variety of assets in unrelated industries that tend not to change in
value at the same time

Tax-deferred account: an investment vehicle that allows you to postpone paying income
tax that would otherwise be due on earnings you hold until some point the future, usually
at retirement
last 20 years
 Sustained
increase in the cost of goods and
services over time…
 Decreases the spending power of every dollar…
1990 = $1.00 / 2010 = $0.585
 Important
– should be part of everyone’s
personal financial activities
 Used for items we need & want (prioritize)…
 Used for future expenses & emergencies…
 Treat savings as an expense (pay yourself
first)…
 Put savings into monthly budget when you earn
a regular pay check…
 Can save now if you have a part time job (even
babysitting counts)!!!
 What

does it mean to save money???
Put money away for the future…
 Do
you save money??? For what???
 Name ways/places to save money???




At home (not so safe – no interest earned)
Banks (safe – options – earn interest)
Investments
http://www.youtube.com/watch?v=2DBdWeTxXeU

Simple Interest
 Earnings are calculated from the original principal
 Interest = principal x interest rate x time
 Example:
 Mary put $1,000 in a bank account that paid 2% simple interest. She
kept the money in the account for five years.
 Interest =1,000 x 0.02 x 5 = $100.00
 Total amount after 5 years = $1,100

Compound Interest
 Earning interest on interest
 The interest earned is added to form the new base on which future
interest accumulates
 Example:
 Mark put $1,000 in a bank account that paid 2% compound interest.
He kept the money in the account for five years.
 A =1000(1+.02)5
 Total amount with compound interest= $1,104.08
6
Simple
Compound
Initial Investment
$1000
Initial Investment
$1000
Period
10 years
Period
10 years
Interest Rate
5%
Interest Rate
5%
Year 1
$1050.00
Year 1
$1050.00
Year 3
$1150.00
Year 3
$1157.63
Year 5
$1250.00
Year 5
$1276.28
Year 7
$1350.00
Year 7
$1407.10
Year 9
$1450.00
Year 9
$1551.33
Year 10
$1500.00
Year 10
$1628.89
7
 RULE

An approximate calculation of compounding


OF 72
Divide 72 by the interest rate to see how long it will take your
money to double
http://www.youtube.com/watch?v=5KqEpVciU2E
8
http://www.youtube.com/watch?NR=1&feature=endscreen&v=Yw0wgOCvTjo
Stocks, bonds, mutual funds, real estate, collectibles, etc…
 In
order to expand, it is necessary for business
owners/governments to tap financial resources.
 Also known as securities…
 2 types of securities:
Debt Securities (bonds):
 "Debt" involves borrowing money to be repaid, plus interest.
 Equity Securities (stocks):
 "Equity" involves raising money by selling interests in the company.

 What
is a stock (shares of a company)???
 A piece of paper that says you’ve bought a part of a
company…
 You’re
“sharing” a company…
 You’re a partner in a company with millions of other
people…
 As a partner, you share in the gains & losses of the
company…
 Companies can pay dividends (a share of the profits)
based on the # of shares you own…

How the Stock Market Works: http://www.youtube.com/watch?v=GnJCOof2HJk&feature=related

Could earn a high rate of return on your investment…

High risk involved…

Jumping into the stock market can be very over-whelming!!!

The prices of stock change often. Most active stocks change in value during a
days trading.

A corporation only has a certain number of shares available to buy.

The laws of supply and demand cause the prices to fluctuate.

Prices depend on general business conditions, company earnings, and what
people think is the future prospect of the corporation.

When more people want to buy, the market in stocks will rise. When more
people want to sell, prices go down. The trick is to try and guess correctly; buy
when the price is low, sell when the price is as high as it is going to go.

Market Value of a stock = price that a share of stock can be bought and sold
in the stock market. This can change rapidly…
Walking on Wall Street: http://www.youtube.com/watch?v=foaYpoH0Fnk
A
bond is like an “IOU”…
A
certificate that stands for a loan from you
(investor) to the government or company that
issued it…
 There
are 3 different types of bonds:
1. US Government Bonds (Treasuries)
1.
2.
1.
3.
http://www.youtube.com/watch?v=86cCQUFuAEA
Corporate
http://www.youtube.com/watch?v=KqDW1ut9vJ4
State & Local Government

The main differences are:
 A bond is a loan, a stock is equity (ownership)…
 Stockholders are subjected to volatility (instability) of
the company's stock, bond holders are not…
 In the event of bankruptcy, bond holders get paid
BEFORE stock holders…
 Stockholders may be entitled to dividends, bond holders
never are, as they don't own any equity in the company...
 Bank
pays a fixed amount of interest for a fixed
amount of money during a fixed amount of time
 No risk of loss principal
 No fees
 Higher interest rates than savings accounts
 Restricted access to money
14
 An
investment that pools the money of many
shareholders and invests it in a diversified portfolio
of securities
 Managed by professionals
 Low minimum contribution
 Gives advantages to small investors that are usually
restricted to large investors
What is a Mutual Fund? http://www.youtube.com/watch?v=fpcvJiO-rjk
Soup Example: http://www.youtube.com/watch?v=bxvr8tZpBDs&feature=related
15
 Buying
land and holding it until it rises in value
 Buying a property and renting it to others
 Good protection against inflation
 Difficult to convert to cash
16
 Items
that are relatively rare in number…
 Collectors do not make a profit, or loss, until the
item is sold…
 High risk…
 Examples:

Coins






http://www.youtube.com/watch?v=p_ol_tKQAcg&feature=related
Paintings
Sculptures
Antiques
Baseball cards
PEZ
17
SAVINGS
Process of setting
money aside for future
spending…
 Typically for shorter
term needs, 1-3 years
away…

o
o
o
Process of setting
money aside for future
spending…
 Typically for a longer
term needs, 3-5 years
away…

car
vacation
emergency fund
Highly liquid…
 Lower risk…

INVESTING



home purchase
college tuition for young
child
retirement
Low liquidity…
 Varying levels of risk…

 http://www.youtube.com/watch?v=b_bRQON5wNE
 Plans
that help people set aside money to be used
after they retire
 Federal income tax advantages
 Penalty charges apply if money is withdrawn before
retirement age
 Types



Individual Retirement Account (IRA)
Roth IRA
Pension plans
19
 Tax

Money that is not subject to income tax until it is
withdrawn from an account


 Tax

Deferred
Traditional IRA
401k
Free or Tax Exempt
No income tax has to be paid on earnings produced


Roth IRA
529 college savings plan
 http://www.youtube.com/watch?v=xDIu7bdZuko
20
 Choose
the method of investing that is right for you
 Develop a plan and stick to it
 The biggest risk is not investing at all
 Investing is a necessity NOT a luxury
 Set investment goals
 Facebook

– AOL
http://www.youtube.com/watch?v=lpaYT2DNxCE
21
 You
invest for future gain and benefits…
 You want to accumulate assets…
 You want to build wealth…
 You want to invest in assets that will appreciate
in value…
 You want to limit your spending on depreciating
assets…
 All savings and investment vehicles subject you
to one or more types of risk!
 Diversify to minimize risk!
 You want to save by “paying yourself first”…
 Is

Jay-Z so wealthy just from his music career???
http://www.youtube.com/watch?v=QQO_TbxGGMo&feature=related