2.4.1.

F1

ChoosetoSave
AdvancedLevel
Savingmoneyisanessen alpartyourfinancialplan.Whenyousaveyouaccumulatefundsbyinten onally
spendinglessthanyouearn.Savingsisthepor onofincomenotspentonconsump on(thepurchaseofgoods
andservices).
Animportantreasontohavesavingsisforemergencyexpenses.Withoutsavings,payingcashforanunexpected
expense may be dicult. Emergency savings (cash set aside to cover the cost of unexpected events) creates a
sense of financial security. The lack of an emergency fund not only creates financial stress, but also drives the
consumerintodebt.
Savingscontributestoyournetworth(wealth)andisrecordedasafinancialassetonyourStatementofFinancial
Posi on.Besurethisfinancialasset(youremergencyfund)isinaneasilyaccessibleaccount(usuallyasavings
account)thatcanbeaccessedinadayortwowithoutpenalty.Financialassetseasilyconvertedintocasharecalled
liquid.Liquidityisdefinedashowquicklyandeasilyyoucanaccessyourassetsandconvertthemintocash.
Whatareexamplesofemergencyexpensesahouseholdmayencounter?

Howmuchmoneytosave
Mostexpertsrecommendhavingbetween36monthsofexpensesputasideinemergencysavings.Letssayyour
goalistosavesixmonthsofexpenses.Ifyounormallyhave$2,000inexpenseseachmonththenyoushouldtry
tobuildupatotalof$12,000inemergencysavings.Becareful
nottoconfusethefundsyouvesavedforemergencieswith
fundsyoudliketospendonvaca onswithfriendsandfamilyor
onbigexpenseslikeanewflatscreenTVornewerfurniture.
Emergencyfundsarejustthat;fundssetasideonlytobeusedin
anemergency!

Howtosavemoney
Savingisanimportantpartofse ngandreachingfinancialgoals.Your
goalmaybetobuildyouremergencysavingsfundortobuyacar,new
furnitureorthedownpaymentonyourfirsthome.Youbeginbyse ng
yourfinancialgoalandworkingbackwardstodeterminearealis camount
youcansaveduringaspecific meperiod.Savingmoneyforfuture
consump onalwaysrequiresnotpurchasingsomethingtoday.Youmust
ensurethetradeosarerealis candtheopportunitycostofwhatyouare
givingupwontnega velyimpactyourwellbeing.

Whatsavingsgoaldoyouhavein
place?

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2.4.1.F1

Howtosavemoneycon nued
Yourspendingplanhelpsyoudeterminehowmuchyoucansavebasedonyourincomeandexpenses.Afrequent
assessmentofwhatyouspendyourmoneyonisagoodhabittodevelop.
Hereareafewmoneysavingsugges ons:
ExaminecurrentspendingExamineexpensesinyourIncomeandExpenseStatementandyourSpending

Plantodeterminechangesthatcanbemadetodecreaseyourspending.Startwithsmallexpenses(yourdaily
coeeshopdrink,newclothes)andthenreviewyourlargerexpenditures(cableandcellphoneplansand
some mesgrocerybills)toseeifthereareopportuni estodecreaseyourspending.

Thefollowingare pstodecreasespending:
1.

2.
3.
4.

Itmaybediculttodecrease
orremovecontractual
Communica onCouldyoucancelyourcable/satellitetelevisionor
reducethecostofyourcurrentpackage?Couldyoureducethecostof expensesfromyourspending
plan.Withacontractual
yourcellphonepackage?CouldyoudropyourhomeInternetanduse
expense,youhavesigneda
publicInternetatplacessuchasalibrary?
contractthatrequiresyouto
FoodCouldyoueatatrestaurantsless?Couldyoupurchaseitemsin
paythatexpenseforaspecific
bulkinsteadofatavendingmachineorgassta on?
amountof me.Makesureto
Transporta onCouldyouusepublictransporta oninsteadofowning considertheconsequencesof
avehicle?
acontractbeforesigning.
HousingWouldyouconsidermovingtoasmallerorlessexpensive
homeorapartmentinordertoreduceyourmortgage/rentpaymentand/oru li es?

A erreviewingyourmonthlyexpenditures,ifyous llcantreachyoursavinggoalyoumightconsider:
1. Increasingyourincomebylobbyingforaraise,switchingtoajobthatpaysmoreortakingonapart me
jobifevenonlyforashortperiodof metoincreaseyoursavings.
2. DIYYouveseenthedoityourselfersonTV,sowhynottryacoupleofpersonaltasksonyourown.
Notonlycanthissaveyoumoney(ifyoudoitrightthefirst me!)itbutitcanalsogiveyouasenseof
accomplishment!However,thecosttoyouofdoingsomethingonyourownisyourinvestmentof me
(andmaterials)inplaceofthemoneyyouotherwisewouldspend.Makesureyouarewillingtogiveup
the meandhavetheproperskillsneededtocompletedoityourselftasks.
ThefollowingexamplesareDoItYourself(DIY)ac vi es:
FoodPackyourlunchandpreparefood/beveragesfromscratchinsteadofpurchasingreadytoeat

itemssuchascoeeandfrozenmeals.
Transporta onDevelopskillsthatallowyoutotakecareofverybasicvehiclemaintenanceand
repairs.
HousingMaintaintheinsideandoutsideofyourhome;visityourlocalhomeimprovementcenterto
learnabouthomeDIYprojects.
Whatarethreewaysyoucouldstartsavingtoday?

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2.4.1.F1

Havingsolidsavingshabitshelpsyoureachyourfinancialgoals.Asuccessfulsaving
strategyformanyistopayyourselffirst.Payingyourselffirstmeanssavingfor
thefuturebypu ngmoneyasidebeforepayingyourregularmonthlybillsor
usingyourincomefordiscre onarypurchases.
Makepayingyourselffirstautoma c.Waystoaccomplishthisinclude:
Automa ctransfersMostdepositoryins tu onsallowyoutosetup
automa ctransfersamongaccountswithintheirdepositoryins tu onorto
accountsatotherins tu ons.Oncetheini alsetupiscomplete,themoneyis
automa callymovedfromoneaccounttoanotherondatesdesignatedby
you.
PayrollDeduc onManyemployersoerpayrolldeduc ontoemployees.
Withthistypeofpayrolldeduc on,youdesignateacertainpercentageor
specificamountofyourpaychecktobedepositedintoanaccountofyour
choice.

Manyresourcesareouttheretohelpyoureachsavinggoals.Websiteslikeh ps://secure.piggymojo.comand
h p://www.s ckk.com,helpyoudevelopgoalsands cktothemwithpeersupport.Internetbasedspending
planprogramssuchash ps://www.mint.com,andprogramsoeredbydepositoryins tu onsoergoal
trackingthroughonline/mobilebanking.

Increasingthevalueofmoney
Savedmoneycanincreaseinvaluewhileprovidingforyourfuture.Timevalueofmoneyistheideathatmoney
availableatthepresent me(today)isworthmorethanthesameamountifreceivedinthefuture.Thats
becauseifyouhaveittoday,itcangrowover me.Understandingthiscoreprincipleofpersonalfinancewillhelp
mo vateyoutosaveearlyando en.Thefactorsthataectthesizeofyoursavingsbalanceinthefutureare
me,theinterestrate,andtheamountyousaveeachperiod.
Interestrate
Interestisthepricepaidforusingsomeoneelsesmoney.Theinterestrateisthepercentagerateusedto
calculateinterest.Interestisearned(ifyouarethelender)orpaid(ifyouaretheborrower).Whenyousave
moneyinaninterestearningaccountyouearninterest.Savingstoolsareproductsoeredbydepository
ins tu onsthat,inmostcases,allowyourdepositstoearninterest.
Ifyoudontwithdrawtheinterestearnedfromanaccount,theinteresthasanopportunitytoearnaddi onal
interest.Earninginterestoninterestisknownascompoundinterest.
Graph1isanillustra onofhowhigherinterestratesandcompoundinterest
increasethevalueofsavings.
$1,000Savedfor5YearswithCompoundingInterest

Tomaximizeyourreturn:
Saveatthehighest

interestratepossible!
Saveforaslongas

possible!
Saveasmuchas

possible,aso enas
possible!
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2.4.1.F1

Time
Timeisnecessaryformoneytoincreaseinvalue.Thelongeryousave,themore meyourmoneyhastogrow.Take
FelixandSavannahforexample:
Felix
Felixsparentsbegansaving$50.00permonthfor
Felixscollegeeduca onwhenhewasborn,and
savedun lhewas18.Savannahsparentswaited
un lshewasafreshmaninhighschoolandonly
had4yearstosaveun lsheturned18.Both
accountsearnedthesameinterestrate(6%)and
hadthesamebalancewhenthestudentsturned18
(about$19,500).However,Savannahsparentshad
tosavesignificantlymore($350/month)toreach
thesamesavingsgoal,becausetheystartedlater.

Savedfor:18years
Contributed:$50/month

Savedfor:4years

TotalContribu on:$10,800

Contributed:$350/month

InterestEarned:$8,856

TotalContribu on:$16,800

TotalBalance:$19,656

InterestEarned:$2,676
TotalBalance:$19,426

3%interestfor5years

AmountofMoney
Themoreyousave,thelargerthevalueofyour
savingswillbe.Theprincipalistheoriginalamount
ofmoneysavedorinvested.Table3illustratesthe
dierenceinvaluefordierentamountsof
principalifle togrowat3%interestfor5years.

Yourpresentselfimpactsyour
futureself.Bysavingmoney
todayyouwillhavefinancial
securityinthefuture

Savannah

Principal

ValueofSavings

$100

$115.93

$1,000

$1,159.27

$10,000

$11,592.74

Whatareyouwillingtogiveuptodaytostartsavingforyour
future?

Savingisanessen alcomponentofyour
financialplan.Havingsavingsreducesfuture
financialuncertaintyandnega veemo ons
suchasstressbyhelpingtoensureyouwill
beabletoimmediatelypayforunexpected
expenseswithcash.Anaddedbonusof
savingmoneyistheopportunityforsavings
toincreaseinvalueifsavedinaninterest
earningaccount...Savingmoneywillrequire
thattradeosbemade.Savingmoneyfor
futureconsump onwillalwaysmeansthat
yougiveupthepurchaseofsomethingin
thepresent.Onceacommitmenttosaving
moneyhasbeenmade,savingisbest
accomplishedifyouautoma callypay
yourselffirst.
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