COURSE

Personal Finance 7086

UNIT: D

Managing and Protecting Resources

ESSENTIAL STANDARD: OBJECTIVE:

8.00 8.01

C3 B2

11% 4%

Apply procedures for managing personal finances. Understand options for saving and investing.

ESSENTIAL QUESTIONS: x How are saving and investing similar, and how are they different? x Why do some people find it so difficult to save and invest? x What rules can help build smart saving and investing habits? x What factors should be considered when selecting saving and investing options? UNPACKED CONTENT Saving and investing Saving Definition x Saving is setting aside present income for future use. x Savings is the portion of income not spent on consumption. To make money available for future needs * To prepare for emergencies * To prepare for major purchases purchases * To achieve financial goals A bonus or side-benefit Usually earns lower rates of interest Money may be withdrawn at any time Usually not volatile; rates are fixed Usually little risk of losing money Investing x Investing is purchasing assets that earn interest over time. x Investments are assets purchased with the goal of increasing income. To make a profit over time * To pay recurring expenses * To prepare for future * To prepare for retirement The main focus Usually earns higher rates of interest Money may not be easily accessible Rate of return and value may change suddenly and significantly Usually more risk, but risks may be necessary to make a profit

Primary purpose Reasons for saving and investing

Interest earnings Return Liquidity Volatility Risk

Reasons individuals may fail to save/invest y Not being able to meet current needs and wants y Not being aware of how much needs to be saved for future goals y Over-relying on credit for emergencies y Over-relying on job security and insurance

7086 Personal Finance

Unit D: Managing and Protecting Resources

Summer 2010 Page 378

OBJECTIVE:

8.01

B2

4%

Understand options for saving and investing.

UNPACKED CONTENT Rules for saving and investing y View saving and investing as a fixed expense y Rule of Saving: Pay yourself first; take a portion of earnings for saving/investing before spending any of your paycheck y 70-20-10 Saving and Investing Rule: For any money earned, spend 70%, save 20%, and invest 10% y Saving and Investing Plan: For those whose values or lifestyle make saving 30% unrealistic, start a saving and investing plan in order to continually save a fixed amount y Rule of 72: Divide 72 by the rate of interest earned on an investment to find the number of years needed to double an amount of money invested Factors to consider when choosing saving and investing options y Liquidity y Minimum deposit/balance y Interest rates/rate of return y Risk factors y Transactions y Security Saving and investing options y Savings accounts y Money market accounts y Certificates of deposit y Savings bonds y Individual retirement accounts (IRAs) y Stocks y Bonds y Mutual funds

7086 Personal Finance

Unit D: Managing and Protecting Resources

Summer 2010 Page 379