Consumer Ec Unit 5- Savings and Investing

Saving

• Setting aside money for future goals

• Goal is to keep your money safe and available for when you need it

• Smart savers put money aside to ‘pay themselves first’

Investing

• Committing money for the purpose of making a profit over time

• Goal is to make money in the long run

• Investing takes risk

• Savings should lead to investing

Reasons for saving

• Emergency fund- medical bills, broken appliances, job loss, car repair

• Recurring expenses- insurance, gift purchases, large bills

• Major life purchases- buying a house, car, or boat

• Future goals- College, family, travel retirement

Savings Account

• Account at a bank that gives interest

• This type of bank account is FDIC insured

• The interest you earn is based off of Annual Percentage Yield- the higher, the better

Money Market

• Similar to a savings account

• Slightly higher Annual Percentage Yield

• Might need to keep a minimum balance

• FDIC insured

• The interest you earn is based off of Annual Percentage Yield- the higher, the better

CD

• FDIC insured

• Annual Percentage Yield is based on how long you agree to not withdraw the money, and how much you put in there initially

Short-term Goals

• 1 year or less

• Set aside $3,000 for emergencies

• Purchase a new washer/dryer

Mid-term Goals

• 1-5 years

• Pay off my car

• Remodel master bathroom

Long-term Goals

• Pay off home mortgage

• Purchase an RV

APR

Total annual cost of borrowing money, represented as a percentage

APY

Money earned in a savings account

Compound Interest

Earning interest on principal money + interest that was already added on initially

Bonds

Loan you make to a company or government. The receiver has to pay you principal amount + interest

Mutual Funds

You use multiple investments to buy into the same fund.

Index Funds

Type of mutual fund that passively tracks interest; no manager needed