EPF Unit 5


Fixed vs. Variable costs— expenses that are either the same or change every time you pay them, e.g. rent vs. groceries

Savings vs. Investing

  • Savings

    • gradually set aside funds into an account

    • short term goals

    • little to no risk

    • savings or money market account

    • for emergency fund or quick access

  • Investing

    • putting money into financial assets (e.g. stocks, bonds, mutual funds, ETFs)

    • grows wealth over time (long term goals)

    • risk is involved

    • must not have high interest debt and must be comfortable leaving the money untouched

  • Both

    • working towards financial independence, meeting goals, and building wealth


Guidelines for Saving

  • Compound vs. simple interest— whether or not the interest builds on money earned with interest

  • Rule of 72— time it takes to double money at a certain interest rate = 72/rate

  • Personal savings rate

  • How much should I save?

    • know how and when to set aside money

    • think about opportunity cost/trade off

    • 20% of income to retirement, emergency fund, higher education

    • Emergency fund

      • financial safety net

      • at least 3-6 months of living expenses, 5% of income

      • separate account (savings or money market)

      • use for health, repairs, and essential expenses

  • SMART goals (specific, measurable, attainable, relevant, time-bound)


9 Financial Institutions

  1. Central Bank: The national bank that manages a state's currency, money supply, and interest rates. It serves as a bank for the government and commercial banks.

  2. Retail/Commercial Banks: Financial institutions that provide checking and savings accounts, loans, mortgages, and other basic financial services to individuals and businesses.

  3. Internet Banks: Banks that operate primarily online without traditional physical branches, offering services like savings accounts, loans, and investments through digital platforms.

  4. Credit Unions: Non-profit financial cooperatives owned by their members, providing similar services to retail banks but often with lower fees and better interest rates, focusing on serving specific communities or groups.

  5. Savings and Loan Associations: Institutions that primarily focus on accepting savings deposits and making mortgage and other loans, typically aimed at helping individuals purchase homes.

  6. Investment Banks: Financial institutions that assist clients in raising capital by underwriting and issuing securities, provide advisory services for mergers and acquisitions, and facilitate the buying and selling of securities.

  7. Brokerage Firms: Companies that facilitate the buying and selling of financial securities between buyers and sellers, providing services for individual and institutional investors.

  8. Insurance Companies: Institutions that provide risk management in the form of insurance policies, which protect individuals or businesses against various risks in exchange for premium payments.

  9. Mortgage Companies: Specialized financial institutions that provide loans specifically for purchasing real estate or refinancing existing mortgages, often offering various loan products and services related to home finance.


Investing Vehicles

  1. IRA— tax-deferred investments for retirement

  2. Stocks— buy a share of ownership, become a shareholder

  3. Bonds— fixed-income investment, loaning money to government or business

  4. Mutual Fund— pools money to invest in diversified stocks

  5. Rental Property— leasing a rental property

  6. 401k— tax-advantaged retirement account offered by employers


Barriers to Saving— inflation, credit cards, social media, impulse buying, paycheck to paycheck

Debt— snowball vs. avalanche vs. consolidation methods