Compound Interest
Interest paid on interest previously earned
Emergency Fund
Five hundred dollars saved to be used ONLY in the event of an emergency.
Interest rate
% paid to a lender for the use of borrowed money or % earned on invested money.
Sinking Fund
Saving money over time for a specific large purchase.
Inflation
The persistant rise in the price of goods and services over a period of time.
Interest- Bearing Account
An account that generates interest income on the available balance in the account.
1st Foundation
Save $500
2nd Foundation
Get out of debt, and stay out of debt
3rd Foundation
Pay cash for a car (sinking fund)
4th foundation
Pay cash for college
5th foundation
Build wealth and give
Negative Savings Rate
Spending more money than you make and going into debt
2 components to saving
Time and rate of return
Time value of money
the idea that $100 today will not buy the same amount as in the future due to inflation and interest.
3 reasons to save
purchases, emergency fund, wealth building
Keys to saving
focus, making it priority and habit, discipline
People who don't save money
often lack focus and discipline, and have no budget
Why emergency fund and spending money should be kept separate
To make sure its only spent for emergencies and not as easy to access and spend it.
the purpose of fully funded emergency fund
Having money for unexpected financial emergencies
Saving should give you this
contentment
Emergency Fund interest
Is not important because an emergency fund is not used to growth wealth
Savings habits
should not be based on income
Americans savings rates
These are usually not high
Emergency fund after school
3-6 months of expenses
Investing
should start this now
Essential elements of wealth building
discipline, time, compound interest
Why you need an emergency fund
Emergencies can happen at any age.
Why emergency fund is the 1st foundation
An emergency fund allows you to have money available for any surprise expenses and can help you avoid debt
Calculate compound interest: $1000 at 6% for 3 years
$1,191.02
Savings rate
Compares after-tax income to the money people spend on a variety of items