Unit 3 Financial Planning INVESTING Making Money Work

Unit 3 Financial Planning INVESTING: Making Money Work for You

What are we learning today? § Understand the difference between saving and investing. § Understand the time value of money. § Be able to compare investment options. § Understand what a stock is.

Does $ Grow on Trees?

It takes $ to Make Money! § Money grows on other money.

Saving Investing § P. Y. F. - Pay Yourself First § What to do with the money? § Put it under your mattress?

What to do with our money? § Consider Saving or Investing it. § Saving § what people usually do to meet short-term goals. § Investing § means you’re setting your money aside for longer-term goals

Saving § Your money is very safe in a savings account, and it usually earns a small amount of interest. § Easy to get our money when you need it.

Investing § No guarantee that the money you invest will grow. § Normal for investments to rise and fall in value over time. § Long run- investments can earn a lot more than you can usually make in a savings account.

Best reason for Investing § Your money is making money for YOU! § Any gain gets you that much closer to your financial goals. § And you did not have to do anything for it!

Lots of ways to invest $ § Real Estate § Stocks § Bonds § Mutual Funds

Investing in Stocks § What is a stock? also known as an equity or a share is a portion of the ownership of a corporation.

You buy a share of stock § You now OWN part of the company! § Example § You buy 1 share of stock in Mc. Donald’s-you now are a shareholder—you own part of the company § More shares you buy—more ownership you have

Why buy stocks? § TO MAKE MONEY over a longer period of time than putting it in a savings account.

Is a $1 always worth a $1? § Sometimes it is more § Sometimes it is less § Value of Dollar changes dramatically, depending on when you get it and what you do with it.

Time Value of Money § TIME is a critical variable (part) in the exact value of a dollar. § Time Value of Money § Refers to the relationship among time, money, and rate of interest.

Time Value of Money § You have $100 today. § If you keep it in your dresser drawer, will you still have a $100 in a year? § Yes, but $100 in a year may buy less than it would today because of inflation.

Time Value of Money. Inflation § Inflation- rise in the cost of things over time § Inflation decreases the spending / purchasing power of each dollar you have.

Inflation § You buy a candy bar for 50 cents. § A year later, you go to buy the same candy bar and it's 55 cents. § You still have only 50 cents, but the price of the candy bar has gone up.

Inflation § How much does a gallon of milk cost? § $2. 56 in 1996 § $3. 83 Today

Time value of money § Dresser drawer with $100 Versus § Putting it in a savings account that pays 3% a year.

Investing in savings account § How much would we have if we put $ into a savings account at 3% a year, in one year? § Interest = Principal x Interest Rate x Time § ? = $100 x. 03 x 1 year

Time Value of Money § Earned Interest § Payment you receive for allowing a financial institution or corporation to use your money.

Calculating Earned Interest § Formula § Interest = Principal x Interest Rate x time § What if savings account where we put our money was paying 7% instead of 3%How much would our $100 be worth in a year?

Time Value of Money § The three elements § Time § Money § Rate of Interest § Help you reach your financial goals.

Time Value of Money § 1. The more money you have to save or invest, the more money you are likely earn. § 2. The higher the rate of interest you earn, the more money you are likely to have. § 3. The sooner you invest your money, the more time has to make new money. to

Questions?