P.Y.F.

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P.Y.F. Participants Guide
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Table of Contents

• Welcome
• Pre-Test
• Pay Yourself First
• Saving for Purchases
• Emergency Savings
• Retirement Savings
• Daily Decisions Matter
• Savings Tips
• How Your Money Grows (Simple and Compound
  Interest)
• The Penny Doubled
• The Rule of 72
• A.P.Y.
• Time is On Your Side
• Savings vs. Investing
• Account Types
• How to Create a Savings Action Plan
• Pay Yourself First Action Plan
• Post-Test
• Glossary

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Welcome

• Welcome to the Pay Yourself First module! Saving
  money is an important part of building your
  financial future. This module will give you some
  tips to help you get started. It will also show
  you how your money can grow when you save and
  give you some important information about saving
  and investment products.
• Objectives
• After completing this module, you will be able
  to
• Explain why it is important to save
• Determine goals for saving money
• Identify savings options
• Determine which savings options will help you
  reach your savings goals
• Recognize which investment options are right for
  you
• Participant Materials
• This Pay Yourself First Participant Guide
  contains
• Information to help you learn the material
• Tools and instructions to help you save
• Checklists and tip sheets
• A glossary of the terms used in this module

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Pre-TestTest your knowledge about financial
services

• Saving is important so that you can
• Have money for emergencies
• Achieve your financial goals
• Manage your money better
• Improve your standard of living
• a and b
• All of the above
• What should you consider when establishing goals
  for saving money? Select all that apply.
• The amount of money you want to save
• Timeframe of when you need to access the money
  saved
• Ways you can cut spending and save
• The annual percentage yield (APY) of different
  savings products
• All of the above
• Which of the following would be considered a need
  rather than a want? Select all that apply.
• Paying rent/mortgage

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Pay Yourself First

• What do you think it means to pay yourself
  first? Paying yourself first means that when
  you get a paycheck, tax refund, cash gift, or
  other money you should put some of that money in
  a savings account before you pay your bills.
• Why would you want to save money, or pay yourself
  first, before paying your bills? There are many
  reasons to pay yourself first. You can save money
  toward goals you have identified, improve your
  standard of living, learn to manage money better,
  and have money for emergencies.
• What are some of the things you might want to
  save money for?
• Unexpected events (e.g., loss of a job, car
  repair, or unexpected medical bills)
• Down payment for a house, a car, or other large
  purchase
• Education
• Retirement
• Vacation

Saving for Purchases
You also might want to save for larger purchases,
like a car or new stove. The easiest way to do
this this is to divide the purchase cost by the
amount of time til purchase.  For example, if you
need 900 for a new refrigerator and you want to
buy the fridge within six months, youll save
150 each month. When it comes to car loans,
consider paying yourself a monthly payment once
the vehicles loan is paid off. If you continue
making the payment to your savings account each
month, you'll have the money you need to handle
repairs and youll be building a down payment for
a new vehicle. In fact, you could purchase a
new car outright it you do this for five years
beyond the payoff.
A truly sustainable budget is one in which
spending is less than income that excess goes
to savings.
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Emergency Savings
According to the Consumer Federation of America,
the average family has approximately 2,000 of
unexpected expenses each year.  Broken down into
a monthly savings that is 166 each month.  The
major role of emergency savings is to protect
against interruptions in income (loss of job or
short term disability).  Average length of
unemployment now exceeds 12 months. Would you
be able to cope? There is a tie between savings
and insurance.  Savings is your first layer of
insurance and is used for smaller unexpected
occurrences. Insurance is for larger risks that
whos potential costs exceed our ability to pay. 
(hospital, car, home, etc.)  One way to protect
your savings is to evaluate the risks in your
life and put protections in place. Typically
its recommended that you save at least three
full months worth of income to protect yourself
from catastrophes. However, even if you cant do
that, there are some real benefits to having as
savings cushion.  Look at these tables, which are
from a Consumer Federation Study in 2008, which
compare families with less than 500 emergency
fund with those who have more than 500.
Financial Benefits Financial Benefits Financial Benefits
Impact lt500 ES gt500 ES
     
Bill payment    
Concern paying monthly bills 70 36
Difficulty paying mtge or rent 42 16
     
Checking management    
Not met mo. minimums past year 18 13
Overdrawn account past year 52 22
     
Credit card management    
Carry a balance 74 62
Pay mo. minimum or somewhat more 51 35
Paid fee in past year 35 26
     
High-cost loans    
Payday 8 3
Car title 7 3
Pawnshop 8 0
Psychological Benefits Psychological Benefits Psychological Benefits
Impact lt500 ES gt500 ES
     
Worried about personal finances in past year   85   69
Worried a lot 53 21
For worriers    
Lose sleep 64 42
Worse health 54 29
Less productive at work 42 23
Many people know they need Savings but dont
know how much they need.  For emergency
savings, start with 500 and work up to 1,000. 
From there work on increasing savings to at
least one months worth of income.
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Retirement Savings

• Saving for retirement is more important than
  ever. Many underestimate the need for retirement
  savings. Estimates provided by Fidelity Investors
  in 2007 show that a healthy 65-yearold man has a
  24 percent chance of living to at least age 90,
  while a healthy 65-year-old woman has a 35
  percent chance of living to age 90. Yet Fidelity
  Research Institutes surveys show that
  pre-retirees believe they need to make their
  retirement savings stretch only until age 83, or
  an 18-year retirement. That means that
  pre-retirees' current estimates ofretirement
  savings requirements are likely to fall short of
  actual needs for one-fourth of men and one-third
  of women.
• To help you determine how much money youll need
  for retirement, visit the Ballpark Estimator at
  www.choosetosave.org.
• Youll also want to take advantage of any
  retirement plans offered through your work or
  contribute to an IRA (Individual Retirement
  Account). As a bonus, the IRS offers a savers
  credit for people who participate in these
  plans.  Low income families can get up to ½ of
  their contribution refunded at tax time.  This
  allows people to take advantage of their employer
  match and still get much of their contribution
  refunded to them.
• All employer matched retirement FREE MONEY, so
  be sure to take advantage if you can. 
• Retirement savings allows you to increase your
  standard of living in retirement over those who
  have only Social Security.  With government
  benefits adjustments, Social Security and
  Medicare may be very different in the future. 
  Even Social Security representatives are telling
  us to establish a financial plan for retirement
  that includes more than just government benefits.
  

Daily Decisions Matter

• Many people spend all of the money they make. You
  may believe you do not have enough money to start
  saving but we usually can find the money to spend
  on those things we want. Youve all tracked your
  spending so you know where your money is going.
  Nows the time to start considering strategies to
  save.
• Our daily decisions can have a huge impact on our
  ability to save. For example, lets say you
  spend 5 every workday on coffee. Thats 125 a
  month and 1,200 a year. Based on average costs
  in Virginia Beach, you could spend that same
  amount of money on
• one months rent
• 354 gallons of gas
• more than three car payments, or more than two
  months of groceries and dining out
• two months of child care

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Savings Tips

• Consider needs versus wants. Think about the
  items you purchase on a regular basis. These add
  up. Where can you save? Do you eat out at
  restaurants a lot? Can you cut back on daily
  expenses (e.g., coffee, candy, soda, or
  cigarettes)? Do you have services you do not
  really need (e.g., cable television)?
• Use direct deposit or automatic transfer to
  savings. When you get paid, put a portion in
  savings through direct deposit or automatic
  transfer. If you have a checking account, you
  may sign up to have money moved into your savings
  account every month. What you do not see you do
  not miss!
• Pay your bills on time. This saves the added
  expense of
• Late fees
• Extra finance charges
• Disconnection fees for utilities (e.g., phone or
  electricity)
• Fees to reestablish connection if your service is
  disconnected
• The cost of eviction
• Repossession
• Put some money into a savings account if you get
  a raise or bonus from your employer.
• Keep making the monthly payments to yourself once
  you have paid off a loan. You can save or invest
  the money for your future goals.
• Save at least part of any cash gift you receive.
• Avoid debt that does not help build long-term
  financial security, including loans for a
  vacation, clothing, and dinners out in
  restaurants. Examples of debt that helps build
  long-term financial security include

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How Your Money Grows

• Making regular payments to yourself, even in
  small amounts, can add up over time. The amount
  your money grows depends on the interest earned
  and the amount of time you leave it in the
  account.
• What you save or invest is called the principal.
  What you earn is called interest.
• Interest is
• The amount of money banks or credit unions pay
  you for keeping money on deposit with them
• Expressed as a percentage
• Calculated based on the amount of money in your
  account
• If you have 1,000 stashed away under your
  mattress for a year, it will still be 1,000 at
  the end of the year, provided that it has not
  been lost or stolen. Your mattress is not paying
  you interest. However, if you maintain a balance
  of 1,000 in a savings account that earns .5
  interest a year, you will have 1,005 (1,000
  5 interest) at the end of the year. Thats
  called simple interest.
• Compounding interest earns you even more. When
  the bank or credit union compounds the interest
  in your account, you earn money on the previously
  paid interest, in addition to the money in your
  account.
• In mathematical terms, you calculate each as
  follows
• Simple principal x interest rate x time
• Compound (principal interest ) x interest
  rate

Lets say you deposit 100 into an account that
earns 7 simple interest. In year one, your
money will earn 7. In year two, another 7 and
so on until after five years, youve earned a
total of 35.With compound interest, your 100
would still earn 7 that first year. But in year
two, you would actually earn 7.49 because the
interest would be calculated on 107 instead of
the original 100. After five years of
compounding interest, youd have earned 40.26.
Compound Interest
Simple Interest
Year Principal Interest Ending Balance
1 100 7 107
2 100 7 114
3 100 7 121
4 100 7 128
5 100 7 135
Total Interest 35
Year Principal Interest Ending Balance
1 100 7 107
2 107 7.49 114.49
3 114.49 8.01 122.50
4 122.50 8.58 131.08
5 131.08 9.18 140.26
Total Interest 40.26
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The Penny Doubled
Which would you want, one penny doubled each day
for a month or 500? Youd want the penny doubled
because its 100 interest. At the end of one
month, youd actually have 5,368,709.12!
Day 1 0.01 Day 11 10.24 Day 21 10,485.76
Day 2 0.02 Day 12 20.48 Day 22 20,971.52
Day 3 0.04 Day 13 40.96 Day 23 41,943.04
Day 4 0.08 Day 14 81.92 Day 24 83,886.08
Day 5 0.16 Day 15 163.84 Day 25 167,772.16
Day 6 0.32 Day 16 327.68 Day 26 335,544.32
Day 7 0.64 Day 17 655.36 Day 27 671,088.64
Day 8 1.28 Day 18 1,310.72 Day 28 1,342,177.28
Day 9 2.56 Day 19 2,621.44 Day 29 2,684,354.56
Day 10 5.12 Day 20 5,242.88 Day 30 5,368,709.12
The Rule of 72

• The Rule of 72 is a formula that lets you
  estimate how long it will take for your savings
  to double in value. This calculation assumes that
  the interest rate remains the same over time.
  Here is how you calculate it
• Divide 72 by the current interest rate to
  estimate the number of years it will take to
  double your initial savings amount.
• You can also estimate the interest rate you would
  need to earn to double your money within a set
  number of years. Here is an example of how this
  works.

50 4 interest 72 4 18 years
500 Double in twelve years 72 12 6
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A.P.Y.

• Another important concept you need to know about
  is APY, or Annual Percentage Yield. It reflects
  the amount of interest you will earn on a yearly
  basis and is expressed as a percentage.
• The APY includes the effect of compounding.
• The more often your money compounds, the higher
  the APY and the more interest you will receive.
• When comparing different accounts, you should
  compare the APYs of the savings products, not the
  interest rates.
• Please note that the interest you earn is
  considered income, and you may have to pay taxes
  on it.

Time is On Your Side

• Time is truly on your side when it comes to
  saving money. Who do you think will have more
  money at retirement?
• A girl invests 3,000 a year for 8 years starting
  at age 19 and then stops investing (total
  24,000)
• A man waits until hes 27 and then invests 3,000
  a year for 34 years (total 102,000)
• When they turn 60, the girl will have 964,129
  and the boy will have 810,073! The boy put in
  78,000 more and ends up with more than 150,000
  less!
• Lets look at it a different way. Most
  economists predict you will need one million
  dollars for retirement. Thats based on an
  annually salary of 55,000, retiring at 65 and
  living until 85. The longer you wait to start
  saving, the more it will take out of pocket.
  Lets look at the chart.
• Of course, these numbers depend on the rate of
  interest
• youre earning, but it gives you some idea of how
  it works.
• The lesson here Save early, save often!

Current Age Need to Save Monthly
25 158
30 263
35 442
40 754
45 1,317
50 2,412
55 4,881
60 12,931
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Savings vs. Investing

• There is a difference between savings and
  investing.
• Savings
• Short term
• Very little risk because the funds are insured
  (FDIC and NCUA)
• Used for emergencies and large purchases, like a
  washer and dryer
• Funds have high liquidity. That means that you
  can easily access your money if you need it.
• Your return (interest earned) will be lower
  because your risk is low.
• Investing
• Medium to long term
• Risk ranged based on the account type not
  insured
• Used for retirement and financial freedom
• Funds have low liquidity because you cannot
  easily access your money
• Your return (interest earned) will be higher
  because your risk is high.

Time Frame Risk Objective Type Liquidity Return
Saving Short Very little Emergencies Large purchases Savings Account Money Market Very Liquid Low Usually safe
Investing Medium to long Low to high Retirement Financial Freedom Mutual Funds Stocks Real Estate Depends Low to high Not a guarantee
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Account Types

• Savings Account
• Pays interest on your balance
• May be required to maintain a minimum balance
• Lower minimum deposit usually required to open
  this type of account.
• Money Market
• Savings account with higher interest rate
  (variable rate)
• Need a certain amount of money to open one
• The more you have in it, the higher the interest
  rate
• Can access your money if you need it
• Certificate of Deposit (CD) / Share Certificate
  (same thing but called differently by banks and
  credit unions)
• Short-term investment with a fixed rate
• Hold your money for a specific period of time
  (usually 6 months to 5 years)
• Money is locked-in so you cant access it without
  paying a penalty
• The longer the term, the higher the interest rate
• Mutual Funds

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How to Create a Savings Action Plan

• You need to consider three decision factors when
  selecting the best savings and investment
  options.
• How much money do you want to accumulate over a
  certain period of time? Once you determine the
  amount you want to accumulate, you may be able to
  use the Rule of 72 to determine the time and
  interest rate needed to double your savings.
  Remember, this formula only works with fixed
  interest rates.
• How long can you leave your money invested? If
  you have some money that you will not need for
  several years, you might consider investment
  options, including stocks, bonds, or mutual
  funds. On the other hand, if you think you will
  need access to the money, it might be best to
  keep it in a savings account.
• How do you feel about risking your money? If you
  are not comfortable with risk and cannot afford
  to lose the money, consider depositing your money
  in an insured financial institution. You will
  need to shop around for the account that best
  meets your needs.

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Pay Yourself First Action Plan

• The top half of the plan gives you space to
  record factors that may affect the steps you take
  to save, and the savings or investment products
  you use to save. The bottom half of the plan
  gives you space to record the actions you plan to
  take now, a month from now, and a year from now
  in order to reach your savings goals.
• Decision Factors
• How much do I want to accumulate over a certain
  period of time?
• _________________________________________________
  __________________________________________________
  __________________________________________________
  __________________________________________________
  __________________________________________________
  _____________________________________________
• How long can I leave my money invested?
• _________________________________________________
  __________________________________________________
  __________________________________________________
  __________________________________________________
  __________________________________________________
  _____________________________________________
• How do I feel about risking my money?
• _________________________________________________
  __________________________________________________
  __________________________________________________
  __________________________________________________
  __________________________________________________
  _____________________________________________
• Action Plan
• What will I do now to save toward my goals?
• _________________________________________________
  __________________________________________________
  __________________________________________________
  __________________________________________________
  __________________________________________________
  _____________________________________________
• What will I do by the end of the month to save
  toward my goals?
• _________________________________________________
  __________________________________________________
  __________________________________________________
  __________________________________________________
  __________________________________________________
  _____________________________________________

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Post-Test

• What is the major difference between saving and
  investing?
• Most savings products are federally insured,
  while investment products are not
• Savings products have a risk of loss and
  investment products do not
• Investment products do not have as high a
  potential for growth as savings products
• Savings and investment products are the same
• You can save money by paying your bills on time
  because you avoid paying
• Late fees
• Extra finance charges
• Disconnection and reconnection fees
• Cost of eviction, repossession, and bill
  collections
• All of the above
• Select all that apply. The Rule of 72 helps you
  determine (select all that apply)
• How long it will take for your savings to double
  in value with a fixed interest rate
• The interest rate you need for your money to
  double within a set time period
• How long it will take for your savings to double
  in value with a variable or adjustable interest
  rate

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Glossary

• Annual Percentage Yield (APY) the amount of
  interest you will earn on a yearly basis and is
  expressed as a percentage
• Bonds A debt instrument issued for a period of
  more than one year with the purpose of raising
  capital by borrowing.
• Certificate of Deposit / Share Certificate A
  certificate stating that the named party has a
  specified sum on deposit, usually for a given
  period of time at a fixed rate of interest. Banks
  issue Certificates of Deposit and redit unions
  issue Share Certificates.
• Compound Interest (principal interest ) x
  interest rate
• Diversification A risk management technique that
  mixes a wide variety of investments within a
  portfolio
• Interest The amount of money banks or credit
  unions pay you for keeping money on deposit with
  them expressed as a percentage
• Individual Retirement Account (IRA) A
  tax-deferred retirement account for an individual
  that permits individuals to set aside money each
  year, with earnings tax-deferred until
  withdrawals begin at age 59 1/2 or later.
• Liquidity The ability of an asset to be
  converted into cash quickly
• Money Market Account A savings account that
  offers the competitive rate of interest in
  exchange for larger-than-normal deposits.
• Mutual Fund An investment program funded by
  shareholders that trades in diversified holdings
  and is professionally managed