Phase+2


 * PHASE 2: SAVE IT, BANK IT

Saving** means a reduction or lessining of expenditure. How can you save money when this world is so expensive? Well there is a technique to saving.
 * **Pay Yourself First**. Once you receive your paycheck, you might firstly pay off all your bills, but do NOT do that. Before paying anyone from your income, you MUST pay yourself. Every time you earn income you must pay yourself. If you think you will not be able to pay yourself first, then if your employer offers an option call payroll savings deduction do take advantage of it. A **payroll savings deduction** is a portion of your earnings that is automatically taken out of your paycheck and put into your savings or retirement account.
 * **Lessen Spendings.** A smaller way to save money is by making an effort to spend less each day. Going to the library instead of purchasing a magazine can save you money and that money will build up.[[image:compounding.jpg width="258" height="678" align="right"]]

How you save is less important than the action of saving. Place these savings in a savings account, where your savings will grow over time. Saving small amounts can grow fast. The earlier you start, the better.

Time is an important factor in growing your savings. **Time value of money** is the increase of an amount as a result of interest or dividends earned. To calculate the time value of your savings, you first need to figure out how much interest you will earn. Compounding interest increases your money fast because you are paid interest on your original deposit an on the previously earned interest. The sooner you begin to make deposits, the more time you will give your money to compound, and the more it will increase.
 * Principal ($ you deposit) X Annual Interest Rate = Interest Earned for 1 yr.
 * Future Value**, the amount your original deposit will be worth in the future based on earning a specific interest rate over a specific period of time, can be calculated by
 * (Principal + Previously Earned Interest) X Annual Interest Rate = Interest Earned for 2 yrs.
 * To calculate for a specific period of time, you would continue using the same above formula by adding the interest

A **bank** is an institution for receiving, lending, exchanging, and safeguarding money. There are three types of financial institutions:
 * 1) Federal Deposit Insurance Corporation
 * Insures each account up to $100,000
 * 1) Deposit-Type Institutions
 * Commercial Banks. A for-profit institution that offers a full range of financial services (checking, savings, & lending)
 * Savings & Loan Associations. Traditionally specialiezed in savings accounts and mortgages loans (checking, loans, investments)
 * Mutual Savings Banks. Specialized in savings account and mortgage loans (higher interest on savings account & lower interest rates on loans)
 * Credit Unions. A non-profit financial institution that is owned by its members and oraganized for their benefit (checking, loans, credit cards, ATMs, & investment)
 * 1) Nondeposit-Type Institutions
 * Life Insurance Companies. Provide fiancial security for dependents (savings, investments, retirement planning)
 * Investment Companies. Invest your money in stocks, bonds, and other securities, then manage the investment
 * Finance Companies. Makes loans to consumers and small businesses (higher rates, financial planning)
 * Mortgage Companies. Specialized in loans for the purchase of homes.

Banks provide many services. One of the services are savings account with different savings plans with there own benefits and drawbacks.
 * **Regular Savings Accounts.** Ideal if you plan to make frequent deposits and withdrawals.
 * Benefits: Low minimum balance, Ease of withdrawal, Insured
 * Drawbacks: Low rate of return
 * **Certificates of Depostit (CD).** A time deposit that requires you to leave your money in a financial institution for a set amount of time.
 * Benefits: Guaranteed rate of return for time of CD, Insured, Low risk investment
 * Drawbacks: Possible penalty for early withdrawal, Minimum deposit
 * **Money Market Accounts.** A savings account in which the interest rate varies month to month.
 * Benefits: Good rate of return, Some check writing, Insured
 * Drawbacks: Minimum balance, No interest & possible service charge if below certain balance
 * **U.S. Savings Bonds**
 * Benefits: Good rate of return, Low minimum deposit, Guaranteed by the government, Free from state & local taxes
 * Drawbacks: Lower rate of when cashed in before bond reaches maturity date

When choosing a savings plan, consider the rate of inflation. **Inflation** is the rise in the level of prices for goods and services. During time of inflation, it takes more money to buy the same amount of goods and services. If the inflation rate is 6% and your rate of return is 3%, you will experience loss in the buying power of your money.