The importance of savings and investments

Question 1

What does saving mean?

Answer 1

Not spending all of your money, but putting some money aside on a regular basis.

Question 2

What does investing mean?

Answer 2

Using the money that you saved to create wealth.

A person can only invest money if he has extra savings.

Question 3

How does saving and investing work?

Answer 3

• People that earn a lot of money can afford to save money.
• Savings can be invested.
• Investments can earn income.

Question 4

What is simple interest?

Answer 4

• Interest earned on the principal amount only, and not on the interest accrued.
• Three components to calculate simple interest:
  = Principal or the original amount borrowed or invested.
  = Interest rate (in %)
  = Time
• Formula: I = Prt

Question 5

What is compound interest?

Answer 5

• Interest will include interest calculated on interest.
• If you have an investment, it earns interest. This interest is constantly added to your original investment. As the interest is added to your investment, your capital increases, and you will earn interest on a bigger investment.

Question 6

What is the methods of saving and investing?

Answer 6

• Savings accounts.
• Fixed deposits.
• Shares
• Unit trusts
• Property
• Stokvels