The Need for a Savings Plan Flashcards
What is saving?
Saving is putting money aside for future use.
Why do people save?
- Emergency Needs
- Short and Long-term Goals
- Security
What is saving for emergencies?
Unexpected events that affect your income or expenses
“Saving for a rainy day”
Examples:
Car Repairs
Hospital Bills
Forgotten Birthday
What is saving for the short-term and long-term?
Planned purchases that require saving money
Short-term Goals (usually within 1 year)
To go camping with your friends on the long weekend
To buy rollerblades for the summer
Long-term Goals (usually longer than 1 year)
To go to university
To buy a car
What is security?
Having money set aside gives you a sense of security and avoids some of the stress associated with money
Example:
Having a “buffer” in your bank account avoids a panic when bills are due!
What are the pros and cons of saving in a piggy bank?
Pros
Easily accessible
No fear of banks losing your money (Y2K)
Cons
Theft?
Looses value over time!!!!
What are the pros and cons of saving in a bank?
Savings accounts are intended for people who do not plan to withdraw money very often and are trying to build a balance.
What are Earnings and Yield?
Interest is the money you receive over for letting the bank loan your money to others (and the money paid on borrowed money)
The rate of return or yield is the interest earned as a percentage of the original investment
Simple interest is calculated as a percentage of the principal only (original balance)
Compound interest is calculated as a percentage of the principal and the interest already earned
What is Safety?
Deposits are protected by the Canada Deposit Insurance Corporation up to a maximum of $100,000 for each financial institution
What is Liquidity?
How fast can your asset be turned into cash? Money can be withdrawn easily and without notice
