What are your financial goals? What do you have to do to achieve these goals?
How can you save enough money to reach your goals?
Why save? Because you want something more. Maybe you are planning to make a down payment on a car. Or maybe you want to move into your own place. No matter what your goals are, saving is an important step to achieving them.
- If you work full-time at $5.50 an hour, what is your income for the year?
Use the basic calculator in the Toolbox to determine your annual gross income. Your paycheck deductions (from your gross income) include Federal Income Tax, State Income Tax, Social Security, and Medicare.
- Could you save 50 cents for every hour you work? If you could, how much would you have saved after one year?
- How long would it take to double your savings?
Time Is Money
There's an old saying, "time is money." When it comes to saving and investing, it's usually safe to say that the longer you invest your money the more you'll have when you need it. How is this possible?
In the financial world, this is possible through the "Rule of 72." According to the "Rule of 72," an individual who is saving or investing his/her money can calculate how long it will take to double his/her money by dividing the interest rate into 72.
|Example:||Rule of 72||Savings interest rate:||6%
72 ÷ 6 = 12
Money in a savings account earning 6% interest takes 12 years to double.
| ||Investment interest rate:||12%|
72 ÷ 12 = 6
Money in an investment earning 12% interest takes 6 years to double.
Many savings accounts pay 3% interest. Using the total amount you could save in one year (see Question 2), how long will it take you to double your savings at 3% interest? See for yourself.
Click here for the "Rule of 72" worksheet. Use a calculator to complete it.
For more information on savings, visit the Saving and Investing Options and Saving and Inflation sections of this activity.