Personal Finance - Saving 3.1

What is a good "rule of thumb" for how much you should save?

20% of Income

How much does Kal Penn recommend you save?

20% of income to savings. Savings includes money in 401k/retirement account through employer, piggy bank/emergency funds, college savings account/529.

What is one strategy you can use to save more easily?

Be a smart shopper when you DO spend

Why does it make sense to start saving or investing right now?

Because the closer a person gets to retirement, the less time money has to grow. The earlier a person starts, the longer the money invested or saved has to grow.

How is this true?

Because the critical component of saving is considering the Opportunity Cost or tradeoffs of making a purchase decision. Remember, money will grow when saved overtime

Saving or Investing

Putting $20 per paycheck into an account to help pay for books during college - Saving Contributing 3% of your paycheck to a 401(k) plan offered through your job - Investing Buying shares of stock in your favorite clothing company - Investing Giving your cousin $5000 to help start his business, in exchange for 5% of his monthly profits - Investing Depositing your annual income tax return into an account until you have enough to buy a car - Saving

Determine whether each action is an example of saving or investing:

Saving - money tucked away in a safe, low-interest account for near-term goals/smaller purchases. Money doesn't grow very fast; could grow slower than the pace of inflation. Investing - the main purpose is for money to grow and is best suitable for long-term goals. Generally, investing allows money to grow faster than inflation.

Name two ways that saving and investing are different.

Saving for short-term goals. Investing for long-term goals. Saving to keep money safe in an account with minimal growth. Investing with greater tolerance for risk and a desire for money to grow over time.

5 Simple Saving Tricks that you are already doing

Set up 4 banks/envelopes/jars Set a savings goal rather than just saving for saving's sake. Cut back on expenses, by tracking expenses (using a Money Diary or mint.com) and determining where you could spend less. Be a smart shopper.