Chapter 3: Saving Money (Ramsey Classroom)

Saving account

Account on which interest is paid on funds deposited by the account holder because the bank pays you to use your money

dept

Debt is a tool to keep you from becoming wealthy.

Buy a car for cash

If people saved the equivalent of a car payment each month for a year or two (instead of spending it on payments and interest), they could have enough money to buy a car with cash for much cheaper!

Murphey's Law

If something can go wrong, it will.

Outpacing inflation

In order to outpace inflation when investing, your investments need to have a ----higher rate---- of return than the rate of inflation.

Saving vs. Investing

Investing is different in a couple of ways. The first has to do with time. You save money you plan to use in five years or less—for a phone, a car, or even college (if you're planning to go less than five years from now). When you invest, on the other hand, you do it for longer than five years—like 20-30 years or even longer. The second difference is where you put your money. When you save, a simple savings account or money market account at your bank is all you need. But when you invest your money, you need to put it somewhere else.

Jake and Blake

Jack ended up with more money in his investment account by the time he retired because he started earlier at 21 and earned more interest on interest as a result; Blake invested more money but started later at 31 which left him with less compound interest.

Accrued Interest

The amount of interest charged on a debt but not yet collected.

To start investing

The best way to build wealth is to start investing early. You should start investing money once you are out of college, living debt free, and have 3-6 month worth of living expenses saved

large purchases

The first step you should take when you want to make a large purchase is decided the time and amount you need to save.

Rate of return

The interest rate on a savings account determines your rate of return.

Giving, saving, spending

You should budget in this order.

money limitations

You'll have less freedom with your money if you are paying old debts

Inflation

a general increase in prices and fall in the purchasing value of money. A certain amount of money today is worth more than the same amount in the future.

Millionaire

a person whose material wealth is valued at more than a million dollars does not have to make six figures.

Zero percent Interest

although it may start at zero percent interest, they are banking on you making one late payment to revoke the zero percent and start charging you interest, or the zero percent will end in a year and lead to interest in the long run.

Not if...

but when an emergency happens

47% of Americans

have less than $1,000 saved for an emergency

compound interest

interest earned on both the principal amount and any interest already earned.

compound growth

is an average based on an investment's past performance (because investments don't grow at the same rate all the time). This is a millionaire's best friend.

Car payments

is you paying for the car, and also paying the loaner interest. You end up paying more for the car. I you buy the car cash, you can end up with a better end.

If you really want to save money, you've got to . . .

live on less than you make

Emergency fund

Once you have a $500 emergency fund, you should save the money until you have an emergency. You should rely on this money so you do not have to go into debt during an emergency. Is it unexpected necessary, and urgent?

Giving

One of the main reasons we build wealth.

Third Foundation

Pay cash for your car

Emergency, large purchases, wealth building

The main reasons for saving your hard-earned money.

Saving account/money market account

The only place you should keep your emergency fund money is a saving account/money market account.

3-6 months of living expenses

The standard used to determine how much should be held in an emergency fund.

Accounting, Engineers, and Teachers

The top three careers reported among millionaires.

Investing and Time

The two habits that are the most important for building wealth and becoming a millionaire.

Saving Makes Life Easier

While saving money isn't easy at first, it will make your life a lot easier in the future if you make it a habit now.