Basics of Savings
What happens when your savings account interest is lower than the inflation rate?
Your "true return" is actually negative. It is like you are losing money.
What does the 50/30/20 rule recommend?
50% - needs
30% - wants
20% - savings
What type of bank account earns the least interest?
Checking accounts -> 0% (usually)
If you graph two lines, the point of intersection of them is the ________________ to the system of equations.
Solution
Kirsten earns $2,500 per month. Using the 50/30/20 rule, how much money should she put into savings?
$500
What does "pay yourself first" mean?
Save a portion of your income when you get paid before you pay bills and spend your paycheck.
What is a barrier to saving money?
high expenses (on needs, like healthcare cost)
overspending (on wants)
high debt
What does IRA stand for and what is it used for?
Individual Retirement Account -> used to save for retirement, has tax advantages.
How can you tell that a system of equations has no solutions?
Parallel lines (same slope)
Algebraically: once you substitute or eliminate the variable, all variables are gone and you're left with non-sense (like 35 = 73)
If Rohan wants to save $5,000. He earns $1,500 per month.
Using the 50/30/20 rule, how long will it take to save $5,000?
About 17 months (or 1 year and 5 months)
Fill in the blank: It is recommended to have ________________ of expenses saved up in case of an emergency.
3 to 6 months
What is a good strategy to reduce impulse spending?
Set savings goals and stick to them
Make a grocery list and stick to it
Unsubscribe from marketing emails
Avoid "gamifying" your shopping experience
Make a budget and stick to it
What is a 529 plan used for?
Saving for education/college expenses.
When should you solve a system by elimination?
When both equations are in standard form or if you end up with fractions via substitution. (this can make the equation harder to solve)
Joe earns $3,000 per month and spends $1,900 per month on needs.
What's the challenge here?
Joe's needs exceed 50% of his income, making it difficult to save.
Why is a traditional savings account not ideal for the long term?
Traditional savings account earn low interest and often have trouble keeping up with inflation. For the long term, your money is better elsewhere.
Save the extra money for an emergency
Order these accounts from lowest to highest interest.
Certificate of deposits, checking, traditional savings, money market
Checking, traditional savings, money market, CD
Convert the following to slope intercept form:
2x + 3y = 7
y = (-2/3)x + (7/3)
IRA and 401(k)
There's more but those are the basics.
What does it mean to live paycheck-to-paycheck?
Living paycheck-to-paycheck means to spend all your income on necessities with little to no money to spare.
Why should you separate your emergency fund from your other accounts?
So you do not accidentally spend your emergency fund. You can also keep track of your emergency fund better and possibly earn interest on it to boot!
Why should you invest for retirement instead of saving in a bank account for retirement?
Investing money will grow your money at a higher rate than a savings account. Especially over a long period of time. (You'll probably work for around 40 years)
Solve:
12x + 9y = 225
x + y = 22
x = 9
y = 13
Your friend's income varies each month.
What suggestions would you give your friend to overcome this challenge?
Create a conservative budget and save more money during their higher income months.