Saving Sense
Saving means setting aside money on a regular basis,
preferably every time you receive it. Saving is like planting money.
With time, the money you save will grow.
Although it may not seem important to you now, saving is the best
way to reach your financial goals. It helps you with the following.
- Prepare for big purchases, such as a bike, video game, or a new computer.
- Pay for special activities, such as a concert or a play.
- Pay for college expenses.
- Prepare to be on your own.
To make the most of your money, start saving now. Even if you do not
have a job, you can set aside some of your allowance or gifts of money you
receive. The important thing is to make saving a regular part of your life.
Getting Started
To save, you must spend less money than you have. Saving requires discipline.
Here are some tips for making it a habit.
- Pay yourself first. As soon as you receive money, set aside at
least 10 percent to 15 percent into a savings account before spending any. If you cannot afford this much,
set aside as much as you can afford to save.
- Think of saving as a bill you have to pay.
- Collect loose change. Empty your pockets and wallet at the end of each
day and put the change in a container. Every few months, deposit the
change into your savings account.
Earning Interest
The best part about saving is earning interest. If you have an interest-bearing
savings account, the bank pays you for keeping money there. The more money
you keep in your savings account and the longer you leave it there, the more
money the bank will pay you.
There are two types of interest you can earn.
- Simple interest is calculated only on the amount of money you deposit.
Your money grows slowly.
- Compound interest is calculated on your savings plus the interest
you have already earned. Your money grows more quickly.
Either way, your money is growing all by itself.
The sooner you start saving, the longer your money has to grow. If you add
to your savings balance regularly (once each week, once each month), even in small amounts, your money will
increase much faster.
Self Test #4
- Saving will not be important until I am older.
T or F
- I cannot save until I have a job.
T or F
- Banks pay me to save money with them.
T or F
- Compound interest increases your savings more quickly than simple interest.
T or F
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Managing Your Money
Right now, you probably do not have many expenses.
If you make some bad spending decisions, you will still have a place to live,
food to eat, and clothes to wear. This is a good time to learn how to manage
money. In a few years, the way you take care of your money will matter a
lot, and you will have less room for mistakes.
Managing money is not easy. Many adults end up deeply in debt,
even facing bankruptcy, because they spend more money than they have.
Learning good money management skills now prepares you to succeed on your own later.
Be A Smart Spender
The first step in managing money is knowing where it goes. Add up every dollar
you spend for a month and keep track of what you buy. You may be surprised
how much you spend and on what things.
Next, think about the difference between your needs and your wants.
For example, you need to eat, but do you need to spend money on after-school
trips to the corner coffee shop or dinner at a restaurant? Smart spenders
know that needs and wants are different, and they create a plan for both — called
a budget.
Create A Budget
If you follow it, a budget puts you in control of your money.
It is a tool for knowing where your money comes from (income) and planning
where it goes (saving and spending).
Use the Monthly
Budget Work Sheet to make your own personal budget.
At the beginning of the month, write the amount you plan to
spend in the appropriate column. During the month, record what you actually
spent. Track your spending for a few months. Skip expenses that do not apply to you.
Before You Buy
Before you buy something, ask yourself the following. Is it in my budget?
Do I really need this? Can I borrow it? Can I buy it second-hand or at a discount?
Can I share it, and the cost, with a friend?
Follow Your Budget
Once you create a budget, stick to it. Do not spend on things that are not
included in your plan unless you are willing to substitute another item for it.
If your plan is not working, you can always adjust it. Maybe your estimates were
unrealistic and simply need adjusting. Or, maybe you do not like that the plan
puts limits on your spending. Make sure you know what the problem really is and be honest.
Following a budget is not easy. It shows that you have a set amount of money
and it forces you to make choices about what you will do with that money.
However, following a budget also teaches you to be responsible with your
money so you can get the most out of the dollars you have.
Self Test #5
- Smart spenders know where they spend every dollar.
T or F
- A good rule for saving is "pay yourself last."
T or F
- Following a budget teaches you to control your money.
T or F
- If something you need is on sale, you should go ahead and buy it no matter what.
T or F
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Basic Money Management
Basic Money Management
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