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ACCREDITED |
MAKING YOUR SAVINGS GROW
If Ms. Jones has $130.00 available at the end of the month after all financial
obligations have been met, she must decide what is to be done with the leftover money. She
may save it or spend it. She may save half and spend half. Ideally, Ms. Jones will make
some attempt to save the greater part of her unallocated funds.
SIMPLE SAVINGS
If Ms. Jones saves the entire $130.00, at the end of the year, she will have $1,560.00:
$130.00 x 12 (months) = $1,560.00
This figure represents cash savings. Cash kept at home may be destroyed if there is a
fire, and unless the amount can be documented, the loss may not be covered by insurance. A
much better location would be a safety deposit box at her bank.
SAVINGS PLUS INTEREST
Certainly, a safety deposit box is a good deal more secure than money left at home, but
money left in storage does not grow. If Ms. Jones should choose to place her money into a
Savings Account, she would receive a much greater benefit for her savings. If she places
her funds in an account that pays 3.5% interest (compounded quarterly), Ms. Jones would
have not only the $1,560.00 that she saved but also a profit of $25.27, giving her a total
of $1,585.27.
To figure how this is done, add the amounts of savings for three months (one quarter).
$130.00
$130.00
$130.00
________
$390.00
To determine the total interest earned, multiply the amount saved ($390.00) by the
interest rate (3.5%), and divide the total by 12 (months).
$390.00 x .035 divided by 12 = $1.14.
Now add the initial savings to the earned interest.
$390.00 + $1.14 = $391.14
At the end of the first quarter, Ms. Jones has savings of $391.14. This $391.14 now begins
to accrue interest. If Ms. Jones perseveres in saving $130.00 each month, her savings will
continue to increase. The chart below is a schedule of how her money will grow.
SAVINGS
|
1st Quarter |
2nd Quarter |
3rd Quarter |
4th Quarter |
| Balance Forward |
|
|
|
|
| Month 1 |
$130 |
$130 |
$130 |
$130 |
| Month 2 |
$130 |
$130 |
$130 |
$130 |
| Month 3 |
$130 |
$130 |
$130 |
$130 |
| Total Saved |
$390 |
$781.14 |
$1,175.71 |
$1,573.74 |
| Interest Earned |
$1.14 |
$4.57 |
$8.03 |
$11.83 |
| Total Savings |
$391.14 |
$785.71 |
$1,183.74 |
$1,585.57 |
Should Ms. Jones choose to deposit any excess funds into an investment instrument, the
following charts demonstrate how quickly her money will grow.
Monthly Savings Needed to Reach Goal
5% After-Tax Rate of Return
For instance: If you have a 5% savings account and wanted to accumulate $20,000 in 8 years
for college, you would deposit $169 every month. The deposits combined with the interest
on the whole balance would add up to $20,000 in 8 years.
YEARS |
GOAL |
GOAL |
GOAL |
GOAL |
GOAL |
|
$5,000 |
$10,000 |
$20,000 |
$50,000 |
$100,000 |
Years |
Savings Month |
Savings Month |
Savings Month |
Savings Month |
Savings Month |
| 2 |
$198 |
$395 |
$791 |
$1,977 |
$3,954 |
| 4 |
$94 |
$188 |
$376 |
$939 |
$1,878 |
| 6 |
$59 |
$119 |
$238 |
$594 |
$1,189 |
| 8 |
$42 |
$85 |
$169 |
$423 |
$846 |
| 10 |
$32 |
$64 |
$128 |
$321 |
$641 |
| 20 |
$12 |
$24 |
$48 |
$121 |
$242 |
| 30 |
$6 |
$12 |
$24 |
$60 |
$120 |
|
