[MUSIC] Welcome. I'm glad we're going to have this opportunity today to talk about saving money. Many of us have goals and dreams of things that we want to accomplish in our life and often money is required to help us get to those dreams and goals. And saving money is one way that we can facilitate that. So I think this is a great topic and a fun one to talk about because it's about empowering yourself to reach those dreams and goals. You might also be thinking, well, I could put this on credit or I could do these things in a different way. And that's true. But it can be an expensive way to finance a dream or a goal because credit comes with cost, interest cost. So saving up money can help us reach those goals and do it in a cost effective manner. So let's look at what are we going to really be talking about today? We're going to talk about the time value of money because this is a really important concept that's going to help you throughout your life in understanding how to move forward. And we're going to also talk about the advantages of saving while you're young, while time is still on your side. So let's get into this. We've been talking throughout this course about sort of how to reach financial security and the different steps to that. Let's take a look at that real quickly again and review it, you may have already seen a module on budgeting, managing your credit, all these things. Paying your bills on time that are important to reaching healthy finances. We want to keep building that foundation of financial security and so you may also need to be thinking about insurance and protecting yourself against risk. Whether that may be something like car insurance or health insurance. But the next step that most financial planners will talk to you about is emergency savings. Emergency savings is an important component to having a strong foundation to build towards your financial security. So why really though emergency savings, it sounds like a good idea, but why do you need to really think about doing that? Well, lets think about some different scenarios where emergency savings could really help you out. One is with unexpected emergencies, or needs. So it could be something like your car breaks down, and you need your car to get to work and so you have to repair it. It could be medical expenses that come up, that you don't plan for, but they do come up. And sometimes people even need to dip into emergency savings for essential needs, things like food and shelter. It could be that you had a job, but you lose your job, or your hours are reduced. Or maybe you're in transition between jobs. So emergency savings give us that safety net that lets us manage our finances in a healthy way. Even when things happen that we didn't anticipate. So a lot of times, some people talk about emergency savings, they focused on to those negative things like, you dropped your phone in that water and you have to repair it. Those things that we don't really want to happen, but emergency savings can also help you with unexpected opportunities. And unexpected opportunities are things that come along, again that you didn't plan for, but when you have money set aside you can take advantage of them. It might be something like a special trip with friends, could be that a great concert comes into town and you want to take advantage of that, or maybe an opportunity to reach another dream or goal that you hadn't known was going to come up, but when you have that money, you can take advantage of it. We also want to have that foundation of emergency savings, where you can cover those unexpected needs, or opportunities. Then you can start thinking about saving for big goals and big dreams. You want to be able to have that opportunity where you can build up those savings so that you can reach those things that are important to you. One of the things that can really help you in your savings is the fact that we have something called compounding returns that can really help you get more for your money. And this is a really important concept so I want to show you just how this can help you out. So let's take a look and see what would happen if you put $100 into a savings account that was going to give you a return of 5% each year. So you make this deposit of $100 and that's all you're putting in but at the end of the year, you're going to get that 5% return and you going to have earned $5 on it. Then on the next year, again you let all this money all grow for you at 5%, you're going to get $5.25 of return. The third year is going to roll around and again more interest is going to accumulate. Now, you're going to get $5.51. Do you notice that the amount of return that you're getting each year is increasing? And that's because each year you have all this money in your account that you're earning interest on, not just the original $100. The fourth year, you're going to get $5.79 in return. And the fifth year, you're going to be up to $6.08 in return. Wow. This is a lot of money that has accumulated from just your original $100 deposit. Now, you have one $127.63. This is compounding returns, this is an example of the time value of money and it's a very important concept in financial management. So let's look at again, just from a graphical point of view. Here, you're going to again see that this is a chart, this just showing you that $100 investment at 5% interest which has grown for over 30 years. Notice the curve in the graph. This curve is again showing you that compounding return effect, and how it's not a straight line, but you going to have an increasing amount each time. What happens if we look at it from a little bit bigger numbers? So not just $100, but what if we're talking about over time, and more money going in? This graph can help illustrate this concept in another really powerful way I think. Let's assume that at age 22 you decided to put $2,000 into an account each year for 9 years and you're going to earn a 9% return on this. That's not an unrealistic amount given the return on the US stock market over any 30 year time period. So you put in this $2,000, for 9 years, so essentially you're putting in $18,000 off your wages and over time, when you turn 65, you would have over a half a million dollars saved up, 579, $471. That's a lot of money. What if, because now we can see that that return is happening. But what if you waited, and you didn't start investing until you were 31, and then you start putting in that $2,00 each year? If you did that all the way until you were 65, so 35 years. So now you're investing $70,000 of your money instead of 18,000, you will have a nice amount of money that accumulates, but notice that it's less than if you had started while you were young. It's less than a half a million dollars. And while that's still a good amount of money, the difference there is really the time. How much time that money had to grow, and how much time it had to compound the returns. So what we're seeing here is that there's a lot of good reasons to start saving money. One, it can help you with unexpected expenses or opportunities, and two, it can help you start saving for those big goals. And when you start while you're young, you have time on your side and you can let compounding returns work in your benefit. [MUSIC] [SOUND]
