Savings- Will You Make Your Money Grow?
Everybody's money is worth the same wherever they go, but how we choose to earn it, save it, invest it, and spend it certainly isn't! Being smart about your money can have a huge impact on your financial future. One of the first steps you can take on your road to financial success is to open a savings account and add money on a regular basis. Life is full of costly "surprises" that come up all the time, like that $500 car repair you didn't see coming. Your savings can help you deal with these surprises without you having to go into debt.
You may also want to invest your money. The primary difference between savings and investments is the level of risk involved. With savings, you are guaranteed a certain level return which is usually relatively low, while with investments, you can earn more, but there's always the potential you could lose your money. That's why investing usually comes after you've met your savings goals.
Regardless of how you save or invest your money, you must plan for inflation. As you learned earlier, inflation decreases the purchasing power (the amount a dollar will buy) of your money, so your money is worth less over time. This results in things costing more in the future than they do today. Why is that important? Your money will be worth less in the future, so you have to plan your savings and investments accordingly to try and compensate for this.
All of the steps you take now to secure money for your future can help when you start planning for retirement. The earlier you start planning, the more money you will have to enjoy your life in the future. No matter how much you earn, the only way to create wealth is to save some of what you earn; only by saving will you have the money invested and/or in the bank for your future.
Pre-Assessment
How much do you know about saving for the long term? There are many misconceptions when it comes to saving for retirement. Take a moment to complete this brief interactivity, and see if you can correctly distinguish reality from myth. Click the player button to get started.
Key Vocabulary
To view the definitions for these key vocabulary terms, visit the course glossary.
| 401 K | Interest | Return (rate of return) |
| Certificate of Deposit (CD) | Investing | Risk |
| Compound interest | IRA (Individual Retirement Account) | Roth IRA |
| Defined Benefit Plan | Liquidity | Saving |
| Defined Contribution Plan | Money market account | Savings account |
| Interest rate | Pension | Time value of money |