MAKING YOUR SAVINGS GROW

If Happi Buyer 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, Happi will make some attempt to save the greatest part of her unallocated funds.

SIMPLE SAVINGS

If Happi saves the entire $130.00, at the end of the year, she will have $1,560.00, figured thusly:

$130.00 x 12 (months) = $1,560.00

This is true, if she chooses to keep the money at home in a place she believes to be secure, perhaps a well hidden cash box or a safe. (Remember that an experienced, determined thief probably knows where to look.) Cash kept at home may also 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. Money left in storage does not grow. If Happi Buyer 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), Happi would have not only the $1,560.00 that she saved but also a profit of $25.27, giving her a total of $1,585.57.

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 ¸ 12 = $1.14.

Now add the initial savings to the earned interest.

$390.00 + $1.14 = $391.14

At the end on the first quarter, Happi has savings of $391.14. This $391.14 now begins to accrue interest. If Happi perseveres in saving $130.00 each month, her savings will continue to increase. The chart on the following page is a schedule of how her money will grow.

SAVINGS

Should Happi Buyer 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

Monthly Savings Needed to Reach Goal

9% 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.