Moneyschool Savings Lesson


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Money School Lesson One: Saving Why should you save? How should you save? How much should you save?


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Education that Matters:

Education that Matters We believe financial education is as important as financial advice. This is why we created "Money School", an interactive program of financial insight and ideas designed to help you learn more about money and markets .

Lesson 1: Saving:

Lesson 1: Saving Saving instead of investing? How to Save? How much should I save?

Why Should I Save Instead of Invest?:

Why Should I Save Instead of Invest? Saving is not investing . When you’re saving you’re putting money in a ‘safe’ place with the goal of NOT losing money. This is very different from investing, which carries the risk of losing some or even all of your money. Saving provides you with a safety net of money you can use in an emergency. When you save money in an FDIC insured bank, up to $250,000 of savings are insured; and savings are available at any time. Investing carries the distinct possibility of loss. And, since you don’t know when an emergency will strike, there’s no guarantee an investment can be sold at a profit when trouble happens. Saving gives you emotional security . Too often, money mistakes happen when you’re under stress. Having an adequate amount in savings gives you the psychological security necessary to avoid making bad money choices. For example, knowing you have adequate savings may give you the confidence to ride out recession rather than selling stocks or selling your home between jobs.

How Should I Save?:

How Should I Save? Where you save can make a big difference. Some savings accounts pay interest, and some interest is better than none. Checking accounts provide too much access, which may prompt you to spend down savings rather than wait for a rainy day, and checking accounts often don’t pay you interest on your deposit. Which means the bank makes money on your money, not you. Also, look for low or no fee options and always compare annual percentage yield (“APY”) Credit Unions and Community Banks are often good bets. A local banker can make a big difference. Often, they know the local market better. And, they may pay better rates on savings accounts and certificates of deposit (“CD”). Savings accounts and CD’s may make sense for your situation. Consider putting a third of your money in a savings account and the remainder in a 3 or 6 month CD. The short term CD’s won’t pay a lot in interest, but will often pay more than the savings account. Some CD’s will have an option for a penalty free withdrawal too. And, since interest rates are more likely to rise than fall from their 2012 lows, rotating your CD every 3 or 6 months may make you more interest than locking up a multiple year CD at today’s low rates.

How Much Should I Save?:

How Much Should I Save? 1 . In order to decide how much money you should have in savings, you’ll need to know how much money you’re spending every month. Take your statements and add up how much money you have spent over the past 12 months and divide that number by 12. This gives you a rough ballpark of your monthly spending. There is debate on the ‘right’ amount to have readily available in savings, but a bare minimum should be one month. Since life’s struggles can often extend longer than one month, having three months may make more sense. If you have more than 3 months in savings, consider keeping the additional money you have in savings in a 3 or 6 month CD. Finally, remember interest earned on savings currently is less than inflation – or how fast prices climb every year. So, if you have significantly more than this already in savings, you may want to speak with your advisor about other options.

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Did you find this lesson helpful? If so, make sure you check in every week for new Money School lessons! Do you want another set of eyes on your investments? Contact Gundalow Advisors, LLC at 603.742.7100 or

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