Part 2
Saving and Investing
"Do not save what is left after spending,
but spend what is left after saving."
– Warren Buffett
Financial Decisions
1
Debt Spiral
Uncontrolled debt accumulation, leading to high interest payments and financial stress.
2
Wealth Spiral
Wise financial choices, including saving, investing, and managing debt, leading to financial stability and growth.
"It's not having what you want,
it's wanting what you've got."
– Sheryl Crow, "Soak Up the Sun"
"A penny saved is a penny earned." – Benjamin Franklin
Banks as the Intermediary
Saving
  • Setting aside money for the future
  • Risk free return
Investing
  • Buying assets
  • stocks and bonds
  • real estate
  • business
  • Risk adjusted return
Banks
  • Take deposits from savers
  • Give loans to borrowers
  • checking and savings accounts
  • credit cards
  • CDs
“You're thinking of this place all wrong, as if I have the money back in a safe.
The money's not here,”
“Your money's in Joe's house… and a hundred others.
You're lending them the money to build
and then they're going to pay it back to you the best they can.”
Compound Interest: The Power of Time
1
The Magic of Compounding
When your savings earn interest, that interest also earns interest over time. This creates a snowball effect, accelerating your wealth growth.
2
Start Early, Reap Rewards
The earlier you start investing, the longer your money has to compound, leading to significantly larger returns in the long run.
3
Patience and Persistence
Compounding takes time, so be patient and consistent with your investments. Don't let market fluctuations deter you from your long-term goals.
"Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t, pays it." – Albert Einstein
Understanding Investment Returns
Compound Interest
Earning interest on initial amount
Dividends
Payments to shareholders from profits
Capital Gains
Profit from the sale of an asset
APY
Real rate of return, including compounding.
Principles of Long-Term Investing
Diversification
Spread your investments across different asset classes like stocks, bonds, and real estate to mitigate risk.
Risk Management
Understand your risk tolerance and choose investments that align with your comfort level.
Compounding Power
The magic of compounding amplifies your returns over time, making consistent investing crucial for building wealth.
Automatic Savings
Set up regular contributions to your savings accounts to make saving automatic and effortless.
"The best time to plant a tree was 20 years ago. The second best time is now." – Chinese Proverb
Investment Vehicles:
Your Seeds for Growth
Stocks
Shares of ownership in publicly traded companies. High potential returns, but also higher risk.
Bonds
Loans to governments or corporations, offering lower returns but greater stability.
Mutual Funds
Pooled investments managed by professionals, offering diversification and professional management.
ETFs
Similar to mutual funds, but traded on stock exchanges, offering lower costs and flexibility.
Investment Accounts: Planters for Growth
Brokerage
An investment account with stocks, bonds, etc.
(Roth) IRA
A tax-advantaged account for retirement savings
(Roth) 401(k)
Retirement savings plan often with employer matching
HSA/FSA
A tax-advantaged account for medical expenses
Investing Strategies
Diversification
Spread investments to reduce risk
Mutual Funds, ETFs
Asset Allocation
Distribute investments
60/40 Split
Stocks/Bonds
Index Funds
Replicate market performance
Very low fees (Expense Ratio)
SPY QQQ IWM DJI
Dollar Cost Averaging
Same $ each month
Buy more when cheap, less when expensive
"Financial freedom is available to those who learn about it and work for it." – Larry Winget
Managing Risk and Insurance
Risk Less, Keep More
Protecting Yourself: The Power of Insurance
1
Health Insurance
Covers medical expenses and provides peace of mind during unexpected health issues.
2
Life Insurance
Protects your loved ones financially if you pass away, ensuring their financial security.
3
Disability Insurance
Provides income replacement if you become unable to work due to illness or injury.
4
Extended Warranties
Recommended only if <10% of purchase price
Navigating Financial Scams: Staying Safe
Cashback Apps
May encourage impulse buying, leading to debt accumulation and financial strain.
Predatory Lending
Payday loans, title loans, and rent-to-own schemes often target vulnerable borrowers with high interest rates and hidden fees.
Pyramid Schemes
Promises of quick profits by recruiting others, leading to financial loss for many participants.
Gamified Investing
Integrating game-like elements—think achievements, levels, and leaderboards—to make the experience fun and engaging
Phishing/Vishing/Smishing/Whaling
Attackers impersonate trusted sources via email, texts, or websites to trick you into sharing sensitive info.
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