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Money Smarts
Chapter 3 Money Smarts: Time Is Money
Does it pay to start saving early? When
you set a savings goal, four values are important: your beginning
investment, how much you add to your investment, your rate
of return, and the amount of time your investment will grow.
A higher starting investment, regular contributions, a higher
rate of return, and a longer investment time all help in achieving
your savings goal. You can reach your savings goal and take
advantage of time by starting a regular savings program at
an early age.
Go to the BusinessWeek Online
Personal
Finance Planning calculators. Scroll down to the Savings
Calculators and click on “How much, at what rate, when?”
Input the following values:
| Starting investment amount |
$1,000 |
| Your savings rate |
6% |
| Amount you need or future value |
$100,000 |
| Invested for: |
20 years and 0 months |
| Amount you contribute |
$100 (Monthly) |
Click on the “get your results”
button and answer the following questions.
- Is your initial investment enough to reach your goal?
If not, how much more will you need to start with?
- Click the INPUTS tab and change the savings amount to
$200 per month. How much will you need to start with now?
- If your expected savings rate increases to 6.5 percent,
how much should you invest now to have $100,000 in 20 years?
- Suppose you want to save $100,000 in 10 years. With a
6.5 percent savings rate and $200 monthly contribution,
how much will you need to start with now?
- What is the difference between the starting amounts needed
for 20 years and for 10 years? What caused this difference?
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