Saving Money

• What's the difference between Short-Term versus Long-Term Savings?
• What is time value of money?
• What do I need to know about saving for my child's college education?
• How can I learn more about saving for the future?

Frequently Asked Questions:

1. What's the difference between Short-Term versus Long-Term Savings?

ANS:To achieve financial goals, saving money needs to occur. How much you save, and where you save it, is a matter of how much you'll need and when. A short- term goal, like saving for a special vacation, would be within 6 to 12 months from today. Therefore, you would accumulate your savings in fixed investments where your principal is secure, as you do not have time to wait for a down market to rebound. Saving accounts or money market funds are appropriate savings vehicles for short-term goals. Avoid accounts with charges, fees or penalties for early withdrawal.

A goal, like saving for college or retirement, is considered long term if it is more than five years from today. Because of the time value of money and your ability to be flexible, more aggressive strategies can be employed when saving for long-term goals. The major investment categories (stocks, bonds, and cash) will yield different rates of return while submitting a saver/investor to varying degrees of risk. However, the result is an opportunity for goal achievement in spite of inflation and personal budget constraints. If you can yield an average of 6% instead of 3% on your long term investment, you will need to set aside only $55 a month ($6,600) instead of $65 a month ($7800) to accumulate $10,000 in ten years. Starting now is important. If you delayed this decision and waited five years, you would have to set aside $119 a month @ 6%, or $128 a month @ 3%, to accumulate that same $10,000.

To determine what you can afford to set aside monthly toward a short or long term goal, obtain a copy of Developing A Spending/Savings Plan. For help with increasing savings consider attending Taking Charge of Your Finances or Making Money Work For You offered in each County or request the home study series, Getting A Grip on Your Money.

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2. What is time value of money?

ANS: After you have identified your goals or purposes for saving and investing, calculate the resources, including "time", available for planning. It's important to consider the value of money earning money over time. For example, someone age 22 begins saving $2,000 a year for nine years (until age 30) then stops. A total of $18,000 has been invested. Another person age 22 waits until age 30 to start saving and continues investing $2,000 a year until age 65. Who would you expect would have more money at 65? Because of the time value of money (the $18,000 invested in stocks at 10% would be worth $763,420 at age 65. The $70,000 ($2,000 x 35 yrs) invested in those same stocks (at 10%) would be worth $542,049. You can see the difference it makes to place saving as a priority as soon as you can. Even starting small but starting early, can result in more money for future needs.

Note: Since 1926, according to Ibbotson Associates, the average annual return on stocks has exceeded 10%. The return on bonds has been 5% and on cash reserves less than 4%. Although stocks and bonds offer the potential for higher returns than cash reserves, they also expose you to more risk, particularly in the short term. Note also that these are historical average returns and offer no guarantee of similar future results. For more information about increasing savings and achieving goals consider attending Taking Charge of Your Finances or Making Money Work For You offered in each County.

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3. What do I need to know about saving for my child's college education?

ANS: Like any other goal, saving for college involves research into the cost to attend college, calculating the number of years to save and determining the average rate of expected return on your savings. Costs to attend college can include tuition, books and fees, housing, transportation, etc. Determine if your goal is to cover all costs or some portion of the costs for two years, four years or more. Consider the possibility of your child receiving financial aid and decide whether or not to reduce your goal by this amount?

The number of years to save is the difference between your child's start date and current age. Calculators will assist you in determining the amount to save in order to achieve your goal. Find a balance between cost and rate of return given the number of years before college to determine a savings amount you can afford. Be sure you understand the level of risk you will need to assume to obtain the rate of return you select. For help with increasing savings consider attending Taking Charge of Your Finances or Making Money Work For You offered in each County or request the home study series, Getting A Grip on Your Money. To determine what you can afford, obtain a copy of Developing A Spending/Savings Plan.

There are numerous ways to save and invest for college. Two sites to include in your research are the NH State Treasurer's link to the UNIQUE Program managed by Fidelity and the IRS references to education tax credits.

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4. How can I learn more about saving for the future?

Programs:

• Taking Charge of Your Finances - A four-part workshop series designed for people wanting to achieve financial goals (retirement, vacation, college education, etc) by gaining financial management skills that reduce debt and increase savings. The workshop series covers reducing debt, increasing savings, communicating about finances within your household, understanding your insurance coverage and setting up and following a spend/savings plan. Cost is $20/person or $25/couple. For more information or to register, contact your county Cooperative Extension Office.
  
  
• Getting A Grip On Your Money - GRIP is a seven-part newsletter series mailed to your house on a monthly basis. Newsletter topics cover setting goals, implementing a financial record keeping system, understanding credit and insurance, and developing and following a spending/savings plan. Subscription cost is $8.95. For more information or to subscribe, contact your county Cooperative Extension Office.
  
  
• Making Money Work For You -A five-part workshop series designed for people concerned about their money, just starting out or struggling to make it paycheck to paycheck and are looking to manage debt and begin savings. The workshop series covers goal setting, credit, insurance, stretching resources, spending choices and making a spending and savings plan. Cost is $12/person. For more information or to register, contact your county Cooperative Extension Office.

Publications:

• Advanced Earned Income Credit
• Developing A Spending/Savings Plan
• Getting and Keeping A Checking Account
• Making A Will In New Hampshire
• Making Ends Meet
• Need More Money To Pay Bills? (Earned Income Credit)
• NH Saves – Build Wealth Not Debt
• When Your Income Drops
• Your Valuable Papers

Other Resources:

• CYFERNET - Family Economics
• Financial Security In Later Life
• NH Legal Advice and Referral Center
• Planning A Secure Retirement

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