It's important to have savings in your budget to plan for any sudden event down the road or just plan for your future. You don't need to save a lot to be saving money. As long as you put away something every month you will have some savings one day. In this assignment you are going to decide how much of your Net Monthly Income you are going to save every month. First, you need to know the difference between simple and compound interest. Your teacher will show you how to complete the Calculating Savings assignment but the main differences are all listed below to help your understanding.
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InterestMoney that the bank or any other money lender charges you, in addition to what you already owe back for borrowing the money. This is usually a percentage of the total amount. For example, if you borrowed $1000 from the bank and they charged 6% interest on the loan. Depending on the term of the loan, you would pay back $1000 plus 6% of that amount every year you still owed the money.
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Simple Interest
This is one way that interest can be calculated. It is usually a less common way for banks and businesses to calculate but will still appear sometimes. Simple interest is a calculation that is given only on the amount of money that you deposit every year.
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Compound Interest
This is the most common method of calculating savings and loans. This is done by taking the amount of the investment and calculating the interest on that amount. The interest is then added to your investment and the following years the new interest will be calculated on the amount of money in the account. In terms of a loan, the interest amount is calculated and then added onto the total amount owing. Interest is then calculated on the amount you owe including the interest as well.
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Calculating Simple Interest |
Calculating Compound Interest From A Single Investment |
Calculating Compound Interest From An Annual Contribution |
Calculating Compound Interest From A Net Monthly Salary |