Occupational Standard: Basic Account Works Level II

Unit Title Develop and Use a Savings Plan

Unit Code EIS BAW2 09 0812
Unit Descriptor This unit describes the performance
outcomes, skills and knowledge
required to develop and implement a
savings plan to achieve identified
goals, including identifying savings
goals, understanding the role of the
savings plan, the risk/return
relationship and how to determine
appropriate savings vehicles to
maximise savings.

Elements Performance Criteria

1. Discuss the 1.1 The impact of increasingly high
place of saving and cost of living in society is
investing today discussed using examples from the
domestic environment
1.2 Increasing levels of consumer
debt in Ethiopia are discussed with
reference to relevant current issues
1.3 The importance of setting
financial goals and developing a
saving and investment plan at
different stages of an individual's
life is analyzed and discussed
 1.4 Different attitudes to savings and
investment are analyzed and
discussed and the individual's own
spending habits are explored
2. Understand risk 2.1 The concept of risk and risk
as it relates to saving versus return is explained and
and investing demonstrated
2.2 An individual's risk profile is
determined based on current and
future requirements and the
individual's level of risk aversion
2.3 The impact of inflation on the
earnings power of money is
identified, assessed and discussed
3. Develop your 3.1 Personal savings goals are
own savings plan identified and quantified into
dollar amounts and arranged in
order of priority
3.2 A personal budget is developed to
reveal funds available to
contribute towards savings goals
3.3 The range of financial product
options available to maximize
earnings on savings are
investigated and the most
appropriate is selected according
to own requirements
4. Implement your 4.1 The requirements to open an
 own savings plan account and provide evidence of
personal identity are researched
and steps taken to gather the
necessary documentation
4.2 Relevant savings accounts or other
investigated financial products are
opened and the savings plan
implemented and monitored for a
short period of time
4.3 Adjustments to the savings goal
are made where it is realized that
the goal is unattainable

Variable Range
Consumer debt may credit card debt
refer to: mobile telephone debt
mortgages on residential and investment
properties
personal loans to purchase:
 motor vehicles
 travel
 domestic white goods
store credit
student loans including the Higher Education
Contribution Scheme
Financial goals may accumulating a set amount of money by a
include: specified date in the future for the purposes of:
 purchasing assets
  financing holidays, educational
expenses, home renovations and other
known future expenses
 establishing a deposit for an
investment such as a home or
investment property
aiming to repay existing debts and be debt free
establishing a regular savings plan
handling income and expenditure responsibly
and avoiding financial difficulties
Attitudes to savings believe it is essential in order to manage their
and investment differ money and achieve future financial goals
and may encompass lack interest in or the discipline to save and
those who: therefore live from one pay packet to the next
occasionally think about saving but who do not
take active steps to save
Risk refers to: the level of uncertainty associated with a
particular savings or investment product
The concept of risk the higher the risk of the investment, the higher
versus return refers to the expected return
the general truth that: the lower the risk of the investment, the lower
the expected return
Risk profile refers to: the level of risk an individual is comfortable
with when investing the money.
Inflation refers to: the cost of living, indicated by the inflation rate
the percentage change in the Consumer Price
Index which is a quarterly survey of the retail
price of a basket of goods and services
consumed by the general population.
Goals need to be: specific
measurable
achievable
realistic
timely
Product options may basic savings account
include: cash management trusts
fixed term deposits
investments in debentures and secured and
unsecured stock
online bank accounts offering higher rates of
return
Requirements to account keeping fees, ongoing fees and charges
consider when and other non-government fees and charges
selecting a financial additional services offered
product for savings or ease of access to funds
investment may level of risk involved
include: locality of the institution
minimum opening balance required
potential tax implications
rate of interest earned
reputation of the financial institution
term to maturity
The requirements to Kebele/woreda ID cards;
open an account Farmers associations’ ID cards;
include providing Employment and pension ID cards;
personal identification School, college and university ID cards;
from a range of sources Driver’s/operator’s licenses;
which may comprise Tax identification ID card;
but not limited to: Passports;
Work or residence permits; and
Foreign-nationals-of-Ethiopian-origin ID card,
together with a valid passport.
Ethiopian Community ID.

Develop and use savings plan

saving The portion of disposable income not spent on consumption of
consumer goods but accumulated or invested directly in capital
equipment or in paying off a home mortgage, or indirectly through
purchase of securities
Benefits of saving
A savings account is a deposit account held at a bank or another
financial institution where you can deposit a sum of money and get a
modest interest rate. It is an interest-bearing deposit account, which
serves as one of the safest ways to invest your hard-earned money.
A savings account is one of the conservative investment options,
which helps you to store your additional funds safely with the bank. A
savings account does come with a drawback that it gives only limited
interest, but it comes with no risk, which acts as a major benefit in
today’s world as you are earning money with no risk involved.
Savings account differs from checking accounts and is used for serving
different purposes. Checking accounts do not come with any limits on
the number of withdrawals that you can make every month. Checking
accounts helps you in making payments conveniently. On the other
hand, the savings account is beneficial for money that you do not
intend to use for your day to day expenses. So, a savings account acts
as a convenient place to stash extra cash.
As savings account earns you interest on your funds, it is more
financially beneficial for you to put your extra funds in a savings
account than a checking account. Also, a savings account is one of the
most liquid investments, which allows easy access to your money
whenever you need it. So, when you are taking into consideration your
funds, savings account provides a ton of benefits without any risk
involved.
benefits of having a savings account
1. Earn Interest on your Savings
the 1st and foremost benefit of having a savings account is that it earns
interest on your funds deposited. A savings bank account earns and
pays you an interest, which is calculated by multiplying an interest rate
with the amount of money deposited and maintained in your account.
The interest rate also changes from time to time
2. It solves your Purpose
A savings account keeps your deposits separate from your other
money, such as cash in hand, checking accounts or long-term
investments. Making regular deposits and seeing it grow can help
motivate you to save. It is an ideal vehicle to save for a specific
purpose, such as new furniture, a wedding or a vacation. If you want to
save for several different goals, simplify your bookkeeping by opening
multiple accounts.
3. You can easily access your money
you can easily access your money deposited in your savings account in
case of an emergency. You can just withdraw your funds deposited to
cover an unforeseen expense. Most banks and institutions provide their
account holders with an online access to their funds 24 hours a day.
Some institutions may also allow you to link your savings account to
other accounts for quick and hassle-free transfer of funds. Being able
to access your funds when you need is one of the biggest benefits of a
savings account.
4. It keeps your Money Safe
A savings account in any bank or institution under government
insurance helps to keep your money safe. For instance, the Federal
Deposit Insurance Corporation insures banks and the National Credit
Union Share Insurance Fund insures credit unions. This ensures all the
account holders that their money is in the safe hands.
5. No risk involved
as mentioned above as well, a savings account is probably one of the
safest ways to make an investment without any risk involved. The
savings account also provides the facility to put your money into
another investment whenever the opportunity presents. For instance, if
a house in your locality becomes available and you want to buy it as a
rental property, you can use your savings account funds to cover your
down payment and help you to buy the property.
6. Set Automatic Deposits
saving money from your day to day expenses and responsibilities can
be a difficult habit to own. But, savings account comes with another
benefit to solve this. A savings account enables you to set weekly or
monthly automatic deposits from your checking account into your
savings account. This way you do not have to worry about saving
money from the unlimited expenses that you incur.
7. It lets you link to your checking account
many banks and financial institutions nowadays provide this facility to
connect your savings account to your checking accounts, which proves
to be beneficial for most of the account holders. Many people use their
savings account to transfer money to their checking accounts whenever
they are out of funds and their balance is running low. This way, they
can cover shortfalls and avoid incurring overdraft charges and other
fees.
8. Liquidity
one of the primary benefits of savings account is its liquidity.
Withdrawing money from a savings account is as easy as it can be.
The savings account allows an easy access to your deposited money
whenever required. You can withdraw your money as often as you like
using an ATM, bank teller, online banking, etc. But, government
regulation allows you a maximum of 6 electronic transfers per month.
You can opt for an online transfer if you need to withdraw more funds
from your savings account and complete it in minutes online. Savings
account helps to use our funds much easier when compared to taking
money out of stock, bonds, and certificates of deposits, which results
in penalties.
9. Convenience
it is easy to open and start with a savings account. Many banks even
link basic checking and savings packages that offer some fee and
interest advantages. You can also find banks that offer no or low initial
deposit options. These accounts are especially beneficial for a young
person learning to save for the 1st time.
Reason for saving
1. Become Financially Independent
The measuring stick for being rich is different depending on who you
talk to. However, the one thing that the notion of “being rich or
wealthy” means to most people is having financial independence and
savings to depend on. Calling your own shots, financially speaking,
means having the freedom to make choices in your life separate from
earning a pay cheque.
Financial independence isn’t the same as being rich, but not having to
depend on receiving certain pay cheque can sure make you feel rich
beyond your wildest dreams! Having savings that you can rely on is
what it takes to become “rich,” no matter how you define it.
2.Buy a Home

The bank won’t lend you money to buy a house unless you have a
down payment, and you are not allowed to borrow a down payment.
You must have this money saved up or have someone give it to you—
and not lend it to you. Your down payment needs to be at least 5% of
the purchase price of the house, and then the bank will consider
lending you the other 95%. There are all sorts of other costs and fees
that you need to pay when you buy a home, so you will need an
additional 5% just for those costs. Savings is what will open the door
to owing a home.
3. Buy a Car
When you want or need to buy a new car, you will need to have a
down payment in order to get a car loan at a reasonable interest rate.
You could of course “borrow” the money from your credit card, but at
20+%, how is that getting you ahead? Zero percent financing is
reserved for great customers, so a car loan is bound to cost you
something—and it could be a lot. The best thing you can do is save up
as large a down payment as you can afford, and then consider your
options. Maybe buying a quality used car rather than a new one will be
what it takes to get you the vehicle you want.
4. Get Out of Debt
If you ever want to get out of debt, you have to have some money
saved. Sounds ironic, doesn't it? However, the credit cards are never
going to get paid off if you have to keep using them for every
“emergency” that comes along. Even if you are an awesome planner,
stats show that half of us experience at least one totally unexpected
expense each year (and half of those will be unexpected car trouble).

So before you start aggressively paying off your credit cards, you
should save up $500 to $1,000 as a reserve fund. Then when
unexpected things come up, you can pay them out of your reserve fund
rather than put them on your credit cards. Maintaining a “reserve fund”
will also help you to notice if your spending is getting out of hand. 
5. Annual Expenses
If you want to have a good, relatively stress-free financial life, you
need to save for annual expenses. These may include money for gifts,
vacations, vehicle maintenance, minor home repairs, fixing appliances,
property taxes and possibly income tax. It can be tempting to refinance
a mortgage to pay off debt or to use a line of credit to pay off high
interest credit cards, but it is dangerous to endlessly put expenses on
credit without actually paying them off. The best way to manage these
types of expenses is to save for them in advance. This will not only
save you money, but it will give you peace of mind. 
6. Unforeseen Expenses

What will you do if your car needs some major repairs? Do you have
$500 to $3,000 on hand? What if your house needs some repairs, or it
is discovered that you are living in a building that leaks? You can’t
always count on the bank to lend you money for all of these things. It
is much better to anticipate a worst case scenario and have some
money saved.
7. Emergencies
As much as we hope that emergencies won’t happen, we all know that
they do. A family member can develop a health issue, you might need
to make an emergency trip, you may have a car accident or
breakdown, severe weather could flood your basement or crack your
pipes, or you may have to fly to a loved one’s funeral. Any of these
emergencies can be expensive, and we all know that we will likely
encounter some sort of emergency from time to time. So why not be
prepared rather than potentially become another victim of an
emergency
8. You Could Lose Your Job or Get Hurt
In good times, everyone thinks that their job is secure, but in bad times, many
begin to realize that bad things can happen to anyone. You could suddenly
lose your job, your business could dry up, you might get injured—either
physically or psychologically or become too sick to work. Any of these
things can happen to you. Employment Insurance (EI) doesn’t kick in until
you have been unemployed for 6 weeks. Do you have enough savings to tie
you over or will you be living on credit? Living on credit during a time like
this can quickly make a bad situation worse. Minimum payments become
higher and higher until they are unaffordable and credit limits no longer
budge. Then when you finally do get some income, what used to be enough
doesn't get you by because you have all these new debt payments to make
each month. So now you actually need more income than before because
you'll need to pay down these debts and eventually work to get them paid off.

9. to Have a Good Life

There are huge emotional, psychological and physical consequences to

always living stressfully, from hand to mouth, pay cheque to pay
cheque. People who don’t plan for their future seem to run from “crisis” to
“crisis.”

A successful savings plan is

1. Have a goal.
2. Know where you stand.
3. Create a plan.
4. Monitor your spending.
5. Refine your spending habits.
6. Bounce back quickly & learn from mistakes.
7. Leave room for fun & rewards.

Consumer debt
Consumer debt refers to creating debt to buy things that can be
consumed and do not appreciate in value. Consumer debt allows
people to improve their lives or purchase things they need but can’t
pay the full purchase price upfront.
Common examples of consumer debt include credit
cards, mortgages, auto loans and payday loans, provided people use
them primarily for themselves and not primarily for doing business.
For example, a loan for a family car is a consumer debt, even if the
driver sometimes uses the vehicle for business purposes such
as traveling to see clients. If a person has a vehicle that he or she only
uses for business, such as a work truck or a company car, the debt for
either is not a consumer debt.

You went to save and invest for

• A home
 • A car
• An education
• A comfortable retirement
• Your children
• Medical or other emergencies
• Per iods of unemployment
• Caring for parents

What about risk?

Risk is about uncertainty. If you put a framework around that
uncertainty, then you effectively de-risk your project. And that means
you can move much more confidently to achieve your project goals.
By identifying and managing a comprehensive list of project risks,
unpleasant surprises and barriers can be reduced and golden
opportunities discovered. The risk management process also helps to
resolve problems when they occur,

It is often said that the greater the risk, the greater the potential
reward in investing, but taking on unnecessary risk is often avoidable.
Investor’s best protect themselves against risk by spreading their money
among various investments, hoping that if one investment loses money,
the other investments will more than make up for those losses. This
strategy, called diversification,” can be neatly summed up as, “Don’t
put all your eggs in one basket.” Investors also protect themselves from the
r isk of investing all their money at the wrong time.
Types of risk

 Market risk

 Default risk

 Mortality risk

 Inflation risk
Step5 risk management process steps simple and effective risk
management process

1: Identify the Risk. You and your team uncover, recognize and describe

risks that might affect your project or its outcomes. There are a number of
techniques you can use to find project risks. During this step you start to
prepare your Project Risk Register.

Step 2: Analyze the risk. Once risks are identified you determine the
likelihood and consequence of each risk. You develop an understanding of
the nature of the risk and its potential to affect project goals and objectives.
This information is also input to your Project Risk Register.

Step 3: Evaluate or Rank the Risk. You evaluate or rank the risk by

determining the risk magnitude, which is the combination of likelihood and
consequence. You make decisions about whether the risk is acceptable or
whether it is serious enough to warrant treatment. These risk rankings are
also added to your Project Risk Register.

Step 4: Treat the Risk. This is also referred to as Risk Response Planning.

During this step you assess your highest ranked risks and set out a plan to
treat or modify these risks to achieve acceptable risk levels. How can you
minimize the probability of the negative risks as well as enhancing the
opportunities? You create risk mitigation strategies, preventive plans and
contingency plans in this step. And you add the risk treatment measures for
the highest ranking or most serious risks to your Project Risk Register.

Step 5: Monitor and Review the risk. This is the step where you take your
Project Risk Register and use it to monitor, track and review risks.

Risk Response
Risk Response generally includes:

 Avoidance…eliminating a specific threat, usually by

eliminating the cause.
 Mitigation…reducing the expected monetary value of a risk
event by reducing the probability of occurrence.
 Acceptance…accepting the consequences of the risk. This is
often accomplished by developing a contingency plan to execute
should the risk event occur.
 Transfer the risk
Transference is a risk management strategy that isn’t used very
often and tends to be more common in projects where there are
several parties.
 Exploit the risk
Acceptance, avoidance, transference and mitigation are great to
use when the risk has a negative impact on the project. But
what if the risk has a positive impact? For

Develop your own saving plan

Step1
Determine what it is you want to achieve. Creating a list of specific
short and long-term goals can help you form the blueprint for your
savings plan.

Step2

Create a budget to determine how much money you have to put toward
savings each month. Make a list of all the money you have coming in
each month from your job, any investments you own, alimony, child
support or any other source of income. Next, make a list of all the
expenses you pay each month, including fixed costs for your rent or
mortgage, utilities, cable, Internet and variable costs for clothing,
entertainment and transportation. If your expenses are less than your
income, the difference represents your starting point for saving, the
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Step3
Identify what it is you need to do to achieve your savings goals. For
example, one of your goals might be to save $3,000 for a vacation
that's six months away. If you're paid on a biweekly basis, you would
need to set aside $250 a paycheck in order to reach your goal. Creating
a specific action plan detailing what you need to do in order to reach
your goal can help you measure your progress and stay on track.
Step4
Go over your budget to look for expenses that can be reduced or
eliminated. For example, you might consider cutting back on your cell
phone or cable service or dropping your gym membership. It's helpful
to keep track of the money you spend on non-essentials, such as
clothing or entertainment, to look for areas where you can cut back. As
you trim your budget, you free up more money to put toward your
savings goals

If you are spending all your income, and never have money to save or
invest, you’ll need to look for ways to cut back on your expenses.
When you watch where you spend your money, you will be surprised
how small everyday expenses that you can do without add up over a
year.
There are basically two ways to make money.
1. You work for money.
Someone pays you to work for them or you have your own business
2. Your money w o r k s for you.
You take your money and you save or invest it.
Your money can work for you in two ways
Your money ear ns When your money goes to work, it may
earn n a steady paycheck. Someone pays you to use your money
for a period of time. When you get your money back, you get it
back plus “interest.” Or, if you buy stock in a company that pays
“dividends” to shareholders, the company may pay you a portion
of its earnings on a regular basis. Your money can make an
“income,” just like you. You can make more money when you
and your money work.
You b u y something with your money t h a t could i n -
crease in value. You become an owner of something that you
hope increases in value over time. When you need your money
back, you sell it, hoping someone else will pay you more for it. For
instance, you buy a piece of land thinking it will increase in value
as more businesses or people move into your town. You expect to
sell the land in five, ten, or twenty years when someone will buy it
from you for a lot more money than you paid.

Saving
Your “savings” are usually put into the safest places, or products, that
allow you access to your money at any time. Savings products include
savings accounts, checking accounts, and certificates of deposit. Some
deposits in these products may be insured by the Federal Deposit
Insurance Corporation or the National Credit Union Administration. But
there’s a tradeoff for security and ready availability. Your money is paid
a low wage as it works for you.

After paying off credit cards or other high interest debt, most smart
investors put enough money in a savings product to cover an emergency,
like sudden unemployment. Some make sure they have up to six months
of their income in savings so that they know it will absolutely be there
for them when they need it.
But how “safe” is a savings account if you leave all of your money there
for a long time, and the interest it ear ns doesn’t keep up with inflation?
What if you save a dollar when it can buy a loaf of bread? But years
later when you withdraw that dollar plus the interest you earned on it,
it can only buy half a loaf? This is why many people put some of their
money in savings, but look to investing so they can ear n more over long
periods of time, say three years or longer.

Investing

When you “invest,” you have a greater chance of losing your money
than when you “save.” The money you invest in secur ities, mutual
funds, and other similar investments typically is not federally insured. You
could lose your “principal”—the amount you’ve invested. But you also
have the opportunity to ear n more money.

THE BASIC TYPES OF PRODUCTS

Savings accounts Bonds

Certificates of deposit Stocks

Checking accounts Mutual funds

Real estate

Requirement to open an account

For natural persons the following information should be obtained,
where applicable:

 legal name and any other names used (such as maiden name);
 correct permanent address (the full address should be
obtained; a Post Office box number is not sufficient);
 telephone number, fax number, and e-mail address;
 date and place of birth;
 nationality;
 occupation, public position held and/or name of employer;
 an official personal identification number or other unique
identifier contained in an unexpired official document (e.g.
passport, identification card, residence permit, social security
records, driving licence) that bears a photograph of the
customer;
 type of account and nature of the banking relationship;
 Signature.

The bank should verify this information by at least one of the

following methods:

 confirming the date of birth from an official document (e.g.

birth certificate, passport, identity card, social security
records);
 confirming the permanent address (e.g. utility bill, tax
assessment, bank statement, a letter from a public authority);
 contacting the customer by telephone, by letter or by e-mail to
confirm the information supplied after an account has been
opened (e.g. a disconnected phone, returned mail, or incorrect
e-mail address should warrant further investigation);
 Confirming the validity of the official documentation
provided through certification by an authorized person (e.g.
embassy official, notary public).
Small Savings Add Up to Big Mone y
How much does a cup of coffee cost
you?
If you buy a cup of coffee every day for $1.00 (an awfully good price
for a decent cup of coffee, nowadays), that adds up to $365.00 a year.
If you saved that $365.00 for just one year, and put it into a savings
account or investment that earn the end of 30 years, how much to get?