I have a Roth IRA that I haven’t touched in about 10 years.  In that time, its value doubled, and now in the past year has gone back to pretty close to the same value as when I opened it.  It is 90% invested in stocks, so it has had a rocky ride these past few months.  And I am okay with that.  It isn’t a huge amount of money, and I know there is a long time from here to when we’d want to use it, because I am only 34.

But going forward, I want to make investing choices that are more tailored to my own risk tolerance, and also are more than just stabs in the dark at what might be a good idea.

I want to start investing more in my IRA, but I know I need to shift it more conservative than it is right now for my own peace of mind.  And, as I mentioned yesterday, I also am opening 529 accounts for my children.  We have a big in-state tax break for investing in our home state’s 529 so we are doing that.  (In the interest of full disclosure, we live in Indiana, which has a 20% tax credit for the first $5000 of 529 contributions each year, a benefit not matched by any other state as far as taxes.)  I’m finding I am even more conservative when it comes to my kids - they have a shorter timeline (15-17 years vs my own 30+) and that makes me pull back, a lot.

As I said, I am a lot less risk tolerant than I thought I was.  I guess in my old age I’m becoming more attached to what I have - or maybe just more crotchety. 

So I opened 529 accounts for my kids last week with a small initial investment just to get them set up.  And then, this week, moved their college funds completely into them ($2500 for my son and $1500 for my daughter).  And I invested it all, wholly and completely, into Vanguard Short Term Bond funds.   Why?  Because I am making a big investment all at once ($4000, for me, is a big investment), and I want to try and make it as safe as possible while still being invested in a 529.  I looked that the funds available in my home state’s 529 plans, and this fund was the one I was most comfortable with as far as risk for a big lump sum invested at once.

Starting in January, we are going to make systematic $25 per month investments in each of the 529 accounts (for 2009 at least) as to take advantage of the concept of dollar-cost averaging.  When I start doing that, I am actually going in the opposite direction, and investing the future contributions into the age-based portfolio.  Because my kids are young (my son is 4 and my daughter 2) the age-based portfolio is about 90% stocks.  Investing small amounts systematically in the age-based portfolio, going forward, gives the portfolio as a whole more risk introduced, but slowly over time.  And will shift the asset allocation of the portfolio a little bit into stocks instead of being completely invested in bonds.  That gives more possibility for reward but also of course, more risk.  But I am comfortable with a small amount of risk.  Just not 90% of the total. 

But the market is crazy, I don’t want to lose the money we’ve saved, and who knows how long the current economic downturn will last.  Which is why I’ve spent the past few weeks trying to figure out my own risk tolerance and understand what I’m most comfortable with doing.  Which has led me to learn about asset allocation and dollar cost averaging, which are my new best friends and how I am going to make my investments mirror my own risk tolerance.  (My risk tolerance, for the record, is lower than I thought it was before I decided to actually figure it out).

Asset allocation, in a nutshell, is the way your assets are invested.  This is a really detailed explanation which is very informative, but for my purposes here, it is what percentage of your assets are invested in particular types of investments.  In a very very broad sense, the higher the percentage of stocks (versus other things like bonds or money market funds or even CDs), the riskier the portfolio.  The more chance for reward, but also the more risk.

Dollar cost averaging is investing a fixed amount on a regular schedule, versus making single large purchases at one time.  Because you are making smaller purchases over a period of time, you have less risk that the market will have a sharp downturn right after you make a single big investment.  This is also a method for mitigating risk.

I have about $4000 between my two children’s college accounts (right now in savings accounts) to open the 529s with.  Tomorrow I’ll go into how the concepts of asset allocation and dollar cost averaging affected what I decided about initial investments in 529s as well as our future ones.  I haven’t pulled the trigger yet, but I did go ahead and open a 529 for each child with a small initial investment, and will be moving their savings accounts fully into the 529s by the end of the month.

And then on Friday I paid off my car loan.  Since it is one of the very few bills I do not pay electronically, I actually wrote out the check at the bank for one thousand one hundred fifty three and 03/100 dollars.  Writing it out on the check in words like that made it somehow even more significant to me.  I have been making payments electronically for similar amounts every month for the past few months to my spouse’s student loan, but somehow physically writing this on the check made it have a little more weight.

As the teller sent me the receipt through the drive through at the bank, she said to me “You’ll receive the title in about ten days” and it dawned on me - the car loan was a debt paid off, but it also meant the car I was sitting in now completely belonged to us.  Another tangible marker of our progress.  And it was a little bit humbling.

I don’t anticipate another quick victory - it has been great to knock off two debts in the span of two months - but my student loan still sits at over $10,000.  But by sometime in 2009, with a little luck and a lot of hard work, we will hopefully be able to say we are non-mortgage debt free.

The numbers, the one-debt numbers, now look like this:

• Debt at start of blog (6/19/07) : $36,451.71
• Current total as of 11/18/08: $10,791.17
• Principal paid to date $25,660.54
• Broken down into:
  • Credit Card: PAID OFF 2/7/08
  • Student loan (at 7%): $10,791.17 (paid $289 this week)
  • Spouse student loan (at 9%): PAID OFF 10/7/08
  • Car loan (at 4%): PAID OFF 11/14/08
• NCN Network Chart:  70.4% paid off (last week, 66.6%)

Also Sallie Mae sent my spouse a nice letter this week congratulating him on paying off his loan.  On to getting one of those letters for me!

Saving money has always been a nebulous area for me.  There are many things one should save for, but few hard and fast numbers I can hold on to.  The starting point is an emergency fund, and with some thought, research, and planning, I can come up with hard and fast numbers to latch onto there.  But I also want to save for retirement.  But I have no real idea how long I’ll live, and how much I’ll need.   I want to save for my kids’ college educations, and I can make some guesses but I’m not sure what i need there, either.  And what about future life changes, like home improvements, new (to us) cars, and other things that come up?

Without hard and fast numbers, I tend to let things drift.  Which is why setting specific goals is so important for success in these areas.  With debt reduction, there have been specific numbers and targets to reach all along the way.  This has been a key element to my success at it thus far.  But with saving, the idea of saving “everything I can” isn’t a good long-term outlook.  I can only live in a position of deprivation for so long before I start to rebel against it.  I have become accustomed (and even enjoy) some of the “deprivations” we’ve created, but life is, after all, meant to be lived.  There needs to be a balance of enjoyment and sacrifice (within one’s means, of course) in any life.  So setting specific savings goals will be key to becoming a successful saver.

So that’s my goal for the next few months.  As I start to see the light at the end of the tunnel on my non-mortgage debt, I’ll start to figure out how to set realistic savings goals, how to make them motivating, and how to reach them.

1.  Set up an automatic paycheck deduction/savings deposit.  You don’t have to start at the top to do this.  Yes, we’ve heard you are supposed to save 10% of your salary but you don’t have to start there.  Set up an automatic deduction out of your paycheck to go into your savings account (or an automatic deposit out of your checking into your savings) for just $25 a month.  Just do it.  You’ll get used to having that money automatically saved for you, and you can build it up to a bigger amount later.

2.  Put one item back at the store, and deposit the savings.  Before you leave the store when shopping, go through your cart and put one item back.  Write down how much that item would have cost, and then when you get home, do an online transfer from your checking account to your savings account for that amount.

3.  Skip your habit once, and deposit the savings.  Do you have a habit that costs you money?  Be it smoking or coffee or eating out or books or anything else, I’m not asking you to give it up for good.  Just for one day.  Refrain from your daily (or weekly) habit one time, and then deposit the savings into your savings account.

4.  Sell one item, and deposit the profits.  If you are like most people, there is at least one item in your house that is underutilized and you could sell for something.  Use craigslist or e-bay or even a note on a bulletin board and sell one item.  Just one.  And deposit the profits made into your savings account.

5.  Make a phone call, record the savings. What services do you have, and what might you be able to pay less for?  From interest rates to insurance payments to calbe TV, look at all of your services, and identify where you might not be getting the best deal.  make a phone call - and when you reduce a payment, deposit the savings.

There’s a recurring theme here, and it is for a reason.  Deposit the savings.  Don’t just save hypothetical money through actions - actively *save* that money concretely somewhere.  And don’t stop with these ideas - this is just the springboard to get your toes wet.  The more you make paying yourself first a habit, the more likely you are to do it.  And the more likely you are to do it, the more times you will follow through and pay yourself first.  Even little payments to yourself can over time add up.  Keep that big picture in mind, and make a payment to yourself today.

As I pull into the parking lot at our local Goodwill store, I find it harder and harder to find a parking space.  And the store itself is more crowded every time I visit.  The cars in the parking lot aren’t all old beaters, either.  There are some pretty nice cars parked next to my old Saturn.

It is becoming hip to be frugal.  Saving money on purchases isn’t just smart shopping, it is the new trend.  I hear conversations about coupons and sales in the most unlikely places.  The souring of the economy, whatever it means long term, has turned into a short term (at least more than passing interest in making dollars (and cents) go further.  As little as six months ago, when I would talk to my friends about deals I’d seen at CVS or Walgreens or the grocery store on everyday items, they’d act intrigued but bemoan the fact that it was too much work.  Now, those same people want me to teach them what I’ve learned so they can try it too.

I wonder how long it will take for just *saving money* to become cool.  Maybe by the time I start building up a cash hoard.   I have decided I am the new trendsetter.  (Okay, maybe not, but it is nice to feel cool for a change.  )

It is almost Wednesday, but on top of all the craziness going on here already, our internet and cable went out last night and was out for most of today.  My son did have fun watching all the technicians in our yard and our neighbor’s yard for several hours figuring out the source of the problem, though.  Now it is fixed and I can get back into the swing of things, I hope.

The holiday today thwarted my plans to be all crazy.  I am thankful to our veterans and happy they have a holiday, I just forgot for a while that meant that banks were closed.  Although it would be better to wait until Friday when I and my spouse get paid, I decided that using my tutoring paycheck from last month (I get paid the 4th business day of the following month) combined with what I’ve saved to snowflake and our discretionary money (basically grocery and gas money) this week, I could just go ahead and pay off the car today.  I would just have to wait until the weekend to grocery shop when we got our paychecks, and be very careful about any random spending.  But then I remembered the bank was closed.  And I came to my senses.  I can wait until Friday.  I don’t need to tempt fate.   I was actually thinking about doing it because I can’t take my daughter inside anywhere but she is happy driving around in the car, so the bank drivethrough would be somewhere to go.  But I ended up waiting around here all day and dealing with the cable repair people, so it didn’t end up mattering.

I’m being impatient, and I know I shouldn’t be.  The last time I was really impatient, with the credit card payoff, my car died when I only had a little over $100 left to pay off.   And it ended up having to wait another month.  So patient I will be.  I will probably end up waiting until Monday to go pay off the car.   That way I can wait until our bank clears both our paychecks and not leave anything up to chance.

I wonder how impatient I’ll feel when I’m down to only the $11000 debt.  On the one hand - it is one debt!  But on the other hand, it feels enormous.  But if all goes according to plan, I think it will be the 8 month or less debt.

But when have things ever gone according to plan…

I am looking forward to life returning to some semblance of normal.  Hopefully sooner rather than later!

But the next morning, the rash was all over her lower body.  I called her pediatrician, and they suggested hydrocortisone cream.   But by Friday morning, the rash had spread even more, and she had a fever as well.  The pediatrician then decided it was a reaction to the MMR vaccination she’d had the week before, and said to treat the fever as needed and it would start to get better in the next day or two.

By yesterday morning, her hands, feet, and face started to swell up.  I rushed her to urgent care, and after they looked at her and then consulted by phone with our pediatrician’s partner, they sent us to see our pediatrician’s partner in his office, on a Sunday no less, and he diagnosed her with a systemic, whole-body allergic reaction.  He gave her steroids, and sent us home with a prescription for steroids for the next two days, plus instructions to dose her with antihistamines every six hours.

At many points Sunday morning and afternoon, I thought we were headed for the hospital.  We may still be.  She’s not out of the woods yet.  Hopefully by the time you read this, the steroids will be doing their work and she will be a lot better.  But this is exactly why we have an emergency fund.  Whatever happens, whatever copays we have to pay (we’ve paid for the urgent care copay and the steroid prescription, but who knows what a Sunday visit to a doctor costs), and whatever happens in the next few days, I didn’t have to think about money.  I could just focus on taking care of my child without the added worry of how we were going to pay for it.

I already ordered mine and will pick it up on the way to work. Lucky for me I drive by no less than 3 Walgreens on my normal to-work route. Hee hee.

On the other hand, there were only certain areas of my particular city I was willing to buy a house in.  If we had shifted 5 miles south of where we are, we could have gotten a very similar house for about 20-30% less than we paid for the one we are in.  We don’t live in the “best” neighborhood in our city, but we certainly do not live in the “worst” either.  I looked at the schools available, the crime rates, the availability of green space, and many other factors to determine our target neighborhoods and then bought a house within one of them.

How do your actions define your priorities?  What do you spend your money on, and what do you go without or spend less on?   What are you saving for, and what percentage do you save?  The things we actually do with or money, versus the things we tell ourselves we should do with our money, is how we define our financial priorities.  Do your financial priorities align with the ones in your head?  Pull apart your budget and find out.  My goal for the next month is to work on my 2009 budget and have it completely reflect our family’s priorities.  I welcome everyone to give it a try.