Improving My Quest for Wealth early in 2010

"Spend less than you earn" a timeless statement that has been proven to be the simple way to get rich and attain wealth over time. But thinking of spending less than you earn means controls have to be put in place in order to reduce your spending. Although I did a good job of this in 2009 it proved to require a lot of focus and effort. I prefer to work smart, not hard. An easier way I am going to follow the lesson of spending less than I earn is to save a piece of every dollar I make. Out of all of my income I will take 15% of all income to savings and investments. This 15% does not include the automatic percentage deduction of my pretax work provided investment accounts such as my 401k and HSA. If I can save 15% of my take home income on top of my 401k retirement account and my Health Savings Account I think I will be well on my way to thoughtlessly spending less than I earn. After having saved 15% of what I earn I plan to enjoy the rest on enjoying a couple of beers while going out or buying a new gadget I want.

Why I chose a Roth IRA over a Traditional IRA

The way I see the difference between a Roth IRA and a Traditional IRA is tax free vs. tax deferred. I had to choose if I wanted a tax break now or later or as I see it from now on. I decided against getting a tax deduction on current contributions into a Traditional IRA and saw the long term benefits of a Roth IRA which will provide me with tax free growth inside of my IRA as well as tax savings in the future when I start to withdraw my money in retirement. I would much rather pay known taxes now than to guess what the taxes I would be paying in 30 or more years on my IRA withdraws. I am currently 27 years old and am working on maximizing my IRA this year, if possible, and if not this year 2010 will be the first year I maximize my IRA contributions and I will continue to maximize my contributions for as long as I can. Maximizing any type of IRA contributions over the long term can accrue a vast amount of savings. But the golden opportunity that I see with a Roth IRA is not the amount of savings I can accrue but the tax free growth I can turn my savings into using dividend reinvestment over time.

I am not a financial adviser, this just what I am doing but thus far I am quite happy with my choice. Although in the future I may change my mind. Another idea I have been toying with is the possibility of also opening a Traditional IRA and splitting my maximized yearly IRA contributions between the two. The current tax break of a traditional IRA is nice and if my future tax rate decreases the traditional IRA is the way to go. However, if my future tax rate is the same as it is now or more the Roth is, in my opinion, the best option. I am not willing to gamble on the idea of my taxes being lower in the future because I don't live off of all that much now. I don't see my future retirement income causing a tax bracket reduction by today's standard so I think it is safer to assume that will apply in the future as well, although for all I know maybe all tax rates will be higher for everyone in the future. The Roth IRA is my hedge against unknown increased tax situations in the future. Perhaps using both he traditional and Roth IRA types for my contributions could cover me halfway for whichever situation the future holds, higher taxes or lower taxes. If I choose to implement the dual type of IRA idea I of course will report it.

For my current Roth IRA choice and if I choose to also open a Traditional I use Sharebuilder.com and have been very happy with them for a few years now.

Failure is Always an Option, That is Why Success is so Good.

2009 is coming to an end and it's time to set some real goals for next year. Here is my list my personal finance accomplishments this year (2009) followed by my list of goals I plan to accomplish next year (2010). I have spent 2009 learning to save, paying off debt, and appreciating wealth. I made a lot of changes including the decision that I don't want to be poor living paycheck to paycheck, I want to own the things I have and not pretend like I do, as so many indebted Americans do. In my quest to attain wealth I did the following in 2009.

1. I increased my pretax 401k contributions from 1% to 5% taking advantage of my employers price matching of up to 4% of my contribution on July 1, 2009 at one of my company's two open enrollment periods.

2. I maximized my Health Savings Account pretax contributions taking full advantage of my company's 100% price match on January 1, 2009.

3. Over the course of the year I began to setup automatic savings plans for my Roth IRA, my Investment Account and multiple Online savings accounts. I started with one account at a time and increased how much I put more into savings and investments little by little.

4. I paid off my highest interest credit card as well as another credit card account, and implemented the practice of paying off any balance in full every billing cycle. I still have one last credit card with a balance that I am working on.

5. I made the decision to go back to school and have almost completed my first semester back in six years (Fall 2009). I am also shooting to get my moneys worth out of school as an adult. I have a few weeks left of school and am looking to finish this semester with great success. I am expecting a 4.0 GPA for this semester and I have high hopes to continue my success until I attain my Bachelors. Sacrificing free time and my personal life in order to study more is helping me to spend less because I can no longer go out and spend money regularly.

6. Although it hasn't been fulfilled, I did converse with my boss about a raise, and even though I did not and will not attain this in 2009, I have had very promising discussions with my employer the possibility of it in the future, sad to say it may not be near future, but through my discussions I received acknowledgment of my constant hard work and excellence at my job which at least was very rewarding even without a raise.

Below are my goals for the year 2010.

1. On January 1 my first Open Enrollment for my retirement plan at work I am going to increase my pretax 401k contribution from 5% to 10% of my pretax income taking more advantage of paying myself fist by saving more money before taxes.

2. Based on my 2009 automatic Roth IRA contributions I set up in the middle of the 2009, in 2010, I will Maximize my Roth IRA automatically with my automatic savings plan at Sharebuilder.com.

3. If possible, with any extra money and extra income I plan to maximize my 2009 Roth IRA contributions before the April 15th deadline.

4. I plan to further pursue a pay increase with my employer, especially if the economy starts to turn around. With our current economy my company is currently in a slump and that has a large effect on the freeze of pay increases.

5. At the second Open Enrollment for my retirement plan at work, July 1 2010, I plan to maximize my pretax 401k contributions to my company's max of 15% finally reaching my goal of truly paying myself first.

6. Finally I plan to come up with new ways to reduce my spending and still maintaining a lifestyle I can enjoy. I will continue to practice and develop good habits for saving, investing, and growing wealth.

Through the above goals I plan to increase my net worth, improve my savings and investments, make the most of my retirement accounts, and eliminate my leftover debt.

Automatic Savings Plan

Saving is difficult, paying yourself first is difficult, and spending less than you earn is difficult, however, I have found the easiest way to trick myself into saving more. I simply force myself to have less money available for spending automatically. Through the use of automatic savings plans set up at multiple online savings accounts and even my investment accounts I am able to pay myself first every Friday after I get paid. My direct deposit happens on Thursday so the money is available for my savings plans to take the money from me first thing Friday morning before I even know it's there. By the time I check to see how much money I have in my checking account that money is on its way to a savings account that I do not have immediate access to.

Out of site out of mind. Online savings accounts are great because they keep the money where I can not quickly access it which helps to prevent impulse buying because "there is no cash burning a hole in my pocket". Reducing the amount of money in my checking account immediately means that I don't miss it. It simplifies saving because I don't have to do anything. This forces me to simply learn to live on what is leftover. My current goal is to slowly increase the weekly amounts I put into my online savings accounts via automatic transfers after I have learned to live accordingly on the lesser amounts. Care must be taken not to go overboard reducing the means I live on to much too soon. The changes should be done gradually starting small, the goal is to reduce my means an saving the difference not burden my life. With the knowledge of living on less I will be ready properly handle money should I get a pay raise or a bonus. Instead of just spending the extra money I will easily be able to add it to my savings and never miss it.

It is a dilemma to make more money with poor spending and money habits, I am guilty of that myself. Far to often earning more money means spending more money, but automatic savings plans are a great way to save and to teach yourself that you can live on less. I only wish I learned this lesson earlier in my life.

Saving More With Free Software

I have found that there is quite a bit of money to be saved for my personal computer through free tools and open source software. By using free tools and software such as free anti virus software other free programs you can prevent the need to spend money or recurring costs for your needed protection and abilities on your computer.

After having paid for anti-virus software every year for many years I decided I would much rather save that money. This led to me trying some of the free anti-virus programs. I tried both AVG and Avira but I prefer Avira, it is very light weight and although it displays a pop up advertising its paid version every time it updates it is a very good anti-virus program. I decided to switch to the free Avira instead paying for anti-virus every year. Beyond saving money on anti-virus I have found some other free utilities that can help keep my computer clean and performing at its best. Malwarbytes and Auslogics Disk Defrag can help keep your computer free of malware and spyware and keeping your hard drive defragmented for peak performance.

As for productivity software I have found that for a spreadsheet program or a word processor Open Office is a great free program to replace the cost of Microsfot Office. I have even had success using the online Google Docs. The savings from these isn't much but when added to my savings plan it will add up in the long run. Every extra recurring dollar I save can help add up over the years. Why should I pay for service that I can get for free.

My Health Savings Account May Really Pay Off

Every year it seems that health insurance costs have gone up and my employers health insurance gets just a little worse. At least that is what I thought three years ago when my company switched from standard health insurance to a high deductible insurance plan with an Health Savings Account (HSA) option. At first I didn't see the value and only contributed the minimum amount to my HSA which surprisingly my employer matches 100%. I regret not maxing my HSA from the start just like I regret not doing the same with my 401K, however at the beginning of this year I decided to maximize my HSA and I am glad I did.

A high deductible insurance plan is a health insurance plan with pretty much the same coverage of my previous regular health insurance plans except that it is lower in cost for me and a much much higher deductible that I have to be pay before my health insurance begins its copay coverage. I like to think of it as my insurance doesn't assist until I've paid a specific amount out of pocket first. This is where the Health Savings Account comes in, an HSA is a lot like an IRA with the way it works. You invest into the account which lasts forever so you don't have to use it or loose it like other medical related accounts. Similar to an IRA the HSA has tax benefits, the HSA has to be used for qualified medical expenses or you face penalties and taxes.

Since the beginning of this year when I chose to maximize my HSA contributions which are 100% price matched, I couldn't be happier with how fast my account has grown. It has reached over $4000 in value and climbing quickly. As for my health insurance I can't complain because I am still young and healthy and so far my medical costs are very minimal so long as an emergency doesn't happen, however, if it does I have more than enough cash growing in my HSA to cover my deductible for my insurance.

How I Pay Myself First.

In my quest to constantly improve my money management I have decided to do more than just think about paying myself first but to actually do it. I have come to believe that saving must become a priority and not just an added benefit of leftover money in order to build wealth. Building money and investments requires true dedication and commitment as well as constantly practiced disciplines. Without discipline and dedication spending less than you earn will never work and you will be on your way to constant credit card debt and pretty much end up either going downward financially or not improving at all. I think the problem with most people is they get stuck going no where financially. They save a little bit but the debt they ring up leaves them working hard for nothing, because they never improve. This was me, but not anymore.

Just as I pay bills every month I turned myself in a bill, because I had to be paid. To start with I have opened numerous online interest earning accounts. I have opened an online savings account with Capital One and both an online checking and savings account with ING Direct. And currently due to the the higher interest rates and my drive to pay myself more I am even thinking of opening an online account with Ally. Here is what I do currently with each of my accounts. I decided that my payment to myself should be a weekly bill and not monthly in order to shoot for growth and reduce the impact on myself. Therefore, from each of my online accounts I have set up an automatic savings plan to draft my checking account $10 for each account every single week after my direct deposit clears Friday morning. This may not seem like much and at first it isn't I do plan to increase these values as I become better at money management in the future. By taking the money away first thing I have paid myself first into accounts that I cant locally access, that I have taught myself to forget about building up a small cash nest egg. My goal would be to of course choose the highest interest earning accounts and use multiple accounts for different purposes. I use my ING Direct checking account as my emergency cash fund, and the savings account as possible capital to be used with funding my Sharebuilder.com accounts as they can be linked together for immediate transfers. And lastly my Capital One account is my sole forgotten account that I do not touch for any reason. My goal is to build up every online account I have to a minimum amount of $1000 in each account. Next is to continue paying myself and when I reach say $2000 open up $1000 Online CD's with each of the banks making my money untouchable to myself. As time progresses I hope to establish two CD ladders one at Capital One and the other at ING Direct. I do not expect this plan to get me rich by any means however I do believe that it will teach me the importance of paying myself first and prove to myself that I can do it. By removing the money immediately after I get paid it is as if I never had the money to begin with teaching me to learn to live on less money. As I master living on a reduced income, the goal is to increase the payments to myself until I have reached the lowest possible means reduced pay to live on. In the future I can use the established capital to invest and continue to use my acquired financial skill of paying myself first to earn more for my future.

DRIP Investing - My Decision to Start Investing With Less Than $100

A few years ago I opened a brokerage account with Sharebuilder and started stashing what little money I could into my Sharebuilder money market trying to build up enough money to buy anything in the stock market. The very next year I opened a Roth IRA with Sharebuilder with the intentions of doing the exact same thing. I had been reading about DRIP investing and how it could help gain wealth and that anyone could do it, so I decided I was going to do it. My goal was to automatically send money to my Sharebuilder accounts every week after I got my paycheck in order to save up enough capital to start buying stocks.

How I set up my Drips. First and foremost all DRIP investing is is buying stocks that pay a dividend and reinvesting the dividends paid into back into the stock. Sharebuilder is great, although I am sure there are many other online brokers who do the same, because I can automatically buy a stock and pay only $4 however, when dividends are paid out from the stock I can choose to automatically reinvest them into more stock at no cost. This creates a sort of compounding slow money growing strategy.

My simple plan for both my brokerage account and my Roth IRA to set up a plan that automatically takes a specified amount from my checking account every week after I get paid ($15 into my brokerage and $25 into my Roth IRA), and then to automatically purchase a stock of my choice when my Sharebuilder account reaches $104, because I have to pay a $4 commission I add the $4 so I can buy $100 of a stock at a time. Sharebuilder allows the purchase of partial shares so I buy by the dollar amount not the share amount. This is a painfully slow process but over time it is starting to show that it will eventually pay off, in just over 2 years my investments between the two accounts are currently valued at over $6200 (10-8-2009). If I had just put that money into a savings account or CD it would only have amounted to about $5000. Because it is the stock market and stocks rise and fall in value the returns may not be that high in the short term, but increasing my portfolio with long term solid dividend paying stocks I think is really going to pay off. Due not I started investing in a horrible downed economy, however, that has actually really jump started my ability to buy more with less thus far, a solid start. Next year, 2010, I plan to max my IRA (around $96 a week to hit the current $5000 max). I am no financial adviser nor pro stock trader, however, I do research and find what I think is a good stock or fund to invest in one at a time. I keep buying my single chosen stock until I have built a good amount of shares $100 at a time in my portfolio and then move on to the next choice. For anyone who thinks they can't invest in the stock market because it takes money to make money please get that out of your head. I am slowly revolving purchases and building up a small portfolio with great growth potential from nothing. I started my road to investing with less than $100, although I didn't make my first purchase until I reached $100. As I become better at my own money management I will continue to try and increase the amount I send to my Sharebuilder accounts every week in order to increase my investment amounts and recurrences. Don't let your small amount of capital discourage you, anyone can become an investor, and better themselves easily through self guided education, practice, and strictly following a simple plan.