In my last post, I outlined the financial progress I made in 2008.  Now it’s time to turn my attention to the brand new year.  While I’m pleased with my financial development over the past year, I am certainly not complacent.  2009 offers a fresh start and a ton of potential, but potential means diddly-squat without taking the initiative to make things happen.

I’ve been busy outlining my objectives to make 2009 my best financial year yet.  Many of them simply build off of practices I’ve already implemented, but they all aim for significant improvements.  Here they are:

1.  Continue building my emergency fund:

Purpose:  To further protect against life’s unfortunate surprises.  Starting from scratch early last year, I achieved my goal of building a $500 emergency fund by year’s end.  For ‘09, I want to bolster this cushion even more.  My next goal is to reach $600 by the end of this upcoming semester, and then to top $1,000 by the end of the year.

2.  Don’t slack off on the savings: 

Purpose:  To maintain momentum and avoid losing progress.  I’ve already witnessed the huge benefits from contributing money consistently to ING, and I can only imagine what the results will be long-term.  My income may be tight this year, and I’ll have to make some short-term sacrifices, but I’m determined to keep funding my ING accounts faithfully.  Posting that publicly helps add motivation.

3.  Minimize borrowing needs for 2009/2010 school year:

Purpose:  Since introducing my goal to pay for next school year without private loans, I’ve amassed a fairly sizable amount to help pay next school year’s bill.  Despite these efforts, I’ve realized that I almost certainly didn’t leave myself enough time to truly make this a feasible goal.  I’m still pursuing it with a full head of steam though, and no matter how close I actually get I’ll be far less dependent on loans next year.

I have until about mid-July before I need to decide how much financial help I’ll need next year, and it is a top priority to save as much as possible before then.  Every dollar saved in my 09/10 account is a dollar that won’t be borrowed, which makes for some pretty strong motivation.  I’ll definitely post updates along the way, as this figures to be one of my top objectives for this year.

4.  Protect and grow my passive income sources:

Purpose:  Because passive income is king.  My two primary sources right now are this blog and a small portion of the dividends I receive. 

I’ve been saying it for a while now, but I really want to put forth more effort into growing this blog.  I normally have a lot on my plate, and while I never neglect to write and tend to my site, my promotion efforts have been largely inadequate.  I feel that my content has grown much, much better in a relatively short period of time, and I’m a big believer that content is by far the most important promotional tool.  However, I don’t expect to break through the plateau I’ve been at for a while now until I implement some new promotional strategies.  Through good old trial and error, I need to find the best methods that maximize returns versus time invested.

As for dividends, I wrote about my basic investing plan in my 2008 recap post.  In a nutshell, I’m not going to be focusing on investing much until my student loans are history.  For now it’s just going to be small, occasional Vanguard index fund purchases as I take advantage of cheaper prices and try to lower my cost-basis.

5.  Further develop my skills as a trader:

Purpose: I still believe completely that Forex and/or futures trading offers me enormous opportunities distinct from those I strive for through saving and conservative investing.  My skills and knowledge-base now compared to early last year is like a night and day comparison.  I successfully sidestepped many of the common traps that unfortunately claim a lot of newbies, and I laid a foundation from which I can build.  A lot of work lies ahead of me, but I’m going to embrace it. 

6.  Seriously consider what I’m going to do after school: 

Purpose:  I don’t want to receive my diploma and promptly move back home without a clue of what to do with my life.  I want to outline some serious possibilities to pursue after my college days are over.  It still seems like a ways off (either spring or winter 2010 most likely), but it’ll sneak up extremely quick.  Hopefully I can use this blog to explore some possibilities and get some good feedback. 

7.  Continue investing in myself:

Purpose:  Because The Benefits of Investing in Yourself are absolutely enormous, and monetary pursuits should always, always come after personal growth.  I’ve got a lot of personal goals in place for 2009, and I’m looking forward to accomplishing a great deal in many areas of my life.

Now it’s time to put the planning into action.  As always, I’ll help keep myself accountable through this blog, providing periodic updates on how objectives unfold.  Here’s to a prosperous and successful 2009 for all of us!  

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Despite the bursting of the credit bubble and the ongoing consequences that continue to rattle our economy, I consider 2008 to have been a successful year for my finances.  On paper, I’m certainly far worse off this year than last.  Thanks to the debt-cleansing that is still unraveling, my assets are worth much less than they used to be.  Couple that with another year’s student loans, and it appears that this year was simply a negative double-whammy.  It was actually anything but.

While macroeconomic events and the price tag of private college are beyond my control, I believe I took the right actions on the variables I can manipulate.  As a result, I believe I’m in a much better financial position now than I ever have been.  The changes I implemented should benefit me immensely for many years to come.  Here’s a few of the biggest financial moves I made in 2008:

1.)  I opened an emergency fund and added to it consistently, surpassing $500 recently:

The result:  I sleep better at night.   That’s pretty dramatic; at my age I don’t have nearly the responsibilities that many people do. I do feel better though knowing that there is a decent chunk of change standing between me and a small financial crisis.  It’s only a start, but it’s a pretty good one. 

Why You Should Set Up an Emergency Fund 

 2.)  I discovered ING’s subaccounts:

The result:  My savings are a gazillion times more defined.  There will be no more looking at a lump-sum savings account and vaguely trying to estimate how much should be allocated to each objective.  Now I can answer that question to the exact penny. I think I would be lost without my plethora of savings accounts (heck, I’d be lost without ING.  They rock my world!).

Just How Cool is ING?

 3.)  I scaled back my investing focus.  My freshmen year, I was kind of oblivious to the student loans I was shouldering.  This year, however, it really sunk in just how much debt I was on track to graduate with.  To counter that outcome, I diverted a lot of the income that would have been used to buy new shares and began making loan payments instead.  I’m still buying occasionally, but I made the decision that debt elimination is a much higher priority.

The result:  I will graduate with A LOT less debt.  Given my meager income, I’m not knocking out a ton of principal yet, but I’m staving off the full effects of compound interest.  I also began saving much more seriously for next school year, with the highly ambitious goal to pay for school without a private loan.

New Financial Goal: No Private Student Loan Next Year!

4.)  I dumbed-down my investing approach.  Rather than throwing darts at individual companies, this year I began buying them all, mainly through Vanguard ETFs. 

The result:  It’s far easier, less stressful, and it gives me much more piece of mind.  Very few people consistently beat the market long-term.  I’m surely not likely to given my current investing skill-set.  In the future I plan on sharpening my Graham/Buffett-style value investing tools and investing a portion of my portfolio with well-researched picks that way, but even then a solid, well-diversified foundation of indexes will anchor my portfolio.  I’m building that foundation now through semi-regular dollar-cost averaging, and it basically runs on autopilot.

As a result of these changes, I believe I’m more positioned to prosper than ever before.  None of us can predict or control many of the variables in our financial lives, but we can always learn and apply different techniques that tip the odds of success in our favor. 

What were some of the changes, if any, you implemented this past year?  Feel free to critique mine or offer any suggestions. 

Now that my 2008 financial reminiscing is complete, it’s time to look ahead to the new year.  Next week I’ll offer a detailed look at my objectives for 2009.  Happy New Year everyone! 

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Every single investor will without a doubt agree that buying low and selling high is preferable to the contrary.  Yet many investors do anything but.  It’s the same story every time; the majority of people buy when stocks are expensive and end up selling in a panic when the party ends.  Why does this pointless pattern emerge time after time?

We should buy stocks like we do cereal.  Let’s say that Cap’n Crunch is on sale for $1 a box.  People will be flocking to load up on the stuff. It’ll sell out within a couple of hours provided people feel it’s actually worth more than $1 a box and think they’re getting a good value.  But if Quaker Oats decides to jack the price up, and it’s now selling for $5 a box, it’ll mostly sit on the shelves unsold.  It’s completely rational to back the truck up when it’s cheap and look for alternatives when it is overpriced.

When it comes to stocks, the collective behavior of investors is anything like the cereal example.  When stocks are soaring and becoming way overinflated, the bandwagon staggers under the weight of so many new people jumping aboard.  This was especially evident during the late 90s.  The markets were extremely overpriced, yet millions of new, inexperienced people were throwing money at anything and everything, especially tech stocks, with a reckless abandon.  You know there’s trouble when little old ladies are opening brokerage accounts and discussing the hot Internet IPOs. 

Compare the technology/Internet bubble with more recent events.  Stocks have fallen sharply as our economy slid into a recession and the financial crisis began to unravel.  What are many ‘investors’ doing right now though?  They’re busy unloading everything they own, cursing their bad fortunes in the markets.  In all likelihood though, many will finish dumping their holdings about the time that the worst of the carnage is over, which is when the bargain hunters take over. 

The true investors (think Buffett), swoop in during times like these and find the oversold stocks that have ridiculously been discarded so heavily.  Now is the time to be picking through the rubble looking for diamonds in the rough, or simply buying the indexes that are far cheaper and safer now than one year ago.  Unfortunately it is a very slim minority that are actually doing this right now, and it is this relatively small group of investors that will succeed long-term.

I think the barrage of information we absorb about the economy and the stock market has a huge effect on the backwards behavior.  The media preys on negativity and does an excellent job of using it to keep the masses hooked on their information.  It’s no wonder that many spooky investors keep their panic buttons close by.  Watching CNBC should carry a warning label that in can be harmful to your financial help. 

The media isn’t much better during bullish times either.  Bubbles are plastered all over the news, especially when all-time highs are being made.  This is when you want to be wary of stocks given their unjustified valuations, but people instead feel they are missing out if they don’t plunk more down.  Huge amounts of investment then pours in near the height of the bubble when many collective minds begin to forget the possibility of a correction. 

I’m not suggesting that it is directly the media’s fault for this reality; people are completely responsible for their own mistakes.  I do think they do more harm than good though.  The wild and volatile swings in the market are fueled by how the news is presented.  Warren Buffett amassed his fortune by being fearful when others are greedy and being greedy when others are fearful.  He, along with all other investors who succeed long term, can read the behavior of the general investing community like a book. 

It’s an unfortunate paradox that most new investors begin their endeavor during bull markets that cause unjustified valuations and optimism.  Millions could be saved from this trap if they would truly accept this paradox, and instead enter with a disciplined plan of attack (dollar-cost averaging is about foolproof).  This is probably wishful thinking though, so in the meantime all we can do is counter the trend.  While many are glued to CNBC listening to the gloom and doom and frantically trying to place sell orders, we will know better.  

Happy Holidays! 

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In the personal finance world, we mostly hear about the traditional way to invest by putting our money to work for us in the market.  We invest because of the potential for long-term growth of our wealth.  This is a means to an end, and it’s a primary way that we work to attain some of the larger goals in our life.  

However, buying securities shouldn’t be the only way that we pursue the things we want for our future.  Financial investing should really only play a small role in the grand scheme of things.  Investing in ourselves is often a far more vital ingredient.

There are countless ways to invest in yourself, and the best part is that most cost very little, if anything, yet yield huge returns.  Here’s a few off the top of my head:

Exercising:  The benefits are widely known; everything from higher energy levels to a lower risk of developing cardiovascular problems.  We all know we should do it, but a relatively small portion of Americans do on a regular basis. Be the minority here and reap huge lifelong benefits. 

Nutrition:  Goes hand in hand with exercising.  It’s pretty counterintuitive to focus on one while neglecting the other.  As bad as this country collectively is about exercise, nutrition is way worse.  Cut back on the crap, spend a little bit more maybe, and your body and mind will thank you.

Learning:  This is completely unlimited.  Whether it’s the principles of Graham-style value investing, how to build a solar water heater, or how to do a Romanian dead-lift, there are a gazillion free or dirt cheap resources to utilize.  I definitely think our education should go far beyond what is taught formally in the classroom; in fact I think self-education is far more important.  One of the quickest ways to fall into a meaningless, dull life is to quit using and stretching your mind.

Networking/Social Expansion: The benefits are widespread here.  You will boost your self-esteem, potentially meet some awesome new people, and open doors for many future opportunities. 

Habits: Either breaking a bad one or implementing a good one.  These will take willpower and hard work, but it’s so worth it.  Exercising is a good example; it’s one thing to work out occasionally, whenever the planets happen to align.  That’s certainly better than nothing.  Making it a habit is much more work though, but it’s necessary to really get long-term results.

Conventional investing gets all the headlines, and many people pursue it with a reckless abandon, sacrificing many areas of their life to chase dollars.  That’s ridiculous. Building wealth is important to me, but it easily takes a back seat to investing in myself.  The dividends from that will far outweigh whatever happens to my money.

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Due to my finals this week, I’m not going to get around to posting a regular post this week.  I had a ten page paper to turn in today for Labor Econ, and I have 4 tests coming up over the next three days.  It’s really funny how frantically the semester comes to an end.

I remember when I got done with my finals first semester last year; I was so burnt out I literally don’ think I used my mind for anything for about a week afterwards.  I’m not to the finish line yet, but this semester shouldn’t end nearly as bad. 

I wish I could go back a year and give my freshman self a huge piece of advice when it comes to studying and getting work done; go to the library!  It took me so long to finally smarten up and realize that the dorm room is not a good place to attempt to be constructive.  There are entirely too many distractions to get anything done in the dorm room (last year it was NCAA Football for Xbox. This year it’s roommates and people across the hall).

 Once I realized the library is million times better for cranking out some serious effort, my productivity shot up many times over.  It’s also helped clarify the homework/serious vs. fun/relaxation times, as its really frustrating to struggle with the decision to play video games or put a lackluster effort into studying.  When you’re sitting alone in your little library cubicle, you know what needs to be done.

So hopefully I make it through the week alive, and if I do I’ll be back next week! 

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