TheWriter blogs over at The Writer’s Coin on all things personal finance and about the craft of writing.

So the markets are in a tailspin. If you have any money invested in the stock market, you’re probably not very happy right now. With all the panic and commotion going on, what can a regular investor do? If you’ve heard the advice to go out and buy more stocks right now because they’re so much “cheaper” than they were earlier in the year (and even last year), then you already know what to do.

The Roth IRA Debate

At the beginning of the year, there some debate online about how and when to fund a Roth IRA. I wrote about it at the end of June, claiming that dollar-cost averaging was the way to go. That means putting in a portion of the Roth IRA limit ($5,000 this year) throughout the whole year. 

But a lot of people thought that the best option was to fund the whole $5,000 right away. The reason? There were a few, but mainly it was to give their money as much time to compound as possible and to just get it all done right away and not have to think about it the rest of the year.

Well, the markets are WAY off their January numbers and it’s one of those rare times I get to look back at something I wrote earlier in the year and go, “I was right.” I just hope karma doesn’t come back to bite me in the butt.

If you put the whole $5,000 in your Roth back in January and invested in index funds (like the S&P 500), you’d have around $4,100 right now, that’s a loss of around 18%. But the worst part about it is that you can’t buy any stocks right now even though they’re “cheaper”! You’ve reached your limit and lost all flexibility. There is nothing you can do.

On the other hand

If you put $1,000 into the market in January, then in April, and then in July, you’d have around $2,641 left, a drop of only 12%. And you’d have the flexibility to put more money ($2,000) in at these lower prices, which would reduce your losses if the market keeps going down.

I know that we’re talking a few hundred dollars and, in the grand scheme of your retirement it’s not “that much.” But for me, my retirement is a big deal and if I can do a little maneuvering here and there to save me a few hundred bucks, that’s great. That’s another couple hundred dollars I can compound for 30-some years, and now we’re talking some serious money (around $25,000 compounded at 8%). And don’t forget that you’d be buying more stock at a lower price.

For those of you that find it more convenient (and you have $5,000 laying around in January) to contribute the whole amount right away, I won’t argue with you. But for those of you out there that like to squeeze every last penny out of important things like retirement accounts and that have the time to send money to your brokerage four or five times a year, dollar-cost averaging is a no-brainer.

A Marathon

Since it’s a retirement account, I know it doesn’t really matter how much money you have in your Roth today - you care about how much money you’ll have when you retire. It’s a marathon, not a race - so what happens over the course of one year shouldn’t be too important. But if you can do a little bit every year to make your overall returns that much better, isn’t that a good thing?

P.S. What if the market is going up, smarty pants? Well, then this whole argument needs to be re-evaluated. Maybe when the market is actually going up I’ll revisit that side of the coin.

The following guest post is from Ashley of Wide Open Wallet.  Ashley was inspired by my own “Soggy Hotdog Story” posted a couple months ago, which detailed the point of my financial meltdown and subsequent turnaround.  Be sure to visit Ashley’s site, and subscribe to her feed for more great articles like this one!

Hello Frugal Dad readers! First and foremost I would like to thank Frugal Dad for the chance to write a guest post for him. It’s a real opportunity for me. I thought long and hard about what I wanted to say to this large group of new readers. What can I say that will entertain, inform, provoke thought and represent who I am and what my site is about? That’s a pretty tall order for one single post. I’ve decided to write about a time in my life when I wasn’t being true to myself, and as a result I ended up in the worst financial position I’ve ever been in. In just three short years I went from having a good sized savings account to being $3,000 in debt.

I’m a natural born saver. It’s always something that has been important to me. From those first few paper route dollars, to the over time at a call center, I saved. As a result of that by the time I was 22 I had no debt of any kind and had saved up about $15,000. This is when I met my daughter’s father. He is a natural born spender. If it weren’t for getting pregnant our relationship would be nothing more than a distant memory. But I did get pregnant so I tried very hard to make this doomed relationship work. I didn’t stand up for myself. I kept quiet to avoid fights. I agreed to things I knew were wrong. I convinced myself that everything was fine.

The first thing to go was any new savings. He wanted to spend every dollar we made. It was always just one more thing. He didn’t value saving so to him it just seemed like a waste of money. He would argue with me about putting money aside. We just need a new DVD player and then we will save some money. Just one weekend getaway.  Just one more toy. It was never worth the fight, so I would agree. Closing my eyes to what I knew was on the horizon.

But if you live spending every dollar, eventually you need even more. First my ex lost his job. Since he was unwilling to make lifestyle adjustments, I dipped into savings to keep the stress level down. Then we moved, which cost money. Then the car broke down. More money. We moved again. More money. We took the baby to see family out of state. More money. During this whole time I knew we were on a road to destruction, but I pushed it out of my mind. I was lying to myself that this is what was best for my daughter.

Eventually the savings ran out. But the spending didn’t. We needed a new couch. And a new this, and a new that. With my savings account drained I turned to a credit card. Before I realized it the balance was over $3,000.

I couldn’t take it anymore. That’s it! No more! I lost it. We had the fight that had been building up for the past three years. He moved out shortly after. I was a new person. No more relenting. No more thoughtless spending. I was focused only on paying off this debt and rebuilding my savings. I didn’t care about the fights it caused.

We were both happier once we separated. It should have happened long before it did. I know that it’s not ideal for my daughter. But it’s the lesser of two evils. This way we can both be true to ourselves. I don’t know what his financial situation is like, but once I started doing what is right for me my life turned around. I paid off that credit card debt in record time, and started to rebuild my savings. I felt free again.

 
photo by chrisbb

This is a guest post from The Happy Rock @ The Happy Rock, a personal finance blog dedicated to changing our behaviors to change our wealth.  You can subscribe to his feed here.

Most financial plans include some amount of cash savings to help get you through life’s unexpected events.  2 of the first three steps of the Dave Ramsey baby steps revolve around the emergency fund.   I know Frugal Dad has already covered what an emergency fund is, but I want to share what having an emergency fund has meant to me.

First let me share a little bit about my background.  My wife and I followed a slightly modified Dave Ramsey plan as we got rid of $70,000 in 4 years.   We had the initial $1,000 in the bank quickly and luckily never had to use it during our debt elimination.  Building up 3-6 months expenses took what seemed like an eternity, but since that time we have never looked back.

Now that you know relevant history, let’s explore seven things that our $1,000 and fully funded emergency funds ‘bought’ us:

1. Protection - First and foremost a cash savings is designed to be a buffer so that you can avoid debt when bad/unexpected circumstances show up at your door step.  With a cash savings you can avoid using the credit card for things like unexpected car or home repairs.  It can tide you over in the event of a job loss or income shortage.  Frugal Dad just recently shared about the importance of his emergency fund and how it protected them against a few unexpected expenses.  We were lucky, since the only time we had to dip into our emergency fund was when our second adoption happened quicker than we had planned, but we were able to quickly replenish it since we had a hefty cash flow from not having any debt.
2. Success - The idea behind the $1,000 mini-emergency fund that Dave Ramsey recommends is not only to create a little barrier to keep you out of debt, but also to get your positive energy flowing by being successful at saving.  When people realize that they can meet a small goal and be successful they begin to have faith that they can conquer larger goals.   I can also attest that getting a full 6 months expenses in the bank was the point at which I finally felt my finances were a success.
3. Lower Stress - It is amazing how much having protection that will carry you through most of life’s curve balls reduces the amount of energy that you spend thinking about your finances.  Worry starts to melt away and is replaced by a sense of security.
4. Freedom - With 6 months expenses in the bank a whole new realm of possibilities opens up.  You can now consider taking a leap and quitting the job that you hate or by cutting back some hours to pursue a side business or volunteering.  You have the freedom to invest more for the future without sacrificing the present.  Things that were impossible just months or years earlier now seem a lot more feasible after accomplishing a fully funded emergency fund.   Your financial system now frees you to focus your energy on things that are more important than money.
5. Motivation - The motivation is driven by the removal of stress and the reclaimed mental energy.  You can now turn your attention towards goals and opportunities that excite you, rather than being caught up in just making sure your financial house of cards doesn’t crumble.
6. Giving - Instead of feeling like you need to cling to ever dollar, you can begin to loosen your grip on those precious dollar bills.  Instead of clenched fists, you can great life with open hands ready to accept what comes your way and give back to those around you.
7. Passive Income - Finally, 3-4% interest on 6 months expenses isn’t going to help you quite your day job, but there is something quite satisfying about collecting almost $400 a year in passive income that adds another layer of satisfaction to having an emergency fund.

I can honestly attest that having a fully funded emergency fund marked an amazing switch in focus for my life.   I suspect those of us with fully funded emergency funds have had similar experiences. Hopefully those that are just getting started and those that are in the midst of their debt elimination can use this list as inspiration.  It really is as great as it sounds.

This is a guest post from Ron at The Wisdom Journal. He blogs about personal finance, business ideas, and life in general. You can subscribe to his feed here.

photo credit: kellypuffs Going over to Grandma’s house and knowing she had just baked some fresh, homemade chocolate chip cookies is one of the the highlights of childhood. The tantalizing aroma of sweetness and chocolate wafting through the screened door always dominated my mind as I walked up those back porch steps and I couldn’t think of anything else. Couple those warm and gooey cookies with a glass of icy cold milk and I just knew what heaven was going to be like. Even if they weren’t freshly baked, I knew where the cookie jar was, and I knew she would set me down at the kitchen table and watch me devour as many as I could…as quickly as I could. I always knew that the cookies were there until I (or my little brother) ate them, but when the cookie jar was empty, it was empty. There were no credit advances. The beauty of Grandma’s cookie jar was that not only did it satisfy my sweet-tooth, but it taught this simple and effective approach to managing money: The cookie jar was not a bottomless pit. The outgo could NEVER surpass the income. There was no such thing as a cookie credit card. There was no “cookie debt.” Today, we can use the cookie jar as a method of budgeting. Some people use envelopes, but the principle is the same. What goes in is the only thing that comes out! The amount spent can never exceed the amount deposited. To make this system work, you need two elements:

1. A plan for spending (a budget)
2. A system of self-control

The problem in our families today, in our government, and in too many businesses is that we have lost sight of these basic elements — planning and self-control. We believe we are so sophisticated that the basic principles of budgeting and self-control are no longer necessary or even relevant in our daily lives. Deficit spending, at every level, has eroded the plan because financing is always available to go beyond what we planned to spend. Problems only surface when all sources of credit have dried up and a life-style of cookie consumption has been established that’s far beyond our ability to repay.

Credit allows us to live in the short term, as if the cookie jar were bottomless.

When credit is gone, the only available options are so devastating that many people face personal bankruptcy, severely strained marriages, wrecked retirements, and ruined financial lives. Assets must be liquidated, children removed from private schools, houses and cars must be sold, and life-styles must undergo dramatic and difficult adjustments.

What’s the solution? Remember to follow the basics of Grandma’s cookie jar. Never allow your outgo to exceed your income, and plan your cookie eating so that you can stretch the enjoyment over a longer period.

The world is bent on telling you that you can have everything NOW. It’s your job to resist through proper long range planning and a steady focus on your long term plans for financial independence.

Some of you may have noticed a new banner in the top right of the menu advertising “Frugal Dad Forums.”  I’m excited to announce that the forums feature here at Frugal Dad is now up and running!  Over the last few weeks readership has grown at a steady rate, and I’ve had the good fortune of making many new frugal friends.  Since day one I’ve had a goal of creating a community of like-minded people following a frugal lifestyle, and it is my hope that you will join me in the forums to continue that mission.  So click over and register to participate.  Look forward to seeing you there!

A Guest Post from Frugal Dad at Gather Little by Little

I recently wrote a guest post for one of my favorite blogs, Gather Little by Little.  It was posted today so head over there, check it out, and leave a few comments if you enjoyed the article.  Back tomorrow with another entertaining, insightful post here at Frugal Dad.  Well, at least I’ll be back here tomorrow!