Fabulous Financials

As of today, my savings account has a balance of approximately $36,600.

By saving $200 bi-weekly through payroll allotment, I will automatically save an additional $3,800 by the end of this year.

Including compound interest, which hovers around $45 per month depending on the interest rate, I could potentially earn an additional $360 by the end of this year.

So without lifting a finger, and barring any emergency withdrawals, my savings account balance will be approximately $40,700 by the end of this year.

When I saw that number, I immediately thought myself “hmm…if I can save $40k with practically zero effort, what would I have to do to save $45k – or maybe even $50k – by December?”

And a new goal personal challenge was born.

A few weeks ago, I received a letter from T. Rowe Price because I contributed $5,230 to my Roth IRA for 2008 – an excess contribution of $230.  Bad, bad girl.  But I’m not surprised.  When I received an extra paycheck at the end of 2008 that wasn’t expected until early 2009, I knew there would be a problem because my Roth contributions are made via payroll allotment.  To further complicate matters, I underestimated my earning potential for 2008.  In other words: I am not eligible to contribute the entire $5,000.  It hasn’t yet been determined exactly how much I can contribute, but to rectify the problem, I have one of four options:

Option 1:

Do nothing.  Pay the IRS an annual 6% tax penalty on the excess until I fix the problem.

Option 2:

If the problem is resolved before the tax year deadline (Apr 15), I can request a distribution of the excess contribution (plus earnings), claim the earnings as income AND pay a 10% tax penalty on them as non-qualified distributions.

Option 3:

If the problem is resolved before the tax year deadline, I can request TRP redirect the excess contribution (plus earnings) from 2008 and put it in 2009.

Option 4:

Re-characterize the excess contribution as a Traditional IRA vs. Roth IRA.

I’m considering option #3 and #4, but leaning towards #4.  I want to avoid this same drama next year because the thought of paying Uncle Sam a penalty, for any reason, gives me the heebeejeebies.

As a result of this annoying mistake, I will not contribute to my 2009 Roth IRA until April 2010.  I will, however, continue to save the money in a savings account until I know if (and how much) I’m eligible to contribute for 2009.

I am not a tax professional.  If you have inadvertently overpaid your Roth, please research the IRS website (Publication 590) or consult a tax professional for advice about the best solution for you.

I was paid this week and expect another on or before the 1st.  Therefore, I can postpone my rent until next pay day and consider this entire paycheck free game.  How ’bout that!  But what in the world would I do with it all?  Hmm…let’s see.

• I could buy more Christmas gifts.
• I could spend another birthday weekend at the Ritz.
• I could stash some cash and go nuts at the end of my shopping strike.
• I could plan a last minute holiday vacation.

Yes, I could do all of those things, but you know me better than that.  Right?  Right!  When I’m on a mission, my focus is more keen than a military sniper.  So instead of wasting an entire paycheck, I decided to give my e-fund some love:

Goal: $25,000

Previous Balance: $22,695

Recent Deposits: +$1,900

• Monthly Interest: $0
• Direct Deposit: $100
• Manual Deposit: $1,800

New Balance: $24,595

Additional Savings Needed: $405

Only $405 more to go.  Woo-wee!

The rest of my paycheck went towards end of month bills.  With online billpay and online transfer, the entire thing was gone in less than 10 minutes. LOL!  But I also have a freelance invoice for a few hundred dollars pending payment on the 21st.  The timing is perfect because I plan to use it during the holiday break.  BabyGirl and I will have 9 days of no work, no agenda, no ‘things to do’ list, and no concrete plans.  Which means, an idle mind is the devil’s playground I will need some “play money” and the $405 e-fund shortfall will have to wait until next year.  *shrug* Works for me.

Happy Friday!

Here’s a quick update from last month’s e-Fund report:

Goal: $25,000

Previous Balance: $21,432

Recent Deposits: +$1,262.85

• Monthly Interest: $39.21
• Direct Deposit: $200.00
• Manual Deposit: $1,023.64

New Balance: $22,695

Additional Savings Needed: $2,305

Now that I’ve decided to reduce my 401k contributions, I can probably squeeze out another $2,000 before the end of this year.  With one more paycheck in the month, all bills accounted for, and a few more holiday expenses (especially if I decide to travel again), it may only be $1,800.  If so, the remaining $500 will have to wait until January…unless I earn something extra on the side.

You know something?  Making deposits into my e-fund gives me a rush.  It really makes me excited.  I think it’s because I remember a time when I couldn’t afford to save.  I worked to pay bills.  That’s it.  Most of the time, my expenses were more than my income and I had to rob Peter to pay Paul.  Whenever I’d get ahead, something happened to make me take two steps back.  Because of that, I couldn’t grasp the idea of “pay yourself first.”  For years, I lived this way.  From the looks of those around me, it was normal.

In order to break the cycle, I had to focus on increasing my income – not debt reduction OR savings.  With a higher income, it became easier to pay my bills.  Once I was able to pay all of my bills without skipping a beat, then I began to save – a little.  Although I had extra money to save, I was always so used to being broke, it became a self fulfilling prophecy.  So I shopped.  Then I went through a phase of compulsive shopping and binge saving with one bad habit competing with the other.  That internal battle lasted about a year.

It wasn’t until I decided to buy a house that I changed my habits and began to save consistently.  After a few months, I was saving only what I could afford, I stopped dipping into my savings to shop, yet I still allowed myself to shop occassionally.  Several bad habits were corrected when my mind focused on accomplishing a goal.  Once I realized the connection, I allowed my goals to drive my behavior with money.  Now, when I have a goal in mind – like increasing my e-fund to $25k – I think to myself “is this purchase really that important to me or can this money be used to feed my e-fund just a little bit more?”

And then I get excited all over again!

Goal: $25,000

Previous Balance: $20,589

Recent Deposits: +$842.89

• Monthly Interest: $42.89
• Auto Deposit: $100.00
• Manual Deposit: $700.00

New Balance: $21,432

Additional Savings Needed: $3,568

I spent quite a bit of time organizing my finances this weekend.  I reconciled my personal and business accounts, paid all credit card balances in full, scheduled all bill payments through the end of November, and set reminders for any December bills received.  Afterwards, I noticed the checking account balance had room to move a little extra to my e-fund ($700) and set a spending budget for Thanksgiving related expenses ($500).  Barring no other emergencies, I have just enough left to cover monthly necessities and a little weekend entertainment.