This is a follow-up to the previous article and video (1,613 views at the time of writing) I made. I provide more insight into and reasons for the steps I took to save up enough for an engagement ring.

For a moment, let’s separate the idea of getting engaged from purchasing a ring. Although there are issues concerning the origin of diamonds and whether getting an expensive ring really means anything (a la Kobe Bryant scandal), I see this ring as a sign of my commitment to my girlfriend as the woman I want to spend the rest of my life with. So the whole process of saving held an additional meaning: I wasn’t saving to buy an item for my own enjoyment, I was taking a step on the road to building my legacy by starting a family.

In the past, I had tried multiple times to save money for a rainy day. The figures were usually round numbers like $500 or $1000. Somehow, before I reached my target amount, something always came up. With this in mind, I knew the plan that I was going to undertake had to have some sort of penalty for early withdrawal. Secondly, because of my current position as a graduate student, I wouldn’t be able to put away huge chunks of money. Therefore, the plan had to be one where I could save in bits and pieces over a period. Finally, I needed to be still be able to retrieve all the money I put in at the end of the year. Therefore, I had to use safe investments capable of providing relatively good yields.

Investment 1: Savings ($100/month)

The first thing I discovered was the Suze Orman Save Yourself Account. To be completely honest, I can’t remember how I found it and I wish I could give credit to the site or where I stumbled on it. Suze Orman is one of the most popular Personal Finance Advisors in America. She’s written multiple books full of basic tips in establishing a sound and solid financial foundation. Essentially, the account is an FDIC insured account (meaning if the bank failed, your money was insured up to $250,000) and $100 was  automatically withdrawn from your account at monthly intervals. After 12 months, you were credited with $100. Short and Simple. The money was insured and I was assured of making $100 at the end of a year. The catch: you couldn’t withdraw the money before the end of 12 months and the withdrawals were made at the same time every month. As a person wary of automatic withdrawals due to fear of being overdrawn, I created an additional account in ING Direct and labelled it “Investment Transfer”. Everytime I got paid, I would immediately transfer $100 to that account in preparation for automatic withdrawal. Therefore, this plan satisfied the penalty clause (no bonus if I took the money out beforehand), small investments and safety net.

Sidenote #1: I got the 8.33% mentioned in the video by $100/$1200 * 100%.

Sidenote #2: If you ever setup an automatic withdrawal and you are afraid that you might overdraw like I was, you can apply a similar method of making withdrawals from an alternative account instead of your checking account. Keep in mind that bank savings account only allow a maximum of 6 monthly withdrawals.

Investment 2: Mutual Funds ($120/month)

At the time when I was  beginning to save for the ring, the stock market was doing terribly. The Dow Jones Industrial Average, which is used as a marker for how the stock market is performing, was below 8,000 (Prior to the recession, it was around 10,000 and is now at 11,006). I’ll start by saying that at the time of investing, I was quite clueless on investing but I was beginning to read the Four Pillars of Investing and one of the many things I learned was that the best time to invest in the market (with a long-term vision) was when it was doing poorly. Since financial markets go through cycles, catching the market when it was low provided opportunity for growth. In order to preserve the length of this article, I won’t go into explaining investments in detail but will save it for a later date. In summary, I was planning on saving for a mid-range goal 1-2 years so I chose to invest in a mutual fund (not attached IRA). I used T. Rowe Price because they were the only company I found who would let me invest a minimum of $50 per month as I wasn’t sure I could invest more than that (I later increased this amount to $120).  I divided my investment as $50 to an index fund (PREIX) and an $70 to actively-managed fund (RPBAX).

A screenshot of my account as of December 2009 is below.

Notice how market fluctuation added about 9% (again because of how poorly the market was doing when I started)

Investment 3: Tax Refund

This was relatively simple. Every year, I file my taxes as soon as my W-2 and bank statement is available (Jan/Feb) and I had my refunds direct deposited into my checking account. As a reminder, the deadline to file federal taxes is this Thursday April 15th. Just go to the IRS website to see where you can file your federal taxes online for free if you make less than $57,000 (Students fall into that category for sure, unless of course you are the new Mark Zuckerberg).

Summary

Essentially, armed with the information from books and websites, the small steps instituted to growing the funds,  and a purpose and commitment that was bigger than a temporary want, I was able to save up for something I considered very essential. You may not be saving for a ring, but something equally important to you. Don’t try to do it all at once if you can’t afford it, but you should start. Small grains end up adding up.

Image courtesy of Brooks Elliot

Almost a month ago, J.D. Roth over at Get Rich Slowly started sponsoring a video contest asking readers to turn in a tip or a financial success story. When I revived this blog last week, I mentioned that I had been able to save up for a ring and I would be sharing the story of how it happened. Well, here is the first part of that story condensed into a 2 minute video.

Confession #1: I have never done a video blog before this

Confession #2: I have never saved this amount of money at one time before

Confession #3: I wondered if sharing this would ruin the surprise of the actual moment

With that being said, I hope you enjoy the video. It will be the first time some of you are hearing or seeing me and I must say that the still picture here doesn’t create a great first impression .

[There is a video that cannot be displayed in this feed. Visit the blog entry to see the video.]

Next week, I will provide a detailed article explaining the products I used in this video and why I went the route I did.