Debt snowflaking [1] is a successful technique [2] to get out of debt. In addition to the fixed amount that you have planned each month, you apply all the extra money you find to paydown your debt faster. It’s an extension of the snowball method [3] and snowball calculator.
Investment Snowflaking
I didn’t want the investing crowd to be left out in the cold, so I’ve turned the approach around to apply it to building investments, which is the cornerstone of our dollar plan [4]. I’m going to try to add each extra dollar that comes into our house to our investments! These investment snowflakes will help build our investments quicker just as the debt snowflakes help paydown debts quicker.
Get Rich Slowly recently highlighted [5] five of Jaimie’s golden rules for snowflaking [6]. Let’s apply the same rules to investment snowflaking:
- Snowflake early and often. Starting early is one of the keys [7] to successful investing.  Normally I don’t determine our Roth contributions until after our taxes are complete. However, I’m going to start sending in additional contributions right away!
- No amount is too small to snowflake. I do have a minimum on our Vanguard Roth IRA’s but I’ll drop the small amounts into our savings account at ING [8]. Each time I hit the minimum I’ll transfer the money to Vanguard.
- Anything can be a snowflake. The most likely source of my snowflakes will be money from my dollar-a-day [9] challenge. I don’t make it a daily habit anymore, but I still operate in the same mentality to find extra money. Any extra money I get I’ll throw at the accounts, whether it’s the change jar, a check in the mail from a rebate, or money from eBay.
- Snowflake as immediately as possible. While I’m not fighting an interest rate, it is beneficial to get the money applied sooner. The more time [10] an investment has to grow, the bigger it will grow!
- Keep track of your snowflakes to use as motivation. This will be easy because in April when the rest of our Roth contributions are due, I won’t have to pay the full amount! If that isn’t motivation, I don’t know what is. Of course I will take the extra and apply it to another investment, possibly increasing my contribution to my new Roth 401k [11]!
Building Net Worth
It’s likely that many of the strategies used by people working on paying down debt and people building their investments would cross over in principle. After all, the goal in both scenarios is growing your net worth overall.
Action Plan
I enjoy saving and investing even more when I can apply a fun strategy to it. This seems like a great one because I’ll be able to invest even more than I planned for the year. It will also help since we finished 2007 just short [12] of our planned goal. Now, off to start snowflaking!
Photography by: ViaMoi [13]