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Master your Money
Tip #1: Track every penny you spend
It doesnít matter how you track your spending ó the most important thing is to do it.
- You can use a cash notebook.
- You can use an online tool like Wesabe, Mint, or Quicken Online.
- You can use a piece of software like Quicken or Microsoft Money.

Whichever method you choose, stick with it. Make it a habit. Donít fudge the numbers. Record your transactions as soon as possible. Most of all, donít judge yourself. Tracking your spending is an exercise in data collection; itís not the appropriate time to change your habits.
Tip #2: Develop a budget
After youíve tracked your spending for a few weeks (or months), use the data youíve collected to develop a budget. According to The Millionaire Next Door, budgeting is one thing that sets the wealthy apart from the rest of us ó 55% of millionaires keep a budget.
Many people ó fail to budget for a variety of reasons: itís boring, we donít think we need it, or we donít know how. But this simple act can provide a roadmap for your money.
There are a variety of budgeting methods you can choose, from Andrew Tobiasí three-step budget to the 60% budget. My recent favorite (and a favorite of GRS readers) is Elizabeth Warrenís balanced money formula: 50% to Needs, 20% to Savings, and everything else to Wants. Simple but effective.
Super Tip : Spend less than you earn. This is the fundamental money skill. Itís common sense, yet many people never learn to do it. Only by spending less than you earn can you hope to build wealth. This is easier to do if you track your spending and develop a budget, but those steps arenít completely necessary. Even if you do nothing else in this list, spending less than you earn can put you ahead of your peers.
Tip #3: Start an emergency fund
For years I lived paycheck-to-paycheck. I spent everything I earned. This worked well until something went wrong. Suddenly Iíd find myself without money to pay for a car repair, or facing an expensive doctorís bill. I financed emergencies with credit cards. I finally paid off all of this debt at the end of 2007.
make it a priority to save for emergencies. In The Total Money Makeover, Dave Ramsey explains why he believes an emergency fund should come before anything else:
Super Tip : Since I hate debt so much, people often ask why we donít start with the debt. I used to do that when I first started teaching and counseling, but I discovered that people would stop their whole Total Money Makeover because of an emergency ó they felt guilty that they had to stop debt-reducing to survive.
Tip #4: Get out of Debt
Are you struggling under a heavy debt load from credit cards or student loans? Make it a priority to unload some of this this burden in 2009. At the end of 2007, I said good-bye to 20 years of debt ó it feels fantastic to have that weight off my shoulders.
If you have the mental discipline, youíll save money by paying down your high-interest debt first. But if youíve tried that method before and failed, consider using a debt snowball. Pay your debts starting with the smallest balance first. Hereís how:
  • Order your debts from lowest balance to highest balance.
  • Designate a certain amount of money to pay toward debts each month.
  • Pay the minimum payment on all debts except the one with the lowest balance.
  • Throw every other penny at the debt with the lowest balance.
  • When that debt is gone, do not alter the monthly amount used to pay debts, but throw all you can at the debt with the next-lowest balance.
  • Tip #5: Fund your Retirement
    If youíre young, you probably donít think you need to start a retirement account. Youíre wrong. No matter how old you are, now is the time to begin saving for retirement. The extraordinary power of compound interest favors the young ó and in a big way! In The Automatic Millionaire, David Bach writes:
    The single biggest investment mistake you can make [is] not using your [retirement] plan and not maxing it out.
    Tip #6: Earn extra money
    You can meet a lot of your financial goals by reducing your spending and using the right tools. But nothing supercharges your progress like a boost in income. How can you earn extra money?
  • Ask for a raise. Several readers have written to tell me how theyíve given themselves a raise through ambition and ingenuity.
  • Switch employers. Not every employer is able or willing to offer raises, even when theyíre merited. If youíre in a position where a raise isnít possible, consider finding a new employer.
  • Take a second job. Many people find that the best way to get out of a financial hole is to temporarily take a second job. Nobody wants to work more than 40 hours per week, but sometimes thatís what is needed to get out of debt or to save for a house. Just remind yourself that youíre doing this for a short time.
  • Use your hobbies. Yes, itís possible to have money-making hobbies. Youíre not going to get rich playing World of Warcraft, but many people use productive hobbies to earn a little extra income.
  • Sell things.When I decided to get out of debt, one of my first steps was to sell a bunch of the stuff Iíd bought with that $35,000. I used eBay, Craigslist, garage sales, and the Amazon Marketplace to sell the things I no longer needed or wanted. The money I earned jump-started my debt reduction.
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