1) Pay off all your credit card balances. In 2009 all the credit card companies updated their terms and service agreements. Many of the changes had to do with new laws passed by congress. The laws were an attempt to help protect consumers that were trapped by credit card debt. The laws are also designed to protect consumers that are having financial hardship. But credit card companies are businesses that aim to make money. In the changes I’ve seen there are a few alarming changes: 1) Credit cards are moving to an adjustable rate on all new purchases, fixed rate cards are not very common any more 2) interest rates have increased across the board. This past week I had a credit card agreement increase the late payment APR to 29.99% variable. I haven’t seen that kind of rate in a long time. 2010 is the year to pay off all credit cards and switch to a cash lifestyle with pro-active budgeting.

2) Budget every dollar you spend. This is one thing we have done poorly on in year’s past. We been using Mint.com for 2009 and it’s opened our eyes to where our money is going. But budgeting is the next critical step for us.

3) Pay cash. When you buy your next car or new toy pay cash for it. Being able to save up and buy bigger ticket items with cash is a good way to get the best price on things you buy.

4) Start saving (automatically). Putting away $10 a paycheck is a good way to start saving if you haven’t already. It is suggested that you pay 10-20% of your income. Most banks will let you set up an automatic withdrawal if you need it. See this list of high interest savings accounts with updated rates for more information.

5) Setup an emergency fund. Learn how much is needed for an emergency fund an get started. Basically you’ll want to cover your basic expenses for three to six months.

6) Start another stream of income. The more sources of income you have the more stable you’re finances will be. In business if a company only has one big customer they are being exposed to a lot of risk. Expand your income streams in 2010 for an improved balance sheet. Ideally, you’ll want to start another stream of income that is low maintenance and something you enjoy doing.

7) Learn and/or Improve your skills and education. Learning a new skill or improving an existing skill is always a good investment. Invest in education, text books, audio books, lectures, and courses. Finish your degree or start an advanced degree. This is one of the best investments you could ever make. Subscribing to blogs is also another great activity (since they are free and have relevant, timely, information).

8 ) Help someone in need. It feels really good to help someone that needs help. Volunteer or give a neighbor a helping hand. Charities have been hit hard by the recession. Try to help where you can.

9) Grow a garden. If all you grow are a few plants a garden is a good way to save money and its good for the environment. Some people think its also therapeutic to take care of things and watch them grow.

10) Spend more time with family and friends. For the first time in many years families have pulled together during the recession. They have spent more time together and have gotten closer. As the economy improves keep that tradition alive in 2010.

11) Do some financial house cleaning. Visit the new year financial checklist and Dilbert’s guide to personal finance for some ideas. Some of the basics include: Update/write your will, get a free credit report, open an IRA with a discount broker,

Scott Adam’s book ‘Dilbert and the Way of the Weasel ‘ is pretty darn funny. If you want to learn how you, your boss, and everyone you know is a weasel this book will be enlightening.

Most of the book is dedicated to work related ‘weaseldom’ but there are some parts talking about life in general. He discusses financial advisers and includes some interesting insights to personal finance. The main point being that everything you pay a personal finance adviser for could be written on a single page. A financial adviser will cringe to see you walk into their office holding their entire body of knowledge on a single sheet of paper. Of course Scott Adam’s is much better at the delivery and I probably just butchered the joke. At any rate it’s worth the time to read it.

Dilbert’s One Page Personal Finance List

• Make a will
• Pay off your credit card balance
• Get Term Life insurance instead of Whole Life Insurance if you have a family to support.
• Fund your company’s 401K to the max
• Fund your ROTH IRA to the max
• Buy a house if you can afford it and will live in it
• Put 6 Months of living expenses in a money market account
• Take all the extra money and invest 70% in a stock index fund
• Take 30% of the money and put it in a Bond fund through a discount broker
• Don’t touch your money until you retire
• If you are doing anything outside the things listed here hire a Fee Based Financial adviser and not someone working off commision.

He concludes that anything outside this list is worse. Want to invest in Managed mutual funds, its worse. Want to buy individual stocks, its worse.

The list is pretty good. For the most part it’s very hard to argue with any of the points. If you think about all the books that have been written on the subject it makes this list even better.

Listen to Dilbert and the Way of the Weasel from Amazon

Most all financial books have common themes. The themes repeat themselves because they are formulas to building wealth. No matter the situation these principles work. In essence, becoming rich requires a break from “traditional thinking”. These seven points are what make wealthy people different than everyone else. Do you have any additional points that have helped you financially?

Pay yourself first
If we treated ourselves like the bills we get in the mail we would be much happier financially. For those with a 401K paying yourself first is easy because it comes out of your paycheck automatically. For others without a 401K other options are available. Opening a Roth IRA, online savings account, or broker account to trade stocks and mutual funds work.

Automatically paying yourself is a way to build wealth on auto pilot. Automatic withdrawals eliminate the hassle, self control, and temptations associated with any other method of saving. Because online broker accounts and savings accounts both “piggyback” your regular checking account setting up auto-withdrawals is easy. They give you complete flexibility and control with your money. You will be surprised on how quickly you can save your money using this method.

Invest instead of saving
Saving will never create the same returns as investing in the long run. Compound interest is most powerful with more time and higher yield percentages. Most savings accounts are good for emergency cash reserves. The yields on these accounts are generally barely above inflation. Inflation in the U.S.A. is currently 3-4% a year and online savings accounts are about the same. In short, after you have your cash reserve you should put your cash to work in more lucrative investment vehicles.

Avoid paying interest at all costs (i.e. debt is bad)
Take some time and add up all the interest you’re paying every month. For most people interest and taxes are their #1 and #2 expenses. Interest costs are avoidable and therefore a waste of money. If you’re going to go into debt the asset you buy should appreciate more than the cost of interest. Things like your home and education are justified because they increase in value overtime. They also out pace the cost of the debt (i.e. interest payments). On the other hand electronics, cars, and eating out depreciate to worthless junk very quickly.

For those who have bought the idea that debt is good, consider a few facts. Debt = Risk. The more debt you have the more risk you have. Companies that are burdened with excess debt are riskier investments. Their stocks are undervalued and their bonds are rated as junk bonds. If debt can destroy businesses it will wreck havoc in your life.

Stay off the “bleeding edge” of technology
The “bleeding edge” refers to the sharpest part of the “cutting edge” of technology. It is the newest of the new technologies. Those consumers who buy the newest technology fund its development until it becomes cheaper. They are paying a high price to be the first to have the newest toy. Let other people pay the premium and get the same thing in a year for a third the price.

Try to avoid advertising and marketing. They are designed to persuade you that your old technology is useless and make a “want” a “need”. Companies pay a lot of money to convince you to make the switch. Take the initiative and avoid their marketing messages.

Financial education is worth the time and money
Everyone isn’t born with Warren Buffett as their father teaching them how to invest. Like most people, your childhood is probably riddled with neglect in many areas. So we have to work extra hard and learn all the stuff Warren would have taught us if we were his kids.

Audio books, podcasts, blogs, books, and magazines are great ways to build your knowledge base. Read everything you can. Talk with people who really know what they’re doing. Copy the experts. Most importantly, experience is the best teacher. You’ll learn more in a week by actually trading stocks than reading for a month.

Open an online broker account and learn the lingo, make some trades, run some screens, and find some deals. You’ll become financially literate and develop a style you’re comfortable with. Once you know how to read financial data you’ll be able to spot a deal across the room and make the returns you’ve always wanted.

Upset the Joneses by opting out of the rat race
Living a lifestyle that is not earned is stealing. Going into mass debt to LOOK rich isn’t the same as BEING rich. This fraudulent behavior catches up to all those chasing the Joneses. But the irony is that the Joneses are chasing someone else. There is no end to the cycle. So you need to opt out. Unsubscribe.

Opting out of the rat race makes everyone still in the race uncomfortable. They’ll think you’re crazy, stupid, and out of touch. But that really is the point isn’t it? Moving in a different direction from the mindless herd confuses them. And if they can keep you in the trap, they feel better.

Rinse and Repeat
Most of the financial secrets out there are done over and over for a long time. Repeating a simple step for a long time will have staggering results. Compound interest needs time to truly expand your wealth. A little discipline and a lifetime of good habits will leave you retiring in style.

To get started there are three ways to write your will; generic forms, online services/software,
and working with a lawyer. Each of the alternatives have different costs. The generic forms are free, the step-by-step service is around $100, and the lawyers are much more than $100.

• Free Generic Forms 1 , 2 , 3 , 4
• Will Writing Service

Create a budget
With a simple spreadsheet you can outline a budget. If you don’t have a spreadsheet read more about getting free office software.

Once you’re ready with your spreadsheet make a list of your expenses.

• Common expenses are:
  Home, Food, Apparel, Health Care, Transportation, Entertainment, Dependent Care, Pet Care, Education, Travel, Gifts, Personal Business, Taxes, Insurance, Savings & Investments.
• Next, total up your net income: Salary, Wages, Self-employment income, Bonus pay, dividends, interest, alimony or child support, pension or retirement income, public assistance.
• Subtract your expenses from your income.

If you’re spending more than you make, stop it. All joking aside, try to update your budget frequently and plan regularly. Budgets put things in perspective and improve your financial future.

Install Personal Finance Software
To take a more active role in managing your finances try some of these free personal finance software packages.

• See the list of all the Free Personal Finance Software

Compare your insurance rates
Most insurance is vulnerable to rate creep. As time goes on insurance agencies slowly increase your rate. Automobile, home, and health insurance are likely to increase over time.

Insurance is a unique industry in that they reward the newest customers instead of their long-term customers. Competition is strong for new customers and the low rates are waiting for those who call. You could save a lot of money by switching your insurance.

InsureMe combines quotes from the major insurance providers. You can easily find quotes for auto, home, life, and health insurance.

Get your free Credit Report
The government provides a free annual credit report from the three major credit agencies, Equifax, Experian, and TransUnion.

• Tips and ideas on getting a free credit report
• Visit the government site directly annualcreditreport.com

Move your spare money to an online savings account
The national savings account average is 0.47%. Its an absolutely shameful return. Instead of getting a return like that try an online savings account. These accounts offer 5% (roughly) and are FDIC insured. They are intended to ‘piggyback’ on your existing checking account. They are easy to sign up for and transferring money is a breeze.

• Visit the top five high yield online savings accounts

Optimize your vehicles performance
Check your tire pressure on your car, change your oil, and get a new air filter. Not only will your car last longer but you’ll save gas money as well. With the cost of crude surging above $100 a barrel gas prices are surely going to increase. Experts predict that prices will take a big jump this spring.

Home Energy Audit
I’ve cut my energy bill down by almost a third of what it was last year by upgrading my attic insulation, sealing windows, and adding better door seals. Not only will you be helping the planet you’ll also be saving money.

The US government offers a Do-It-Yourselft home energy audit here. They also have a printable version.

Reduce your interest expenses
Using balance transfer credit cards can save you hundreds of dollars in interest each year. I’ve avoided paying any interest on my credit cards until this year. Even though the card I’m paying interest on only has a 5.9 % interest rate it kills me to see I’ve wasted a percentage of my income each month.

My wife and I are going to apply for the credit cards and transfer our balances to these 0% balance transfer credit cards.

Calling your credit cards is another way to lower your interest rate. Call the number on the back of the card and ask them to give you the best rate they can offer. You might be surprised at how often this works.

Mortgages are another large interest expenses. With the Fed cutting the interest rate again there’s a good chance you’ll be able to refinance and get a lower rate.

Max out or open an IRA
$5,000 is the maximum IRA contribution in 2008. That’s roughly $416 a month, or $96 a week, in contributions. For a lot of people an extra $400 a month can be difficult. If that’s beyond your reach try something more manageable; like $100 month.

Opening an IRA is easier than most people think. Banks, brokers, and other financial institutes can help. As competition has increased among discount brokers their services have improved dramatically. I’ve been happy with my discount broker for my IRA.

With no fees, no minimums, and a wide range of trading options TradeKing is a favorite of mine. Most other discount brokers offer less and charge mandatory fees. Check out Tradeking to open your Roth IRA.

Year End Finincial Checklist

• Write or update your last will and testament
• Create a budget
• Install Personal Finance Software
• Compare your insurance rates
• Get your free Credit Report
• Move your spare money to an online savings account
• Optimize your vehicles performance
• Home Energy Audit
• Reduce your interest expenses
• Max out or open an IRA