Method #4: Start an Emergency Fund
For years, I lived paycheck to paycheck. I spent everything I earned. This worked well until something went wrong. Suddenly I’d find myself without money to pay for a car repair, or facing an expensive doctor’s bill. I financed emergencies with credit cards. I finally paid off all of this debt at the end of 2007.

After you’ve optimized your accounts, 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:

“Since I hate debt so much, people often ask why we don’t 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—they felt guilty that they had to stop debt-reducing to survive.”

After you’ve saved $1000, then you can attack your debt. Open an online high-yield savings account and add twenty or fifty dollars to your account every time you get paid. Two years ago, I opened an account at ING Direct, where it’s simple to schedule automatic deposits.

See also: Learning to love the emergency fund.

Method #5: 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 burden this year. At the end of 2007, I said goodbye to twenty years of debt—it feels fantastic to have that weight off my shoulders.

If you have the mental discipline, you’ll save money by paying down your high-interest debt first. But if you’ve tried that method before and failed, consider using a debt snowball. Pay your debts starting with the smallest balance first. Here’s how:

   1. Order your debts from lowest balance to highest balance.
   2. Designate a certain amount of money to pay toward debts each month.
   3. Pay the minimum payment on all debts except the one with the lowest balance.
   4. Throw every other penny at the debt with the lowest balance.
   5. 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.

The debt snowball can give you awesome psychological payoffs, keeping you motivated to stay in the game. It’s not mathematically ideal, but it worked for me (and for many others). However you choose to get out of debt, stick with it. Don’t give up.

Tip! The perfect choice is the enemy of the good. When you spend so much time looking for the “best” choice that you never actually do anything, you’re sabotaging yourself. And an ideal solution that you don’t follow through with is worse than a good solution that you’ll actually use. Choose a good option and act.

Method #6: Fund Your Retirement
The current economy gives many people the jitters. But if history is any indication, now is a great time to be buying stocks for your retirement. Take advantage of any employer-matched opportunities, such as a 401(k). Also, consider starting a Roth IRA.

If you’re young, you probably don’t think you need to start a retirement account. You’re 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—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.”

After reading The Automatic Millionaire a couple years ago, I opened a Roth IRA at Sharebuilder. It was easier than opening a checking account. I managed to make the maximum contribution in 2006 and 2007. In 2008, I maxed out my 401(k).

Don’t understand retirement accounts? No problem. Last year I explained what a Roth IRA is and why you should care. For more ideas, check out Wesabe’s simple investing group.

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