When I sit back, take a breather, and evaluate the things I have on my plate, I often find that lots of little personal finance tasks have built up.

I’d like to finish my emergency information binder.

I’d like to spend some more time researching various Vanguard index funds.

I’d like to get caught up on my filing – I have a few months’ worth of papers just sitting in a box, unorganized.

I’d like to actually give Quicken for Mac a fair shake.

I’d like to sit down and run some serious numbers about our savings for our children’s college and see if it will be adequate for how much we want to help them.

The list goes on and on, actually.

With each of these tasks, I’d feel quite good if I was able to finish it up. Getting those papers to file out of the way would be very nice. Filling up my emergency information binder and getting it safely put away would provide some real peace of mind.

The problem is time. I look at each of these projects, think about them for a second, decide that I really don’t have time to tackle it right now, and move on to something else – writing an article (like this one), playing with my kids, working on a book draft, or something similar.

Yet, lately, I’ve actually been moving forward on each of these tasks. They’re not yet complete, but each one is seeing real forward progress. How? Here’s my method for digging through my personal finance chore list.

First, I just write down every such task that comes to mind. I don’t let them stay in my head at all – I get them down on paper. This is a basic tenet of the “Getting Things Done” philosophy, and I use it in almost every aspect of my life.

Second, when I have a nice long list, I break each item down into tiny bite-sized chunks of activity. An individual activity shouldn’t take more than five minutes at a time. So, for each task, I might have one activity that I’ll repeat a bunch of times, or a series of very simple steps. In either case, it guides me to the conclusion that I want.

Here’s examples from each of the five tasks I mention above.

For the emergency information binder, a simple action would be to simply fill out one item in the binder in detail. That’s it – just fill in one piece.

For the research, I just pledge to look up one fund and note the pieces of information I’m looking for for each one – just a handful of things.

For the filing, each action is simple – file five items out of my “to be filed” box.

For Quicken, the steps are easy – the first one is to simply run the installer program, then each action after that is to hook up a single account into the system.

The children’s savings issue is a bit more complicated, but it can still be broken down: get all the data I need for each account (the balance, the investments, the history of those investments), build a spreadsheet piece by piece to do the calculations I need, then run the numbers. Each piece of the spreadsheet could be a separate step.

When I have this giant list of easy five minute tasks, it’s a lot easier to convince myself to burn five minutes to do just one of them. Instead of sighing and thinking that I don’t have time to deal with three months’ worth of filing, I think “I have five minutes and I can make some progress right now!”

Then I jump up and get to work.

Why don’t you try the same thing? Make a big list of all of the personal finance tasks you’d like to get done, but haven’t. All of those tasks that you think about during idle moments but put them off because they seem overwhelming? Write them down.

For each one, come up with a few tasks you can do to move yourself forward – but make sure those tasks are quick. Tiny little things that you can do in five minutes are what you’re looking for.

Then, over time, use these little tasks to fill in the gaps. Do one during a commercial during Lost. Do another one while the rice is boiling on the stove. Do another one while your daughter is working on a math problem independently.

Before you know it, those big tasks will be done – and you’ll enjoy some real peace of mind knowing that another piece of your financial future is in place.

An acquaintance from my previous career wrote to me recently asking about the steps I took when I made the switch to working at home:

It’s official: I’m ready to get out of here. I’m tired of working here and I have a lot of people lined up to hire me for home catering and cooking. I’m sure you did a bunch of planning before you made the leap. What exactly did you plan?

I know at least one other former coworker who is contemplating a similar move into a freelancing gig, though his plans are decidedly less clear at this point.

So what exactly did I do during that transition period? I started making a list of the things I did – then, soon, I realized that there were several things I wish I had done. Before I knew it, the email had ballooned into a guide that I thought might be useful to quite a few people.

Here are fifteen things I did (or wish I had done) during the months leading up to my transition to working for myself.

1. Learn to live on less.
One of the biggest challenges of freelancing/self-employment is the uneven pay. Gone are the steady paychecks of a typical job. Gone is the idea that you’ll make roughly the same amount next month as you will this month. During 2009, I have had months that earned only 25% as much as other months – and I anticipate a single month later in the year when several projects come to fruition in which I have by far the best month of the year.

If you allow your spending to match your income, you’re not going to be able to survive during the lean months. Instead, you need to adapt yourself to a consistent lower level of spending. Start looking now for fat to trim from your life. Every expenditure you have that’s not necessary for your basic living standards should come under very careful scrutiny.

Many people balk at this, but the truth is this: your first several months as an independent worker are going to be a real shock in a lot of ways. The last thing you need making this transition more difficult is a bunch of unnecessary expenditures. If things go well, you can always add some expenses back into your life – but you may find, surprisingly, that you’re quite happy without most of them.

2. Create a budget, both personal and business.
As I’ve written before, I’m not a believer in the “one-budget-fits-all” approach. Trying to make your budget or spending match an example provided by someone else is doomed for failure because that example doesn’t match your life.

I argue that the real value provided by a budget is that it reveals, loud and clear, how you actually spend your money and it can provide some clear pointers to where you need to make changes. Prepare a budget by just keeping careful track of what you spend for a month – make a giant list of every dime you spend, then organize all of that spending into categories that make sense to you. When you have that in place, look not only at the total amount you spend (you’re going to need an income level that on average exceeds that by at least a little), but also at the various categories – are there areas that you can cut?

A similar exercise for one’s business expenses is also useful, though it can be more difficult. Seek advice on the expenses that people typically have freelancing in your area of interest and use that for a basis.

3. Build up a big emergency fund.
If you’ve followed steps one and two and made serious cuts in your spending, you’ve now got a nice surplus of money coming in each month. Don’t be tempted to spend it. Instead, sock it all away into a savings account. In fact, do it automatically – instruct your bank to automatically transfer a healthy amount each week into a savings account on your behalf.

If you’ve done your budget, you have a good idea of what your monthly expenses actually are. I recommend having at least six months worth of living expenses in your emergency fund before making the leap. This will help you survive the lean months, particularly those early on in your freelancing experience.

4. Now make it bigger.
Quite often, people go light on the emergency fund before they make the leap. They have a bit of cash saved up, but they’ve convinced themselves that they’re ready – they have plenty of clients and opportunities lined up.

Don’t make that mistake.

The big problem is that freelancers and self-employed folks – especially early on – can have a tendency to count their chickens before they hatch. No deal, no matter how good it is, is a sure thing until contracts are signed and products are delivered. You might have ten potential clients that talk big about what they want to do, but when push comes to shove, all of them could vanish – and many of them will.

Be prepared for that. Don’t leave yourself in a desperate situation if a conversation doesn’t pan out. Cover your bases – and the best way to do that is with a healthy emergency fund. Build it now, build it later, keep it nice and fat.

5. Start reaching out to your audience and client base now.
There is no better time than right now to start digging for opportunities, even if your leap is far into the future. Get out there and start seeking out the people you want to know – and the people you want to sell to.

In a nutshell, this is market research – you need to find out if there are people that will buy what you do and figure out how to connect with them. Obviously, the internet and social media (like Twitter and Facebook) are good places to start, but they’re just a start. You should also go directly to where people who might be potential clients – or potential competition – congregate.

Start finding the people now. Join messageboards. Start Twittering. Start a blog. Pound the pavement in your local community. Dig through freelancing boards and other job boards. If you’re passionate about the field you’re leaping into – and you must be if you want freelancing to work – you have plenty already to talk about. Let the passion flow.

6. Eliminate as many regular bills as you can.
Back on the money side of the coin, start whacking your regular bills, particularly any related to entertainment. Ditch Netflix – if you want to watch a movie, use Redbox or a similar service. Ditch your cable bill entirely – use a digital converter box and Hulu to get your television fix. Sell your car – if you can use public transportation or ride a bike to work, do you really need one?

For the ones you can’t eliminate, trim. Make your living quarters as energy efficient as you can, with programmable thermostats and the like. Cut your cellular plan – do you really need that much data, those minutes, or that many text messages? If you decided to keep cable or satellite, whack some premium channels you don’t watch.

The more monthly bills you can eliminate or reduce, the more room you have to breathe when you make the transition.

7. Write a business plan.
Don’t worry about being too formal when you do this. The purpose of a business plan is to make you think about all of the details of what you’re about to leap into. Have you really thought things through?

Areas to include: market analysis (is there actually a need or a market for what you’re doing), product or service development (what kind of service or product will you actually offer), marketing (how will you draw attention to what you’re doing), financial organization (the money), and risk factors (what problems might crop up and how you might handle them).

Spend some time on this. Include everything that comes to mind, and flesh out details on every point. Don’t sweat the formality – just focus on ideas. The more effort you put in here, the easier it will be to make this all work when things get rolling.

8. Now rewrite that business plan.
Quite often, most freelancers make only a minimal effort at a business plan, if they bother at all. Big mistake.

I suggest using a self-imposed deadline of sorts. Arrange to show your business plan to someone you trust on a certain date for their input. Putting that deadline in place will keep you focused on the project, as you’ll want to present something reasonable.

Then, when you deliver it, ask for feedback of all kinds – everything they can think of that might improve the plan. What you’re really asking for is advice on the work you intend to do. This is a double check to make sure you’ve thought everything through.

When you get the suggestions, use them to rewrite your plan. Then repeat, perhaps with another person who might read it and offer suggestions. A few such repetitions will go a long way towards creating a real plan that works – and making sure you’ve really thought this through.

A good business plan isn’t a boring thing to “waste” your time on. It’s a great way to make sure all of your bases are covered, and often the revision process is the most powerful part.

9. Find a mentor.
So who can you take that business plan to? A mentor, that’s who.

Seek out someone that knows what they’re talking about that isn’t a potential competitor of yours. Look for someone experienced at freelancing in a tangential field – not a direct competitor – and ask them for advice and help. Be specific in your questions and don’t take criticism personally – it’s offered with the goal of making you better, not cutting you down.

Recognize that the person is probably busy and contribute some value to the relationship yourself, by promoting their work or offering them something of value, too. For example, if you’re a nascent blogger and would like to attract a professional blogger as a mentor, spend some time simply promoting their best stuff. Write about it on your own blog and talk about their stuff on Twitter. Buy their book and write a review of it (if they have a book out there). Participate in their comments and in their other conversations online.

Actions like these are ways that you can make a mentoring relationship into a fair value exchange instead of just a “gimme gimme gimme” relationship.

I wrote a detailed guide on finding a mentor in the past that can be very useful reading.

10. Make it easy for people to see the good stuff you can do.
Create an online presence for yourself that makes it very easy for people to find your best work. Regardless of whether you’re doing online work or not, have a website with an easy-to-remember URL that contains links to examples of the best stuff you’ve created. Join social networking services (Facebook and LinkedIn) and make professional pages about yourself that clearly show off your best side.

If people hear about you, they’re going to Google you. You want to make it so that the first things they find are good, positive, impressive things – the types of things that will draw them in, not push them away. Never take the attitude that you can appear antisocial and that if they don’t like it, they can walk – that attitude will push many of your potential clients away because you’ll seem unreliable from the get-go. There is never a downside to appearing friendly and accessible.

11. Communicate, communicate, communicate.
The more you talk, the more likely people are to discover you. Share your thoughts and ideas and comments as much as you can, as widely as you can.

Start a blog. Join social media sites (Twitter and Facebook, for starters). But, most important, join in on conversations. Link to interesting people and ideas on your blog and offer your take. Follow interesting people on Twitter and respond to the things they say. Comment on interesting blogs (with a link back to your own of course) and make worthwhile comments.

Most important, stick generally in your area of expertise, but don’t be afraid to jump into topics that are at best tangentially related. The goal is to make people interested in what you’re doing, and the best way to do that is to always speak from your heart and from your mind. Be positive, put your voice out there, and good things will happen.

12. Build connections with local small business/entrepreneurship groups.
Even if your work is outside of your local community (online work, for example, or freelancing work for remote enterprises), it’s worthwhile to engage with local small businesses and entrepreneurs – after all, that’s exactly what you are. Such groups are almost always sources of good ideas and leads for areas where you might improve, and they’re also places where you can float new ideas and gauge them. Even better, leadership in such groups provides countless ways to reach out and connect to others in countless ways – conferences, meetings, and so forth.

Get involved in peer groups, both in your own physical community and in your professional community – and don’t be afraid to dive right in and participate, even before you’ve made the leap. The number of valuable connections you’ll make there will pay off time and time again.

13. Have a place where you can focus on work – and only work.
Many freelancers start off working at the desk in the corner of the living room – the same one that houses lots of personal material as well. What often happens, though, is that the personal material begins to interfere with the professional work and the lines begin to blur. You find yourself working when you should be engaged in personal activity, and doing personal things when you need to be working.

Find a location somewhere that you can devote solely to your work – no personal stuff. Ideally, it’s a place that you can isolate yourself from the things around you. For example, I have a room in our home that serves as an office. When I need to work, I go in there and close the door and I’m in “work” mode. When I leave that room, I’m no longer in “work” mode (unless I’m headed out to do some research).

Without that barrier, it would be incredibly easy for me to constantly take my eye off the ball – and if I did that, I would constantly find myself falling behind on my work.

14. Build your current bridges as strong as you can – and don’t burn them when you leave.
Many people, as they begin to transition mentally into freelancing, let their current work relationships slide, deciding that they don’t matter. Actually, quite the opposite is true – they matter more now than they did before.

Here’s why. The strong connections you have in your previous line of work will continue to serve you well after your transition. The connections may provide you with new clients and interesting angles to pursue. Plus, if freelancing doesn’t work out, you often have a strong foot in the door for returning to a position in your previous career path.

On the other hand, if you let those relationships burn out, you miss out on these opportunities – and that big safety net.

Spend your final months tying up loose ends, but make sure that the relationships you’ve built don’t fray, either.

15. Practice, practice, practice.
This is perhaps the most useful lesson of all. If you want to be a real standout in your area of expertise, keep practicing at it. Study it. Try new things, and work to get better at the things you already do. In short, practice every single day.

If you’re a writer, write (and share them, via a blog). If you’re a graphic designer, make designs and share them (via Flickr or other avenues). If you’re a musician, practice daily and share demos with the world. Doing this not only makes you better, but it shows that you’re a hard worker and helps you get a better grasp on what people like and what they don’t like.

As time goes on, you’ll get better and better at what you do – and you’ll have a long track record that shows how diligent you are at your work.

A Final Tip: Dig Into Freelancing/Self-Employment Resources and Communities
Here are five websites I visit all the time for advice and thoughts on being self-employed and accepting freelance work.

FreelanceSwitch
http://www.freelanceswitch.com/
FreelanceSwitch is my website of choice for thoughtful and insightful conversation on freelancing and self-employment issues. It’s a daily read for me.

Elance
http://www.elance.com/
Elance is a clearinghouse of freelancing opportunities of all stripes. I like to keep an eye on freelancing opportunities in several areas.

Guru.com
http://www.guru.com/
Guru is a similar clearinghouse for freelancing opportunities.

Web Worker Daily
http://webworkerdaily.com/
If you do computer-based freelancing, this site is a must-read. Again, I read this one almost daily.

Freelance Folder
http://freelancefolder.com/
Freelance Folder offers a ton of widely varied and interesting advice on freelancing topics.

Good luck!

Each Monday, The Simple Dollar opens up the reader mailbags and answers ten to twenty simple questions offered up by the readers on personal finance topics and many other things. Got a question? Ask it in the comments. You might also enjoy the archive of earlier reader mailbags.

I understand what you are saying about supporting the people who make movies/television shows, but how is “trading for DVDs” being supportive? No one related to the production of the show receives any money from a trade.
- Karen M.

I get all my DVD’s from the library, for free. So, am I also telling the people who produced them that their products are worthless to me? I’m asking legitimately, as I don’t know the answer. Not trying to be a smartass. If the answer is yes, then how is using the library any different than piracy? Of course, I return the DVDs, but I probably wouldn’t watch them at all if I had to pay for them, even as a rental. It wouldn’t be worth the money to me at this point in my life.
- Kate

Kate and Karen’s questions are tightly related and deserve a detailed answer, so I’ll deal with them together.

First of all, I don’t see any problem with trading for DVDs or books or CDs. At some point, the original copy of the item was purchased – the person that bought it now owns a single copy of the item to do with what he or she pleases. Trading a DVD is just like trading a wheelbarrow – it’s an item that you now own that you can exchange with others for other items of value.

A similar logic occurs at the library. If a library has a copy of a book or a DVD, that means they’ve purchased that item. Since you pay your taxes, the library is funded by you (and everyone else in the community) By checking it out, you’re simply using your share of an item that you’ve already purchased.

The murky area comes in when you’re able to perfectly duplicate such an item. Many people like to argue that if you can easily make a duplicate of an item, then each copy has essentially no value at all. Going down that road results in a long, complex discussion.

My conclusion is similar to that in Lawrence Lessig’s book Remix – the genie is out of the bottle when it comes to such duplications of creative works, but we’re still in the infancy of figuring out what comes next. I believe that right now is a pretty grave time for many content producers, but the future is very bright, indeed, once new avenues for making money from creative works come to fruition.

You’ve been mentioning a lot of books you’ve read recently on Twitter. Any recommendations from your recent reads?
- Joely

Olive Kitteridge by Elizabeth Strout is fantastic. The titular character is simply the most well-rounded fleshed-out character I’ve read in a long time.

I had a lot of pure fun reading Now I Can Die in Peace by Bill Simmons. Bill isn’t just a great sportswriter – he’s a great writer. I’ve got his next book on my wish list.

Finally, World Made By Hand by James Kunstler presents a wonderfully fleshed-out but realistic look at a world after peak oil and in the aftermath of the fall of the United States government. The “return to basics” is a direction that I think most able-bodied and able-minded people would go.

I am 26 and I will have a $20,000 increase in income next year. Should I put my extra money into a company matching 401k or save up for a down payment for a house?
- Joyce

Depends on how much you’re saving in that 401(k) right now. A good rule of thumb is that your total contribution (yours plus any matching you get) should be around 12%. If you get too far above that, you’ll have a very healthy retirement, but you might be choking off other savings in your own life.

If I were you, I’d just make sure you are saving that 12%, then sock the rest away in a savings account for that house. Just be careful to actually save it for that big goal – don’t get tempted into other things along the way.

Have you heard of AFullCup.com, it appears to be a coupon and deals sharing website. I can’t decide if there is any value in it, let me know what you come up with.
- Ruby Leigh

There are lots of great deal forums out there – A Full Cup is just one of them. The Fat Wallet forums is the place that I often lurk, for example.

With such sites, you usually get out of it what you put into it. If you just go there a bit and occasionally search it, you’ll likely find a few good deals. If you’re really involved and watch it like a hawk, you’ll find many more.

The problem is this: the more you watch for “deals,” the more likely you are to end up buying things you don’t really need, which somewhat defeats the purpose. Thus, I generally use such services only for searching for discounts on things I’m already thinking of buying.

I’ve been with ING Direct for a while, but their savings rates are pretty low. There are other banks out there offering accounts that earn as much as 3%. Why shouldn’t I switch?
- Edgar

In my quick searching, the only bank I could find with savings rates at 3% or above is SmartyPig (I’m mentioning this because I’m sure someone will ask that).

Anyway, I see no problem with simply seeking the highest rate if you’re simply looking to sock cash away for a long term goal and you won’t ever need it in a pinch. This is exactly what high interest online savings accounts are best at.

Having said that, I would be wary about switching away from a primary bank that I was happy with. If your bank has good online bill pay, no fees, offers a bit of interest on the checking, solid interest on the savings, and has never caused you any problems, you should not move all your banking to another bank because of a higher interest rate on the savings account.

My wife has a store credit card that is maxed at $2,500. The only payments they will allow her to make are the bill amount (so if it’s $100, she can’t pay $150 for example) or the full balance. She applied for a loan from her bank so she could pay the full amount off and the interest rate would be lower from the bank, but she was denied. I then applied (same bank) and was denied also due to insufficient credit history.

My “quick” question is, are there some other options for her to get a loan in order to pay off the card so she’s not paying out the nose in interest?
- Frank

The first place I would go is to a local credit union. Explain your situation and ask if they can help.

If that’s a no-go, see if one of the two of you can qualify for another card and execute a zero balance transfer onto it.

A third option: make the bill amount payments and sock an extra payment or two into a savings account each month, then pay the whole thing off in a year or so.

What’s your favorite store-bought barbecue sauce?
- Elgin

At least in terms of the widely available ones, I’ve been partial to Stubbs for years. I love using it on everything – but particularly on chicken. Few things are better than a piece of chicken smothered in good barbecue sauce.

Most of the mainstream brands, frankly, taste far too sweet to me. They give me the same feeling I get when I drink a Pepsi – way too sugary, and a bit of aftertaste that I attribute to the high doses of corn syrup.

In the end, though, I prefer to make my own. I use varying amounts of tomato paste, brown sugar, Worcestershire sauce, English mustard, apple cider vinegar, soy sauce, cayenne pepper, and various other things for experimentation (like a shot of Jim Beam, for example). I mix up what I want, boil it for twenty minutes or so, and it’s good to go. It’s a lot of fun and you can scale back or scale up the sweetness or various flavors to your heart’s desire.

I just got my monthly statement from my credit card company, stating that my minimum payment due this month is “$0″. I currently have a balance of about $1,500 on this card.

My question is: Should I take the $50 that I normally pay per month on this card and put it toward my savings or should I just pay $50 to my credit card company this month as usual?
- Maya

Depends on the interest rate on that card. If it’s above 5% or so, you’re better off getting rid of that credit card debt.

That is, of course, assuming that you do have at least a little bit in savings to provide for an emergency fund. If your savings is less than $1,000, you’re gambling against Murphy’s Law – and that’s never a good gamble.

So, to summarize: if you have less than $1,000 in savings, put the $50 in savings. Otherwise, put it towards the debt unless it’s less than 5% or so.

If you were eighteen years old and single right now, would you go to college?
- Sara

No, I wouldn’t. But it’s not that straightforward.

If I were eighteen right now, I’d be an eighteen year old with a pretty successful business on my hands that I had built myself. If a person graduates high school and has built a solid business on their own, it makes sense to follow the business, at least for a while.

The purpose of going to college is to grow as a person, and I fully respect that. However, if you’ve got enough talent (and have had enough luck) to have built something successful, that’s an opportunity that you shouldn’t pass up.

I feel the same way about anyone that has exceptional opportunities coming out of high school. For example, if a baseball player is good enough to get drafted and get a multi-million dollar signing bonus out of high school, by all means, they should go for it. Going to college puts that opportunity at risk due to injury and other lost opportunity factors.

If you have something good in the hand, don’t trade it for two in the bush. Don’t avoid college, but if you have great opportunities, don’t look at college as an absolute post high school requirement, either.

Got any questions? Ask them in the comments and I’ll use them in future mailbags.

Every other week, The Simple Dollar reviews a personal development, personal productivity, or entrepreneurship book of interest.

At first glance, Mindset by Dr. Carol Dweck seemed to be one of those pop psychology books that I usually avoid – another The Secret or The Power of Positive Thinking. Books along those lines just repeat the same ideas that are as old as the hills (or Napoleon Hill, at least) – if you think positively and visualize good outcomes, they’re more likely to happen. Great – but it’s a principle that doesn’t work without action and has been around since the dawn of time.

As I said, I originally lumped Mindset into that group of books, writing it off as more of the same on positive thinking. Then something interesting happened – two different people that I respect quite a bit recommended the book to me within a week of each other. One was a personal friend who said it really changed how he looked at his career and at his relationship with his girlfriend – which surprised me, since he’s not a person I would imagine would typically follow pop psychology talk. Perhaps even more surprising, Jonathan Fields, a blogger and writer I’ve exchanged a lot of emails with over the years, wrote a brilliant article entitled Is Gifted and Talented a Life Sentence? that really shook how I thought about parenting issues with my own kids. Interestingly, Jonathan also pointed strongly towards Mindset as a powerful source of inspiration.

When two people I respect suggest the same book completely independently within a week of each other, it’s likely a book I should make an effort to read. And I’m glad I did.

The basic idea behind Mindset is that people either have a “fixed” mentality – a self-definition that is static and doesn’t or can’t change – or a “growth” mentality, meaning that with work and effort, they can change who they are. Dweck argues strongly that people who are successful in life have the “growth” mentality and offers a ton of ideas on how to get yourself – and those around you – from the “fixed” mindset to the “growth” mindset.

This is something I’ve come to believe in my own life, even before reading this book. The people that always seem to succeed are the people that are willing to really push themselves to the limit. Often, the person with the most natural talent doesn’t win the race – and for a long time, I didn’t understand why. This book (and the surprisingly similar Outliers by Malcolm Gladwell) explains it quite well. Let’s dig in.

1. The Mindsets
How do you feel when you fail?

Some people hate it, as they view it as a clear sign to the world and to themselves that they are, in fact, a failure.

Others love it. They see a failure as an opportunity to grow, to learn about the areas where they need to work, and to become a better, stronger person.

The first attitude points to what Dweck calls the “fixed” mindset. In other words, they believe that the person they are is already defined and the outcomes produced by that person are indicative of the person they are. They can’t change – all they can do is bluff and try to make who they are appear as good as possible.

The second attitude is the “growth” mindset. People who revel in failure recognize that a failure isn’t necessarily a poor reflection on them. Rather, it’s an opportunity to see where exactly they fall short and what exactly they need to work on. It’s a reminder not of where they cannot go, but an insight as to what they need to do to get there.

Here’s another way of looking at it: can you change who you are? People with a “fixed” mindset believe they can’t change. People with a “growth” mindset believe that they can change.

2. Inside the Mindsets
The difference in mindsets is interesting, but how does that really appear in terms of how people behave?

People with the “fixed” mindset often back away from challenges. They want to avoid hard things and prefer to thrive on easy things, things they know they can achieve. They also typically don’t like to read or learn, and they certainly don’t enjoy hard or deliberate practice.

People with the “growth” mindset seek out the challenges. They seek out the hard things in life and prefer to tackle things that push them and make them work hard, even if they fail at them. They usually love to read and learn, and they love practicing and improving at specific skills.

In an email exchange with a friend about this book, he stated it very well: “People with fixed mindsets get bored a lot. People with growth mindsets would give anything for a few more hours in the day.”

3. The Truth about Ability and Accomplishment
Here, the message of Mindset overlaps heavily with Malcolm Gladwell’s Outliers: the biggest key to success isn’t talent, but focus and practice.

To put it simply, the people that rise to the top of their fields do so because they keep working at it, keep growing, roll through the failures, and practice intensely and often. Kobe Bryant and LeBron James aren’t the two best players in the NBA because of their talent – they rose to the top because of their obsessive work ethics and focus on thriving even through adversity.

Although Dweck doesn’t mention it, I keep coming back to Gladwell’s example of The Beatles. If you listen to their earliest recordings – 1960 and before – they frankly weren’t very good at all (I probably sound better than some of their 1958 “Quarrymen” recordings). By 1963, they were amazing. By 1966, they were arguably the best songwriting and performing collective in the world. What happened? They played almost nonstop for years. They’d play for hours and hours each day in Hamburg nightclubs, then they’d play on their own when they weren’t on stage. They’d mess up songs, laugh it off, and try again – over and over and over and over. Eventually, they went from being the unknown Quarrymen (sounding like a bunch of kids beating on instruments – which they were) to recording albums like Revolver.

To put it simply, effort, not talent, puts people over the top.

Even more dangerous, labels such as talented and smart and skilled give people the opposite message. Hearing things like that tells people they already have the ability and that they don’t need to grow and work for it. The best positive feedback you can give – or receive – is one that complements you on your ethic or work effort, as it nurtures a growth mentality.

4. Sports: The Mindset of a Champion
Yes, we’ve all heard the story: Michael Jordan was cut from his eighth grade basketball team. He then practiced obsessively, made it to North Carolina on scholarship, and the rest is legend.

Michael’s early signals on basketball were that he wasn’t very good at it. If he had a fixed mindset, he would have simply quit after getting cut. Instead, he took getting cut as a giant motivator – he took that lesson and his own work ethic and made hay with them.

It isn’t just an ability to practice obsessively, either. When you reach the top, it takes character to stay there, and character only happens if you subscribe to a growth mindset. You’re not perfect – no one is. What sets the winners apart is that they recognize when they mess up, they accept that they messed up, and they work to make sure it doesn’t happen again.

5. Business: Mindset and Leadership
How do the mindsets work in a modern workplace? It’s pretty simple, actually.

A growth mentality in a workplace focuses on making everyone succeed by having the project succeed. A person with a growth mentality will take on any task that needs to be done to bring on success – often, the hardest tasks are the ones that the growth mentality relishes. A boss with a growth mentality will seek to do everything he or she can to make you better, because the better you are, the better the team is.

A fixed mentality in the workplace features individuals seeking to make themselves look better at the expense of others. Gossip is a great sign of this. Projects where no one steps up to the hard tasks is another sign. A dominating boss who takes credit for everything is yet another sign. A workplace without people pushing themselves and helping others is a workplace that can’t produce amazing things.

6. Relationships: Mindsets in Love (or Not)
Ever been dumped? Some people take it well: they’re hurt, but they recognize that there were problems and that it’s time to move on. Others don’t take it as well: they slip into depression, get angry, and won’t let go of the relationship.

This same dichotomy pops up again and again in interpersonal relationships: some relationships are healthy and mutually beneficial (like a good marriage), while others are not (like bullying or a stalker). What’s the difference? In a healthy relationship, you grow while in the relationship and you grow when the relationship ends – but it takes work to maintain. An unhealthy relationship doesn’t take that effort, but it doesn’t build positive feelings and often results in negative ones.

Every interaction is a chance for growth – or a chance to merely maintain some form of the status quo. Interactions that help people grow result in good relationships over time.

7. Parents, Teachers, and Coaches: Where Do Mindsets Come From?
When you are charged with helping someone else improve or grow, you have the ability to help them have a fixed mindset (likely not successful) or a growth mindset (potential for success). Teachers, parents, and coaches all have these opportunities.

What can such a person really do, though? Dweck compares the approaches of Bobby Knight (who demanded perfection at all times, yelled a lot, and led his players to a fixed mindset where they had to act as perfect as they could whether or not that’s what was really inside of them) and John Wooden (who never raised his voice, focused almost entirely on fundamentals and character growth, didn’t worry about perfection, and strove to produce great people). Both saw great success in college basketball, but Wooden produced more people that went on to do great things in the world – the true product of a coach.

Praise your children and students for their work ethic and their hard effort. Don’t praise them for their talents or the “greatness” of their end product. If they make mistakes, don’t tell them they’re worthless – instead, guide them into what they can learn from the mistake and encourage them to try again.

8. Changing Mindsets
What if you’re in a fixed mindset, but desire to have a growth mindset instead? The first step is to ask for help from those around you and listen to what they have to say. They’re going to criticize you – and that’s where your real decision happens. Are you going to listen to what they have to say and try to grow from that? Or are you just going to discredit or pooh pooh it?

Another key tactic: realize that the world doesn’t owe you anything. You may be naturally talented. So what? The spoils don’t just fall to the people with natural talent. They fall to the people who can do the job well, on time, and with reliability. You might be the best jazz flautist in the world, but if you don’t practice your pieces and ignore what’s going on around you, no ensemble will want you around.

Dweck offers quite a few similar tactics throughout this chapter, but these two really stood out to me.

Is Mindset Worth Reading?
I actually felt that Mindset covered much the same ground that Outliers did. They both stress something I’ve found to be an absolute truth in a life that’s successful in any dimension: talent is useful, but hard work and perseverance and learning from mistakes win the day.

Here’s the real lesson that Mindset hammers home very well, with lots of little ideas and tips to help along the way: you’re going to fail at some point. How you deal with that failure is what will make you either a success or a failure in life. If you meet that failure head on, accept the failure, don’t give up, and attempt to learn from it, you’ll succeed. If you avoid the failure and try to find excuses for it, you’ll likely never succeed.

The choice is yours. And if you find that distinction to be an exciting and interesting and useful one, Mindset is an excellent read.

I’ve written often about the value of changing routines. Eliminating a routine that involves spending money needlessly, or substituting a different routine that involves spending less money, is a great way to cut your spending.

In fact, any time you make a choice to reduce your spending, you’re taking a powerful step in a financially healthy direction.

But it’s just a single step. Alone, reducing spending cannot bring about positive financial change in your life.

Let’s say that, much as I used to do, I visited a coffee shop each morning and spent $5 on coffee. I realized that this was something of a waste of my money, particularly given how I didn’t really enjoy each visit – it was just pure routine.

So I gave up that routine.

Suddenly, I’m spending $25 less a week – $100 less a month. That change in behavior made a big change in my money, right?

Not yet.

I could easily take that $25 a week and just do something else unnecessary with it. Since I have all of that free money now, why not buy an extra book or two at the bookstore once a week? Why not pick up a couple bottles of great dinner wine on Fridays? Why not go out to dinner on Saturday night?

After all, because I’m not spending as much, I have the money.

So I start spending that $25 a week on something else – and I’m right back where I started, just making ends meet.

Merely cutting your spending is not enough. You have to do something financially productive with that money.

So let’s rewind the clock. I make the choice to kick the coffee shop habit, trimming $25 a week from my spending.

Immediately, I set up an automatic transfer from my checking account to my savings account – $25 a week.

Then, at the end of each month, I scoop that saved $100 and put it towards my debt. Or I leave it alone and forget about it, knowing it’ll serve as an emergency fund. Or I start putting $100 a month into my Roth IRA. Or I keep adding more to it, saving up for a house down payment in a few years.

The first action – the one of avoiding spending – is powerful, indeed. It gives your finances breathing room. It frees up your money to be used for other things.

The second action, though, is the deal maker. When you choose to take that free money and put it towards something financially productive, that’s when real change begins to happen in your life.

Keep that in mind this week. Try to find one significant way to trim your spending. As you pass through the days, look for areas where you’re spending more than you should and not really getting value from your dollars.

If you figure out a thing or two, that’s great! But it’s just the first step. Go the rest of the way – figure out how much you save from that positive move, then invest that money in something financially positive in your life. Steer it into a debt overpayment. Put it into your emergency fund. Stick it into your 401(k) or a Roth IRA.

Do something. Move forward. Turn your positive personal action into a positive financial one.

Good luck.

This question has been on our minds quite a bit recently, as our three and a half year old son continues to grow and mature. We’ve long planned on giving our children small allowances that are not tied to household chores, and now we’re actually faced with a child that’s nearing the maturity level to understand it.

He understands that money is used to buy things. In order to get an item, you have to exchange some amount of money for it.

Similarly, he understands that there is only a limited supply of money. There is not an infinite amount of money – in fact, in his world, there’s not much money at all. Thus, you can’t simply buy everything you want.

He also understands that different items have different prices. You don’t have to give much money for some things. However, you have to give quite a bit of money for other things. Not all items have the same price. He also understands that saving your money is worthwhile, though this lesson has been guided greatly by Mom and Dad.

Finally, he can count to twenty with ease and count quite a bit higher with some coaxing and concentration. He can not only count abstractly, but he can also count items: coins, chocolate chips, and so on.

From my perspective, this means he’s ready for an allowance (though my wife and I are still discussing it). On the other hand, I know other parents of children as old as six who don’t feel their child is ready for an allowance.

Our goal with giving an allowance is straightforward: we want to teach him the value of saving, charity, and money management through his own experiences.

However, with such a decision, we’re left with a number of additional questions.

First, how big should his allowance be? There’s a fine balance to achieve here. It needs to be enough so that it’s relevant, but not large enough so that he’s spoiled. I’m leaning towards an allowance equal to his age in dollars – so, $3 now, $4 when he turns 4, and so on.

Second, what kind of restrictions should we put on it? From my experience, an allowance given with no restrictions often winds up being spent on bubble gum, which kind of defeats the purpose.

I’m leaning towards the Money Savvy Pig philosophy. To put it simply, it has the child split his or her allowance into four piles: spend, save, donate, and invest.

The “spend” pile is straightforward – that’s his money to do with what he chooses. If he wants to take his money and buy a Hot Wheels car with it, he can. If he wants some bubble gum, he can buy it.

The “save” pile is similar – he can spend it on whatever he wants, but it has to be a defined large goal. Perhaps he wants another track set for his wooden railroad, for example, or maybe he’d like to buy a Christmas present for someone with his own money. This would build up over many weeks, and if he chose, he could contribute more from his “spend” pile towards it.

The “donate” part allows him to choose every so often (once every three months or so) to give the money to a cause of his choosing. This would open the door to a lot of discussion about others in need and allow us to introduce charities to him. I know a child who saved for two or three years and donated a whole heifer via Heifer International, for example.

For his purposes, the “investing” part will be a very long term thing – he can watch it build and build and build, then when he’s older, we can use that money to begin learning how to invest it for the future. I’d love it if he took some of the quarters he saved when he was three, invested it somewhere, and used all of the proceeds to buy a house when he’s a young adult.

If we go down this path, we may start the allowance by giving him such a “savings pig.”

Third, what about his younger sister? There’s also a twenty one month old girl in our home, one who doesn’t have the foggiest idea about money yet. Before long, though, she’ll become aware of it – and she’ll be aware that her big brother is getting an allowance.

We’re not sure how to handle this. Should we give her a very small “spend”-only allowance for now, changing it when she reaches age three or so? Or should we just wait entirely until she’s old enough to understand the ideas? We’re leaning towards no allowance for her for now, making it clear to our son that he’s getting the allowance because he’s older.

Our goal in the end is to teach our children why it’s awesome to save and plan ahead. Your comments and thoughts on this plan are greatly appreciated.

A few weeks ago, I received a simple request from a person I know in the community. She asked me to go to a website and sign a simple petition on behalf of a cause she’s passionate about. She explained the cause in detail and provided the URL, making it really easy for me to just click and sign the petition.

The cause was something I agreed with, so I was happy to click through and sign the petition for her.

Later, she emailed me again, asking if I would donate $20 to the cause. After some thought about it, I declined to donate.

What I found interesting, though, is that I thought about it much more than I would have with a cold call for donations. I had already been introduced to the cause, for one, and I had already “invested” in it a small amount by signing that petition. I felt involved already, even though I was really not, and this sense pushed me to continue my involvement by donating, even though it wasn’t the best rational decision.

This is a crystal-clear example of one of the oldest sales tricks in the book – the foot-in-the-door technique.

Here’s how it works. A person comes to you with a simple request that seems to be for a genuine good purpose. The tiny time investment you have to make seems worthwhile for the positive good generated by your action – signing a petition, granting a really simple request, even getting a freebie.

Then comes the hook – a much bigger request. You’re already invested in the situation, though, by your earlier request. So instead of simply shutting off the new request immediately, you listen – and you’re more open to this big request than you ever would have been.

This technique was described in detail in a classic article by Jonathan Freedman and Scott Fraser in the Journal of Personality and Social Psychology, entitled Compliance Without Pressure:
The Foot-in-the-Door Technique. In the study, a team of psychologists telephoned housewives in California and asked if the women would answer a few simple questions about the household products they used – a simple request that many complied with.

Three days later, the hammer drops. The psychologists called back, and this time, they asked if they could send a small team into the house to go through cupboards and storage places as part of a two hour investigation into how these products are used.

Guess what? Freedman and Fraser found that women were twice as likely to agree to the big request if the little request was made first. In short, by getting their foot in the door with the simple questions, Freedman and Fraser experienced twice as much success with their big requests than just cold calling.

Think about how often this very technique pops up in everyday life.

Supermarket samples You’re offered a free taste of food along with a bit of chit-chat with a store employee. You’re now a bit invested in the product and much more likely to go ahead and buy it.

Parenting My children often do this naturally. They’ll ask to go outside, then that will eventually translate into filling up the swimming pool or getting out the sprinkler.

Charitable giving Just like my example mentioned above, many charities will get you interested by having you sign a petition for what seems like a good cause. Later, they’ll try to hook you with a donation.

Sales flyers They’re having a great sale at the store! Yet, once you’re in the door, you’re already invested – so when you see another few items you need, you’re way more likely to just pick them up now, greatly reducing the value of your bargain.

Free “lunch” seminars You’re offered a free meal in exchange for listening to an investment or real estate scheme. You’re already in the room with a free meal, so you’re already invested in it.

So how do you avoid such traps? Keep two principles in mind.

First, each action is an individual choice. Just because you’ve signed a petition has no impact at all on whether you should donate to the cause. Just because you tried a free sample has no impact at all on whether you should buy the product. Slow down, think about this choice, and don’t let yourself be pushed by previous interactions.

Second, there is no such thing as a free lunch. Those investment advisors aren’t giving you lunch to be nice guys – it’s part of their sale. The grocery store isn’t giving you samples because they’re awesome – it’s part of the sale. Quite often, signing a petition won’t really help the cause – it’s just a way to get you involved in the charity.

To put it simple, be mindful, especially when something seems free or seems to be too simple. Quite often, there’s a salesman at work.

A reader asked me if I could break down my ideas into a handful of principles. After some careful thought, I came up with a list of fourteen basic “rules” that summarize my money and life philosophy. I’ll be presenting these as a weekly series.

If there is a single rule that underlies everything I’ve written about on The Simple Dollar, it’s this simple sentence:

Spend less than you earn.

It sounds so simple, doesn’t it? Yet there are many people out there burying themselves in debt (spending more than they earn) or living purely paycheck to paycheck (spending exactly what they earn).

Simply spending less than you earn has a cascade of positive effects.

First, you begin eliminating your debts. Spending less than you earn frees up the money you need to make larger payments on your debts. Over time, they begin to disappear, reducing your monthly bills and giving you even more breathing room.

Second, you begin to save. First, you build up some cash savings in your savings account, enabling you to roll through emergencies (like a car breakdown or a job loss). You’ll also have the breathing room to start saving for retirement, paving yourself a great future for your golden years.

Third, your stress level falls. Knowing that you have fewer debts, your emergencies are covered, and your retirement is being planned for reduces your stress level. You sleep better, your overall health improves, and you feel happier about life.

Finally, you are now able to explore possibilities closed to you before. When your debts are gone and you are spending far less than you’re bringing in, you suddenly have many more career possibilities. You don’t have to stick with your high-stress job – you have the financial freedom to move on and chase your dreams. You can live where – and how – you want to live.

All of that comes back to one basic principle – spend less than you earn.

That statement actually has two parts, though.

Spend less refers to the fact that you do need to cut your spending. The first step doesn’t need to be anything drastic – nor should it be. Many of the more extreme money-saving tips come from people who have already tried out the basic tips and love them, so they seek out more intense strategies to further cut their spending. I do this myself – I’m always trying out new money-saving strategies, discarding the ones that don’t work for me and keeping the ones that do.

Here are five big ways to get started.

First, go through every monthly required bill. Ask yourself if you really need that service at all. Do you really use Netflix enough, or could you just rent a movie once in a while from Redbox? Do you really use your cell phone much at all, or could you just replace it with a pay-as-you-go phone? Then, go through each bill and see if there are any optional services you can eliminate. Do you really need premium cable? Do you really need unlimited text messages?

Second, keep diligent track of your spending. Keep a notebook in your pocket and write down every expense you have. The simple process of doing this will make you think twice about unnecessary expenses. When you do have a month’s worth of expenses written down, take a careful look at them. Ask yourself whether or not each of these expenses actually contributed to the value and joy of your life. That process will offer a lot of insight for you as to where your spending is going to waste.

Third, look carefully at your routines. Watch what you do every day (or most days). Are there things you do each day that cost money? Those things are the most powerful ones to adjust, as trimming just $1 from your daily spending saves you $365 a year. Do you stop at a coffee shop each day? Why not cut down your daily order a bit, or switch to a different shop, or start making your coffee at home? Do you eat out every day? Perhaps you can start brown bagging it a few days a week. Look at every regular expense you have.

Fourth, get a better bank. The vast majority of Americans are with banks that don’t treat them very well. No interest at all on their checking accounts. Tons of fees for ATM use. Draconian overdraft policies. A tiny interest rate on savings accounts. Monthly usage fees of all kinds. All of these things are a waste of money. Switch your accounts to a bank that respects you. From my own personal experience, I use ING Direct for both savings and checking. I get great customer service, interest on my checking account, a solid interest rate on my savings account, and I’ve never had a fee of any sort.

Finally, do some one-time energy improvements around your home. Replace some of your light bulbs with CFLs and LEDs. Install a programmable thermostat. Air seal your home. Blanket your water heater. Install some SmartStrips to cut down on electricity use. These tactics will cut down your energy bill significantly, directly reducing your bills.

Want some more tips? Dig into my list of 100 great money saving tips for people just getting started, as well as 100 free things to do during a money-free weekend.

The rest of the phrase, than you earn, though, points to the other part of the equation: increasing your earnings. Increasing your earnings gives you more money with which to get rid of your debts, save for your big dreams, and build a foundation for whatever future moves you may want to make.

There are countless ways to earn more money, but there are several tactics almost anyone can apply in their life. Here are five key ways to get started increasing your income.

First, don’t waste time at work. The time you spend sitting idle, browsing the web, or chatting on IM or Twitter with your buddies is time you’ve effectively lost. Instead, invest that time in something devoted to your career, even if it’s not directly on a work project. There are lots of things you can always be working on – see the other things below, for example.

Second, work on your transferable skills. I’m a big believer in transferable skills – skills that one can utilize in almost any career path. Work on mastering such skills. Jump on any and all opportunities to speak in public. Hammer out an effective time management scheme for you. Get into a routine of organizing and filing your paperwork. Brainstorm ideas for things going on in your office. Write clear documentation for the standard procedures of your work. Step up to the plate, take charge of a work project, and get the ball moving forward. All of these things push you towards developing skills that are genuinely useful no matter where you’re heading in life.

Third, build strong relationships with as many people as you can in your field. Join services like Twitter or LinkedIn and start conversations with people in your career. Send emails to people you’ve interacted with a lot in your career and keep up with what they’re doing. If you have an opportunity to connect people that can help each other, do it immediately, without hesitation. Share what you know and be valuable to others.

Fourth, start a side business. I don’t mean filling out surveys or other things you can use to burn a few minutes during the commercial breaks on Lost and earn a few pennies. I mean actually devote serious time and effort to turning a passion you have into a money-making enterprise. Don’t know what that could possibly be? Here are fifty ideas to get you started.

Finally, step up to the plate at work in little ways. There are lots of simple ways to stand out. Speak up at meetings. Show empathy for the problems that others have. Take on only projects you can handle, but do them well. Get to know the support staff – and treat them well. Don’t burn bridges when you move on – make an extra effort to maintain good relationships when you leave. These little things add up to a huge difference.

Keep that rule in mind: spend less than you earn. Each move you make to maximize the gap between what you earn and what you spend will put you in a better place in your life.