Throughout the month of December, The Simple Dollar is posting a daily series focusing on specific activities you can do right now to set the stage for a great 2011. Out with the old, in with the new.

7. Clean out your closets and liquidate.

Even after a few rounds of doing this very thing, our closets are still loaded with stuff. Accumulated but largely unwanted Christmas presents. Old baby clothes. Old CDs. Unused blankets. Art projects abandoned. Books that have been read that we haven’t listed on PaperBackSwap yet. The list goes on and on.

Once every year or two, Sarah and I spend a weekend or so cleaning out closets. We pull everything out of them, then go through everything. Do we really need to keep this? Are we really ever going to look at this again?

We usually end up with a big pile of unwanted stuff that is destined for either the trash bin or, more importantly, some form of resale or trading. Even better, our closets find themselves much more empty, with plenty of room and with the items inside much more organized and easy to access.

Not only that, the whole process feels very cathartic. It gets frustrating when our closets become full enough that we’re unable to find things when we’re looking for it and it’s also a bit unsettling to have that much stuff that’s utterly unused. Cleaning out our closets takes care of both of those problems, gives us a day or two of enjoyable activity, and often results in some extra cash in our pocket.

Cleaning Things Out
Our approach is really straightforward. We put aside either a long day or two shorter days, then designate what closets we’re going to clean out.

Our first step is to completely empty out the closets. We usually pile all the stuff into one big pile in our family room as best we can. We don’t ask questions about the item – the purpose of this step is to just get everything out and accessible.

After that, we start separating the stuff into piles. We do this by evaluating each item. The big question: are we going to keep it? If the answer is yes, we usually go put the item outside the closet from which it came. If the answer is no, we ask ourselves if the item has any real resale value. Could we get something for it on Craigslist or at a consignment shop or on eBay or in a yard sale?

If it has resale value, we put it in one pile. If it doesn’t have value, we usually throw it away unless we think someone might want the item, in which case we’ll hold onto it until we can check with that person.

You need to be realistic with this process. If you haven’t touched an item in years, get rid of it. At the least, it’s taking up closet space. Often, it’s holding some value as well, value that can be used in a better way in your life.

Dealing with the Unwanted
So, how do you handle that pile of stuff that you think has value but that you don’t want?

There really are a lot of options. Generally, the more time you invest in a particular option, the more cash you’ll get from that option. Here are a few that we use.

Craigslist Just toss up some entries for your items, put a default price “or best offer” on each one, and see what you get. Often, people will come to you to get the item, which makes this easy. Ebay is similar to this – you’re likely to get a bit more per item, but you have to deal with shipping the items.

Yard sale This is usually the best route for getting rid of unwanted non-high-end clothes and other general items. We usually put out items at a high price starting on Friday, then gradually lower them throughout the weekend until we’re nearly giving the stuff away on Sunday.

Consignment If you have some high-quality clothing items, you might have more success with a consignment shop than with the above methods. This is usually as easy as driving there, talking over terms with the shop owner, and then waiting.

PaperBackSwap This is where most of our unwanted books go. We simply swap read books for unread ones of our choosing.

Clean out your closet. It’s cathartic, it can free up space, and it can also put some money right into your pocket.

This is the nineteenth entry in a twenty part series discussing the wonderful time and priority management book Making It All Work by David Allen. New entries in this series will appear on Tuesday mornings and Friday mornings through December 10.

Much of this book focuses not on the day-to-day actions that fill our lives, but on a broader view of them. Goals, purpose, principles, areas of focus – they seem very grandiose and fairly unapproachable at first glance and not important, at least not in the sense of a day-to-day busy life.

Here’s the thing, though – they’re incredibly important. Over the last few years, I’ve found that much of the time and money I once spent in my life wasn’t tied to any sort of greater life perspective. It was all about the “now” – and when the “now” shifted into the past, I was left with a present that felt very empty. I basically felt like I wasn’t going anywhere at all in life, that it was fairly empty and hopeless. I would often dream that my “future self” would somehow magically solve everything – he would have money and fame and fortune and all the answers – but I also knew that I was never going to miraculously turn into that great “future self.”

I was merely running in place and I really had only myself to blame.

Over the last few years, I’ve strived to fix that, and both of Allen’s books (this one and Getting Things Done) have helped greatly in that journey, along with a pile of personal finance books and other materials.

What I’ve found is that there is no one “ready-made” solution for getting your life in order. The reason I like Allen’s books so well – and many of the other books that have helped along the way – is that, while they usually offer a “system” of some kind, that “system” is usually just composed of a big mountain of individual tips from which a thoughtful person can pull what they need to build their own system.

What do I mean by “system”? Allen spells it out pretty well on page 269:

There’s nothing like having outstanding tools, comfortable environments, and simple behavioral tricks to turbocharge your productivity. It’s easier to win a game and conduct successful business with proper gear, a conducive atmosphere, and some smart habits and rituals that support the best practices.

In other words, a “system” is merely all of the bits and pieces that enable you to go through life at your absolute best as much as possible.

Allen spends most of this chapter outlining some of his most useful “bits and pieces” for the system that works for him – and I’ve actually found most of them are useful for me, too. Here are the ones that Allen mentions that also click with me.

Ensure that you have great capturing tools I need to constantly have the ability to jot down the things that come into my mind and put them in a place that I know is secure and reliable. Without that, spare thoughts – appointments, things to be done, books to find out more about, etc. – begin to fill my head, distracting me from whatever task is at hand. When I’m at my computer, I use Evernote. When I’m elsewhere, I usually just use a pen and a pad.

Set up your calendar and action list manager A good reliable calendar is essential, as is a tool that helps you keep track of your “next action” list – your to-do list, in other words. I use Google Calendar for my calendaring needs. I have tried lots of different systems for a “next action” list manager, but I keep going back to Remember the Milk, which just brings more features that I need to the table than any other such service.

Set up ad hoc list functionality For me, this mostly means a list of my ongoing projects as well as a list of sorts for each project outlining where I think it needs to be going. I don’t keep these in Remember the Milk – instead, I use Google Docs for these because they tend to be a bit more free-form than just an ordinary list.

Structure effective personal office, home, and transit workstations I’ll admit that my home office often isn’t in the order I’d like it to be in – that’s an ongoing challenge for me. However, my “transit workstation” – my laptop bag – is probably more useful than my home office. I keep my laptop in there, along with several different chargers, a notepad, plenty of pens, and so on, along with some source material for at least a few articles. Why is this so important? I know that at any moment, I can grab this bag and be professionally functional for several days almost no matter where I go.

Complete mind sweeps For me, a big part of being able to focus on the task at hand relies on having as clear a mind as possible. I achieve this (in part) through mind sweeps – in other words, I write down everything that’s on my mind (usually with each discrete thought on a separate line or on a separate small piece of paper) and throw them all into my inbox. From there…

Incorporate time for processing Processing is a key part of making all of this work. Once or twice a day, I process my inbox, meaning I take each item that’s in there and figure out what to do with it. Is it a new entry on my to-do list? Is it a calendar entry? Is it something I can do right away? Is it an email? Whatever it is, I deal with it and get it out of my inbox and into some other place that makes more sense than a catch-all.

Build in the weekly operational review Once a week (usually on a weekend day when my wife is putting the kids down for a nap), I spend an hour or so reviewing the week. I make sure that there isn’t anything clogged in the inbox, go through my project list and make sure they’re all moving forward, and so on.

Create elevated horizon events Once every three months or so, I have a long weekly review, taking two or three hours. During these, I step back and try to look at everything going on in my life from a broader perspective. Is everything in line with what I value most? Is my life headed towards the picture I have for it in five or ten years?

Every great system is made up of useful pieces. These are just some of mine – at least, the ones brought to my plate by David Allen.

Throughout the month of December, The Simple Dollar is posting a daily series focusing on specific activities you can do right now to set the stage for a great 2011. Out with the old, in with the new.

6. Create a debt repayment plan.

Yesterday, we talked about the usefulness of cleaning up your debts. Doing this reduces your interest rates (and thus the total amount of interest you’re paying to the companies), reduces your monthly payments, and reduces your risk of identity theft.

Of course, now that you have this reduced set of debts with a smaller batch of monthly payments, you’re in a perfect position to start tossing some of that savings toward eliminating those debts. The faster you get rid of those debts, the faster you’ll be in complete control of your financial future and the less you’ll have to pay on the whole to companies in the form of interest.

The way to do that is with a well-thought-out debt repayment plan.

Getting Ready
Developing such a plan is easy. You simply need a list of your debts, their balances, and their interest rates. If a debt has multiple rates, I usually encourage people to use the highest rate for that debt.

If you followed yesterday’s plan of minimizing and organizing your debts, this list should already be in front of you.

Ordering Them
The next step is putting the debts in the order in which you intend to repay them. There are two different schools of thought as to the order with which to repay them.

The Dave Ramsey “debt snowball” method encourages people to order their debts by their balance, smallest to largest. The reason for doing this is so that you experience the “success” of paying off a debt as quickly as possible so that you have the motivation to keep going.

The mathematically superior method encourages people to order their debts by their interest rate, highest to lowest. This method will result in your debts being paid off the fastest, but it can often be a long slog, particularly if your highest interest debt is a very large debt.

I don’t really think you can go wrong with either method. They each have advantages and disadvantages.

Executing the Plan
There’s one final thing you need to have before you start this plan: how much can you throw towards it per month?

That amount should be at least as much as you were throwing towards your debts before you cleaned them up. Ideally, you’re doing a little more than that.

So, let’s say you were spending $1,500 a month making minimum payments on your debts. After cleaning them up, your monthly payments are now $1,100. You should still aim for putting $1,500 a month towards it.

Treat that total amount as a bill that is without question. You have to pay that extra amount. If you start to fudge on it, all you’re doing is ensuring yourself a debt-filled future.

So, you have $1,500 in debt payments and $1,100 in minimum payments this month. That means you have $400 extra. You just add that $400 to your payment on the first debt on your list that month, giving the balance of that debt a good whacking.

What will happen is that over time, you’ll see the balance of that first debt dropping like a stone. Soon, it will be paid off.

At that point, your minimum payments might be $1,000. You should still be using $1,500 a month in debt payments, so now you have $500 extra per month. Cross off that paid off debt and, now, apply that extra $500 to the new top debt on your list.

This is basically the procedure you repeat until you’re debt free. You just keep alloting a large chunk towards debt repayment each month. Each month, make minimum payments on all of your debts, then make an extra payment on the debt at the top of your list. Rinse and repeat and watch the debts melt away.

Today is your day for getting such a system in place. Get rid of those debts that are constantly draining your wallet each and every month.

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Studying versus working
2. Student credit card question
3. Dealing with extra income
4. Preparing for job review
5. Pension or Roth?
6. Living frugal versus organics
7. Which debt first?
8. Retirement advice for dad
9. Charged-off debts
10. Dealing with rewards points

A few weeks ago, I was thinking about purchasing something expensive that I had been saving up for (the actual item is completely irrelevant). I was shopping online for it when I discovered that a person I’ve communicated with many times in the past was having some very deep personal troubles. His child is very, very ill and they have extremely poor health care, all of this coming during a period of career uncertainty.

Rather than buying the item, I decided to wait. Instead, I sent my friend a few dollars to help out.

In the end, what’s more important: some material item I don’t really need or the welfare of a friend when they’re really in a bind?

Q1: Studying versus working
I am 21 years old, and I live in Israel – which means I did 3 years of mandatory army service. I am about 6 months out of the army and am currently working at a fair (for my age and education level) paying job. I want to study Computer Science at the local university, but the tuition is about 10,000 NIS per year. My parents told me they would pay for my first year, and the money I got after leaving the army will pay for another one. Now, university applications don’t start until march, so I definitely have a few more months to save money, and that will pay for the final year.

But to get to my question – I got used in the last few months to being financially independent. In Israel it is not uncommon to live with your parents even until the age of 30+, so it’s not really embarrassing for me to be living at my parents’ (side note, I’m living with my girlfriend), but I would feel really bad have I had to start relying on them for money again. So I my dilemma is this: should I start college next year, and go back to asking for money from my folks, or keep working for another year and save enough money to take care of my needs for at least the first year of university (the hardest one), thus postponing the beginning of my “real” life.
- Matt

Sit down and talk with them about it. You have demonstrated that you’re independent at this point, and they’re probably thankful for that. Talk to them as an adult.

Lay out the whole situation and ask them what they think about it. It may be something they want to do or it may be something that they’re reticent about – you should be able to figure this out from the conversation.

I think, more than anything, this comes down to your parents’ situation and whether they feel they should help you or want to help you or whether they view you as an entity that they have no obligation towards or desire to help. Neither reaction is wrong per se – it really depends on your relationship and their situation.

Q2: Student credit card question
I’m a college student that has pretty good credit because I have a car loan (although I split the payment with my parents.) I’ve never been late on it, I’ve had it for a little over a year and I’ve checked out my credit report and score and everything and its at least 650-700. I also have student loans out which I know impact my report even though I haven’t started paying them yet. (I’m only a sophomore.) But I know I need to build even more credit and I’d like to get a credit card so I can boost it even more. I’m really only planning on using it for gas and maybe the occasional meal out or normal necessities. I’m thinking about the Discover More card or the Amazon Rewards card. I do plan on paying it off in full every month as well. I just have no idea which to apply for and I’m nervous to even start applying for fear of picking the wrong one or possibly getting denied.
- Ashlee

If you’ve checked your credit score, shouldn’t you know exactly what it is? My guess is that you used a FICO estimator rather than actually getting your score.

Anyway, if you’re going to apply for a card, I’d choose one that gives you bonuses based on your normal behavior as it is right now, not based on how you think you might behave in some hypothetical future. If you buy gas at BP, get a BP card. If you do a lot of Amazon shopping, get an Amazon card.

Don’t sweat getting declined – if your credit score really is that high, you’ll be issued a card.

Q3: Dealing with extra income
My wife and I have been living together for about a year and a half now. We moved from the West coast to Omaha after graduating college because of a job I got out here. Since then, we’ve been working hard on building our emergency fund/liquid savings. Between saving and a couple of small windfalls that have come our way, we have saved a little over $20,000 in an ING savings account. Aside from that, I have about $6000 in my 401(k), for which I contribute 5% of my paycheck and receive the full company match.

So, our month to month financial situation is that we spend $500 to $800 less than we earn, depending on the month. Aside from continuing to save for a trip, where else could we put our money? I have toyed with the idea of contributing more to my student loans, opening a Roth IRA for my wife (she is a student and doesn’t have any retirement account set up), or some other type of investing. What would you suggest?
- Jeff

Whenever someone asks a question about what they should do with extra saving or investing dollars, I respond with the same general thing.

Set some goals.

Sit down with your wife and talk about where you want to be in five years. If you like where you’re at and want to simply retain it with more robustness, I’d pay off the debt. If you want a more secure retirement so you feel safe switching jobs later, I’d build the Roth IRA. If you want a home, I’d start saving cash.

Your goals lead what you do with the money.

Q4: Preparing for job review
I’m writing to you looking for some advice as to what I can do to prepare for an upcoming Job Review (1 year). I feel like my job is going well, I am liked by those around me and I feel like my employers value me. However, I also feel like they don’t care how much work they give me – they just pile it on day after day with no regard – thus deadlines are stretched and my stress raises. I don’t feel like I am compensated fairly, but I don’t know if a raise is in my future or not. I suppose my question is: what do you suggest, if anything, to do to prepare for a job review?
- William

It depends heavily on your workplace. Is it a workplace that deals with candor well or not?

Based on your comments, it sounds either like your workplace doesn’t handle candid discussions very well or that you’re nervous bringing them up. If it’s the former, you’ll want to tread carefully, as people can view candor in such situations quite negatively. If it’s the latter, you need to bring this up if it’s bothering you.

This sounds like something that is negatively impacting how you feel about your workplace and thus impacting your performance. If that can easily be brought up in the workplace, it needs to be. Both you and your employer are losing because of this situation.

Q5: Pension or Roth?
I am a 25 year old police officer. Our current statewide retirement system takes a portion of our weekly pay and places it into the state account. For example, my gross pay this year is currently at $83,126 (I work a large amount of road details) and they have taken out $7730. When retirement age comes due at 45 years old we receive a portion of our top 3 years of salary, and I expect to be receiving somewhere in the range of $70,000 per year plus a new second career income.

I currently own a home, have adequate emergency savings, and contribute extra payments each month to my mortgage.
- Ryan

I never, ever fully trust a pension. I usually view a pension as something that’s frosting on the cake if you get any when you retire.

Given that, I would at the very least fully fund a Roth IRA in the coming year. I think that’s your best route for retirement savings at this point.

Never, ever rely on a pension. I’ve seen far too many “guaranteed” pensions vanish out from under the feet of people who relied on them.

Q6: Living frugal versus organics
Anyway, my question is, how do you balance living frugally and using organic/vegan foods and products? Do you buy all organic foods? Beyond produce, how do you decide what is worth paying more for organic?

Another idea that I’ve seen on other blogs is making your own deodorant or using baking soda as shampoo. Have you tried any of these ideas, and what do you think of them?
- Maria

I’m not too worried about buying everything organic. I buy organic when the prices are reasonable in comparison to the non-organic items. For some foods, like seafood, the organic label doesn’t have a ton of meaning.

As for organic personal care products, you’re really getting into an area without a specific meaning there. I just recommend reading the ingredients and picking up only products where you understand what’s in them.

I’ve tried various replacements for toiletries and none of them are all that great without significant work. We’ve made our own soap on occasion to great success.

Q7: Which debt first?
I will be coming into a two part windfall this winter when my company distributes profit sharing (allegedly, 33%). I should be receiving roughly 10k this December (post tax if I choose no additional retirement distribution) and another $3,500 in March. I make 55k annually and am doing well enough at my 25 years of age. I purchased my home in August 09 and currently owe 101k on a 30yr note at 5.25% interest. I have 3 student loans consisting of the following:

All that said, which loan (2 or 3) should be paid off first? I’m leaning towards 2 since i’m not paying it currently (although it is in the budget, that money is just saved instead) and it is locked into a high interest rate, but want your opinion on the matter (as well as any other option I’m not considering). What should I do?
- Drew

You should always pay off the loan that has the higher interest rate at the moment first, so I would go with #2 as well.

The only exception to that would be certain loans where if the rate adjusts you’re going to have to pay the back interest (like some credit card balance transfers). In those cases, I would pay the one with the highest adjusted rate first – but that’s not the case here.

Don’t worry about what might happen with things like this. A bird in the hand is worth two in the bush.

Q8: Retirement advice for dad
Background: My dad lives in San Diego and is 63. He recently retired from the Coast Guard and after splitting it with my mom, his ex-wife, gets a monthly payment of $1000. He also got a one-time payment of about $25k because he delayed retiring for 3 years and it piled up. He plans on retiring from his current job at age 66 to get maximum Social Security benefits, which we think will be about $1000 per month. His current job retirement will give him about $1000 per month too, but we’re unsure if he has to split that with my mom. I think he has about $85k in a (government?) Thrift Savings plan offered by his employer, the VA, which he still contributes to but not sure about matching. Finally, I think he has about $15k in liquid savings. Luckily, he’s good at discussing these things with me!

What should his next step be? What should he do with the monthly Coast Guard payment for the next 2.5 years? The Coast Guard windfall? Any changes to his savings plans? Final resting place plans? Long-term care plans? He would like to give some money to an education savings plan for my 18 month old niece too. Any advice is greatly appreciated.
- Shannon

I think he’s doing pretty well other than the bill forgetfulness.

The best things he could do for his own future would be to just bank as much as he can until retirement into something stable – even a savings account would work. He should also really work on that bill paying forgetfulness, perhaps entrusting someone else to handle such bills for him. This will be important when he moves, because many rental managers look at a person’s credit rating before deciding whether to rent to them.

The only thing that really concerns me are the hints of forgetfulness, and that’s something that his pride may prevent you from helping with.

Q9: Charged-off debts
I fall into the “young professional” category of having a negative net worth since I owe more in student loans than I currently have in assets. My question is about charged off accounts/debt on my credit report…these charged off debts are credit cards amounting to less than $5k and medical bills amounting to at least $5k with misc accounts here and there for smaller amounts.

Should I add those to my debt list and try to pay them off if, once paid, they are not removed from my credit report? Or, should I leave them unpaid and wait for them to fall off my report once the 7 year mark is reached? Most of the debt has about 2-3 years left to “fall off”. I rarely hear personal finance advice about old charged-off accounts/debt so I would appreciate your advice.
- Lacey

It depends on whether you want to do the honest thing (paying debts you incurred) or the thing that’s best for your credit history (not paying them).

This is a situation where honesty is not rewarded, and I actually think it’s really messed up. If you have a debt you haven’t paid and then you are able to pay it off and do so, it should benefit your credit history. Quite often, on old debts, doing that hurts your credit history.

You have to answer the honesty conundrum yourself. It’s not something I can tell you – you have to ask yourself.

Q10: Dealing with rewards points
I currently have about 17,000 reward points for my credit card. I get approximately 1 point for each dollar spent on the card. I use my credit card for a lot of purchases and expenses for the very reason of getting the points and then redeeming them for cash. (Don’t worry, I pay the full balance every month.) My question is how long should I wait to redeem the points for cash?

Given all this information, should I redeem 15,000 points now and put the $120 in my savings account, or should I hold out until I get to 25,000 points, which could be at least 9-10 months from now?
- Tanner

A bird in the hand is worth two in the bush. I would cash in the points immediately.

Why? Let’s say you lose your job and are unable to pay a bill or two. The balance builds up. The bank decides to cancel your card. Boom – you have nothing.

There are any number of reasons why you wouldn’t be able to get the bigger amount. The program might change. The points program might be dropped altogether.

If you can get that rewards cash now, get it.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.

I’ll admit it – I’ve only seen the show Your $$$$$ on CNN once. I don’t watch much cable news – or broadcast television at all – so I don’t have much opportunity to follow programs like that one.

Instead, I came across this book at the library, not knowing the author, Christine Romans, from anything. I checked it out for one reason: it manages to ride the fine line between intelligent personal finance writing and easy-to-read personal finance writing.

It is a fine line, because it’s easy, when you know about finance, to write about it in such a way that’s not easily accessible to the layperson who just wants to make ends meet. At the same time, you can also write about it in such a way that you’re not really saying something of interest to anyone.

It’s a fine line that I try constantly to achieve, and I enjoy it when I find a book that manages to do it. Smart Is the New Rich seems to do that quite well.

1 | Reset, Repair, Recover
Money can’t buy you happiness, but like it or not, it is the engine upon which most material transactions occur. The smarter you get about these transactions, the more likely it is that you’ll be able to have the resources for the things you want in life. The best way to get started is to have a heart-to-heart with your spouse and with yourself. Ask yourself if your money is actually lasting through the month and whether your account balances are actually improving each month (on average). Are you living in housing that’s too expensive (more than a third of your income)? Romans offers up a bevy of such questions.

2 | Spending Your $$$$$
The real lesson of this chapter, I think, is that honesty with one’s self is vital. If you can’t honestly answer the question of whether or not you can actually afford to buy a particular item, it’s going to be very difficult for you to spend less money. Simply put, if you don’t need it, don’t buy it, and if you can’t afford it, put it down. Another key point is the value of saving first rather than last – the first thing you should do with your paycheck is to put some of it in a savings account that you can’t easily touch. I prefer using a completely separate bank for it.

3 | Your Job
I have one minor problem with this book and it begins to crop up here: politics. Romans often tries to slip in political perspectives throughout the book, never really offering enough to give a coherent political perspective, but just enough to taint the waters. Here, the book discusses the job market, pointing out the key fact that if you’re out of work, you need to work hard on retaining your skills and connections. On the flip side, if you’re still employed, future success hinges greatly on results.

4 | Debt
Here, Romans introduces the usual “good debt versus bad debt” dichotomy in which some debt is identified as being “good” (mortgages, student loans) and others are “bad” (particularly credit card debt). I tend to think that even “good” debt isn’t all that good and one of my current financial goals is to move as close to debt freedom as possible, simply because of the oppressive nature of debt paymetns constantly draining away your income.

5 | Credit Cards
Clearly, credit cards fall into the “bad” part of that “good versus bad” dichotomy. It’s key to remember that most Americans pay their credit card bills on time, but some people are unable to cope. Those who cannot need to take radical action to move into a situation where the credit card debts are under control. Another key factor related to credit cards is to make sure that your personal credit is under control – Romans points readers to the the FTC site for getting your credit report from the federal government.

6 | Home Sweet Home
The key thing to remember is that you begin to make money the day you buy your home. You’re now able to have a better commute. You’re more able to cook meals at home and to entertain at home. Don’t focus on “turning” a big profit on your home because, frankly, it’s not realistic. The idea that you can turn a huge profit on your home comes from the housing bubble, which was a period of unreality that we’re still reeling from.

7 | Save, Invest, Retire
Romans identifies three steps to a prosperous future: budgeting, saving, and investing. As you become more prosperous, your focus moves from the first to the second, then from the second to the third (I think we’re undergoing that second transition right now). Romans argues that no matter wherever you are along that spectrum, you should strive to spend only 70% of your income, striving to save or invest 20% of your income and then giving the remainder to charity.

8 | Family Money
Honesty, honesty, honesty. That underlines this entire chapter. If you’re deceptive about your money with yourself, you’re going to wind up in financial trouble. If you’re deceptive with your spouse, you’re endangering that person’s financial future and doing what you can to make sure they don’t trust you when this duplicity is discovered. Honesty makes it all better – if you make a spending mistake, admit it.

9 | Health Care
Here, the politics come out a bit again with some discussion of the upcoming health care changes in the United States – something I’ve been hesitant to talk about because I’m pretty confident that what we actually have in 2016 or so won’t look like what we think it’ll look like right now, so why speculate? Still, I do agree with Romans that changes in some regard are coming, and I also agree with her that health care expenses are a huge problem. The best thing you can do is stay active and focused on your own health – eat well, get exercise, and do what you can to stay healthy.

10 | Small Business
A good small business rests on a good business plan, good relationships with the community, and startup funds that aren’t personally strangling you or strangling the business. If you have those elements in place, you’re much more likely to succeed than if those elements do not exist.

11 | Government
Quite frankly, I didn’t like this final chapter. It provided a healthy dollop of politics in a book that didn’t really need them, and that’s my biggest criticism of the book. Although I enjoyed pieces that showed how government and personal finance are connected, I didn’t like when the book kept going and moved into the stuff of political debates, which are endless and divisive. You’re not going to convince a conservative to be a liberal and you’re not going to convince a liberal to be a conservative. Rather than demonizing each other, let’s seek out some common ground and focus on making that common ground an absolute home run instead of arguing about minor social issues while trillions of taxpayer dollars vanish down a rathole.

Is Smart Is the New Rich Worth Reading?
If you can get past the politics, Smart Is the New Rich is a very solid, well-written, entertaining, and thoughtful general personal finance book. It ties specific personal finance issues to some general societal concerns quite well.

I just wish the author had chosen to keep the more politically-edged elements out of the book. While some will enjoy them, I just felt that it was out of place and is likely to distract some from the good personal finance message in the book.

Throughout the month of December, The Simple Dollar is posting a daily series focusing on specific activities you can do right now to set the stage for a great 2011. Out with the old, in with the new.

5. Clean up your debts.

No, I don’t mean just repay them. For most people in debt, saying “pay off your debts” is pretty trite. It’s an action that they can’t afford or else they wouldn’t have debts to begin with.

Instead, a better first step to take is to clean them up. Minimize interest rates. Lower monthly payments. Refinance. Negotiate. Consolidate.

Here are several steps you can take to clean up your debts which will both reduce your monthly payments as well as the interest you owe on the debts without wrecking your credit rating.

Refinance your mortgage Interest rates on home mortgages are ridiculously low right now, often dipping below 4%. If you are not underwater on your home and you have an interest rate that’s above 5% and you still have more than a few years to go on your mortgage, it’s almost assuredly worth your while to refinance.

If you have other collateralized debt (usually a car loan) that’s at a higher rate than your refinanced mortgage, you should consider pulling that debt into your mortgage by borrowing enough to pay off the automobile. Do not use your refinance to pay off non-collateralized debt, though – don’t put your home at risk just to pay off credit cards.

I usually recommend starting with your local credit union or with your current lender when considering refinancing, but don’t be afraid to shop around.

Lower your credit card interest rates I wrote a detailed guide for this a while back and the general information there still holds true. You should give this a shot if you have a substantial amount of debt sitting on credit cards and have largely been able to make your payments up to this point and it’s not going to cause a financial apocalypse for you if you have a card cancelled or a credit limit reduced along the way. If you’re teetering on that kind of edge, be careful.

The process is simple – just call the number on the back of the card, state that you’re considering switching your active use to another card because of the oppressive rates, and ask for a rate reduction. If the first person won’t do it, ask to speak to their supervisor.

While you’re there, ask about any balance transfer offers that they have available on your card, in preparation for the next tip…

Consolidate your credit card debt through balance transfers If such transfers are available to you, transfer the debt from your highest interest rate card (after getting all the reductions you can) to your lowest interest rate card. This will not only help with the monthly payments, but will also help with the overall interest you have to pay. You can also do this via a cash advance.

Make sure you understand, however, that different balance transfer offers handle transferred balances differently. Some charge a different rate on balance transfers, so if you’re considering a transfer, ask for the details before you leap in.

Cancel unused cards besides your oldest Your oldest card should remain because it establishes the length of your credit history. Aside from that, unused credit cards mostly just provide a route to identity theft – something you don’t need.

I usually advise people to cancel cards with a zero balance that are not their oldest card or their most frequently used card. This way, you minimize the options for identity theft and have fewer things to worry about in the event of a stolen wallet and so on.

Now that you’ve trimmed the tree a bit, how do we go about knocking it down? We’ll talk about that tomorrow.

Throughout the month of December, The Simple Dollar is posting a daily series focusing on specific activities you can do right now to set the stage for a great 2011. Out with the old, in with the new.

4. Plan how to erase that mistake.

Yesterday, we discussed how to dig into your life and figure out the single solvable mistake or problem that causes the most negativity and challenge in your life.

Today, we’re going to talk about how to kick that mistake directly in the teeth and send it packing.

I want you to take out a piece of paper and write that mistake at the top. Under that, start making a list of every single negative thing that mistake has caused in your life. When has that mistake brought you down? When has it held you back? When has it made you feel bad? When has it altered your life in a negative way?

Write them all down, or at least as many as you can stand to write down. Then step back and look at the huge impact that mistake has had on your life – and the impact it’s still making.

What would you be willing to give up to get rid of it?

Correcting a mistake is always a challenge. It always involves some sort of sacrifice. Hard work. Swallowing your pride. Giving up something that on some level you’re committed to. It is never easy.

The next step from here is to come up with a specific goal and a detailed game plan for reaching that goal.

Where do you want to be? What exactly constitutes success for solving that problem? What specifically does it mean to overcome the big mistake in your life?

For some challenges – like my own weight concern – the answer is easy. For others, like repairing relationships, the answer is a bit less straightforward. You have to piece together for yourself what exactly constitutes success.

Write down that goal. State it as clearly as you possibly can, and do it with your own hand. The permanence of a written goal is extremely powerful, particularly one that can lay waste to a lot of negative elements in your life.

Keep that written goal in a place that’s front and center in your life. Put it on the refrigerator. Tape it to the rear view mirror in your car. Wrap it around your credit cards. Whatever it takes.

How do you get there? What exactly do you need to do to get to where you want to be? This is actually more challenging than it seems, because many people will respond with some sort of idealized “perfect” plan that can never be attained.

Don’t. The perfect is the enemy of the good. You’re far better off pledging just to lose one pound a week than to lose 80 pounds in six months. Move towards your goal with small, steady steps that can be replicated and that, if you miss one step, doesn’t endanger all of your progress.

Write down those steps. Make a clear plan for carrying out your overall goal. Write down the steps you’re going to take in explicit detail, so it’s clear what you need to do on any given day to move towards the goal.

This way, you’re met with a specific and clear task to execute each day rather than dealing with vagueness and confusion. When you have that in hand, it feels much easier to move towards a goal than if you’re facing an uncertain path.

Now, it’s up to you. Are you going to live with the mistake – or are you going to knock it down and move forward with a great life?

Many newer readers of The Simple Dollar haven’t been exposed to the hundreds of great articles in the archives of the site, so this is a weekly series that highlights the five best posts from one year ago this week, two years ago this week, and three years ago this week. I call it … the Time Machine.

One Year Ago (November 28 – December 4, 2009)
Some Thoughts on the Prosperity Gospel I have mixed feelings about the “prosperity gospel.” I don’t agree with the theology, but I do like it as a self-improvement tool.

Putting the “Important but Not Urgent” Tasks Above the “Urgent but Not Important” Tasks Mastering this, in my opinion, is a big key to personal success in every dimension of life. There are so many “urgent but not important” things in our lives and when we put them atop the “important but not urgent” things, we lose.

Why Are Oranges Always on Sale in December? Seasonal Food Sales and How to Take Advantage of Them I am always keeping an eye out for fresh produce on sale.

Two Years Ago (November 28 – December 4, 2008)
A Long December A long December and I’ve reason to believe that the next one will be better than the last.

Cutting Down on the “Hidden” Costs of After-School Activities Eating out, mall stops, buying beverages at the game – these were all part of after-school activities for me and they were all expensive. How can you cut that down?

Internal and External Signals If you can get a grip on all of those external signals, you can get a grip on some of the poor spending choices you make in your life.

Three Years Ago (November 28 – December 4, 2007)
Everything You Ever Really Needed to Know About Personal Finance on the Back of Five Business Cards This is very concise summary of my perspective on personal finance.

An Inheritance of Collectibles What do you do if you inherit a collection of stuff that you don’t know much about? Here’s how I would handle it.

Simple Frugality By The Hourly Rate I often look at frugal decisions in terms of the value per hour that they provide. For example, if I can spend five seconds going across the room to flip a switch that controls four 60 watt bulbs and the lights then stay off for eight hours, that switch flip saved me about twenty cents. Figuring that for an hourly rate makes the value of that five seconds very high.

Four Years Ago (November 28 – December 4, 2006)
Money as a Social Barrier I think that if you’re finding money to be your social barrier, it may only be a proxy for something else.

Building a Better Blog for 2007 Here’s a compilation of my advice on getting a blog going. I put everything I ever learned about blogging to work here on The Simple Dollar and it seems to have worked out.

Is Living Cheap Really Worth It? Ask Alan and Bob If you can shave just a few percent off of your spending, it can have life-altering effects.

If you’d like to browse through more of the archives, visit the chronology, where all posts are listed in chronological order.

Ten Ways to Get More out of The Simple DollarUpdated!
This is kind of a FAQ for new readers and is posted each week along with the Time Machine. Here are ten great ways for new readers to dig deeper into The Simple Dollar.

1. Subscribe by email or RSS. Visiting The Simple Dollar’s website is great, but for many people, it’s more convenient to receive the articles in another form. It’s easy to join 130,000 other subscribers and get The Simple Dollar’s content by email or in your RSS feeder (if you’re unfamiliar with RSS, check out Google Reader.

2. Comment. Each article on The Simple Dollar has lively discussion. Just click on the green square in the upper right of each article on the website and join in!

3. Become a fan of The Simple Dollar on Facebook. I put up questions and other materials about once every week or two on Facebook (so you won’t be flooded with Simple Dollar updates). Join in the conversation with other Simple Dollar fans and occasionally get some interesting freebies, too.

4. Follow me on Twitter. I post interesting articles, quotes, follow-up material, commentary, and other material on Twitter. Follow me! If you’re unfamiliar with Twitter, it’s essentially an open discussion forum for people to share ideas and thoughts with other like-minded folks – you just choose the people you want to listen to and their ideas and thoughts are all delivered to you on a single page.

5. Read my story of financial meltdown and recovery. The Simple Dollar isn’t based on what I’ve read in books or learned in school. I’ve made a lifetime of financial mistakes – The Simple Dollar is a record of what works for me during the process of getting my life on a better track.

6. Download my free 49 page e-book. Everything You Ever Really Needed to Know About Personal Finance On Just One Page is completely free. It summarizes all of the key lessons I’ve learned along the way about personal finance in one tidy package – in fact, all of the main principles can be found right on the cover.

7. Dig through “31 Days to Fix Your Finances.” 31 Days to Fix Your Finances is an article series that outlines how you can get a grip on your finances over the course of a month.

8. Send me your questions and suggestions. Send me an email and let me know what you’re thinking, what you’d like to see, and any questions you might have. I try to respond to as many emails as possible and I read them all. I may even use your question in a future article!

9. Become a “Friend of The Simple Dollar.” If you find the stuff on The Simple Dollar valuable and are willing to spend five minutes or so a month to help me out with small things, please consider signing up to be a “Friend of The Simple Dollar”.

10. Email a great article you find to a friend. Find an article that you think your friend would love? At the bottom of each article, you’ll find a link that says “Email this” – just click on that, type in your friend’s address, and send it right along to them!