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.

I picked up a copy of Money recently and counted the number of mutual fund ads in the issue. My count? 18.

Each one claimed to offer some sort of security for you. Each one claimed to offer superior service and/or superior results.

Then I turned to the content. I saw a huge list of mutual funds, all of which seemed to be described as spectacular. I saw multiple articles discussing how to make saving for retirement or saving for college as complicated and scary as possible.

By the time I sat the issue down, I was almost overwhelmed. With that many investment options and choices out there, how can I possibly ever pick the right one?

The truth? Don’t worry about it.

You’re twenty five. You want to retire at age sixty, so you’ve got thirty five years to go. You decide that $750,000 is a good target. So you start looking into investments.

You do a week’s worth of research, pick an investment that seems pretty good and stable over the long haul, and you decide to dive in and start saving right then and there.

You start socking away $5,000 a year, and that investment only has to earn 7% a year to get you to your goal. You don’t have to have sleepless nights worrying about your investment - 7% is a pretty reasonable goal.

Now, let’s say you look at them - and you’re overwhelmed. You decide to wait a year - and that year becomes five.

You start socking away $5,000 a year now, but the outlook is decidedly worse. You now have to earn 9% a year in order to make that $750,000 goal. Instead of being able to sock that money away and not worry about it, you’ll now have to micromanage it - and even then, you likely still won’t make it.

What’s the moral of the story? You’re better off starting your savings now rather than waiting until you find the “perfect” investment. The perfect is always the enemy of the good. Sure, you can keep your eye out for a better investment, but you don’t have to have world-beating Peter Lynch-like returns in order to make your goals.

So what’s a “good” investment? For starters, an index fund: they’re easy and don’t require much time investment, they’re very cost efficient, and they outperform virtually all managed mutual funds. Burton J. Malkiel, in his seminal The Random Walk Guide to Investing, makes a brilliant case for them:

[Index fund investing] has outperformed all but a tiny handful of the thousands of equity mutual funds that are sold to the public. Let’s list all the advantages of an index fund strategy:
- Index funds simplify investing. You don’t have to choose among the thousands of individual stocks and mutual funds available to the public.
- Index funds are cost-efficient. [Many] have no sales charges and have miniscule expense charges. Moreover, index funds do a minimal amount of trading. Thus, they avoid the very heavy transactions costs of actively managed funds, which tend to turn over their entire portfolio about once a year.
- Index funds regularly produce higher returns for investors than do actively managed funds.
- Index funds are predictable. You know beyond doubt that you will earn the rate of return provided by the stock market. Yes, you will lose money when the market declines, but you will never own the fund that performs several times worse than the market.
- Index funds are tax-efficient. If you do own stocks in taxable accounts (that is, outside your IRA or retirement plan), then you need to invest in index funds that don’t trade from security to security and therefor don’t tend to generate taxable gains.

Another great summary can be found in the excellent article The Best Investment Advice You’ll Never Get at San Francisco Online.

But what about stock market downturns? Obviously, putting all your money into a stock index fund puts you completely at the whim of the stock market - and as many people discovered in 2008, that’s not a good thing at all.

Whenever I think of the downturn of 2008, I think of my mother- and father-in-law. Their retirement plans hit such a serious roadblock that they went from hinting vaguely at retirement (and the requisite travel and spending time with grandchildren that would come with it) to joking about working until they fall down dead on the job.

How do you protect yourself against that, huh? The trick is diversification, especially as you get closer to retirement. When you’re a long way out - thirty years or more from retirement - it doesn’t hurt to bet quite a bit on the big return - but with that big bet comes big risk. If you have everything in stocks and the stocks drop, then everything you have saved drops.

So, as retirement gets closer, you’re well-served to gradually move things out of stocks and into bonds, real estate, cash, or other investments. You’re no longer trying to hit home runs - you’re happy just to not strike out when your retirement comes close. So diversify.

Again, many investments make that easy. Most plans offer some version of a “target retirement” plan that will do just that for you. As you approach your retirement age, the plan will gradually - automatically - shift money from a heavy stock investment (great when you’re young and can afford to swing for the fences and risk a strikeout or two) to a very diverse investment (best when you’re older and you can’t afford to strike out).

That’s all there is to it. Start saving now, preferably in a target retirement plan made up of index funds. You can watch for better investments if you want to, but the sheer advantage of saving now in a low-cost plan that automatically diversifies for you as you get older will be hard to beat.

Roth IRA? 401(k)? I don’t know what to do! Here’s the truth: they’re both pretty good. In either one, you’re not hit with tax penalties for diversifying your retirement savings. Given that we don’t know what the tax rates will be in thirty years, it’s impossible to say which one is better, and people will argue until they’re blue in the face without being able to come up with a real answer.

A general good rule of thumb is to contribute to your 401(k) up to the maximum amount that your employee matches (because employee matching is basically free money). If you want to save more, start a Roth IRA (because you have more investing choices).

However, the importance of actually saving blows away the differences between the two. You’re light years better off simply throwing everything you can into savings than sweating about which investment option is the best. Again, the perfect is the enemy of the good.

What about college savings? Virtually the same exact principles apply to college savings as apply to retirement savings. Saving now is the most important thing, and diversifying as you get close to the big day is vital, too. Just pick a good 529 savings account - preferably one like Iowa’s that has a “target graduation” investment option - and start socking away the money now.

That’s really all you need to know about investing, for all practical purposes. The earlier you invest, the better. If you can, use a plan that enables you to invest with tax protections (Roth IRAs, 401(k)s, 529s). The farther away you are from the event you’re saving for, the more heavily you should invest in stocks (high risk, high reward). The closer you get to your big event, the more you should diversify (lower risk, lower reward).

I use Vanguard for pretty much all of my investments - they make all of this so easy that once you’ve set it up, you barely have to think about it again. I know that if the stock market dips again, I don’t have to panic - my short-term stuff is safely out of stocks and my long-term stuff has plenty of time to recover. I know I’m investing now rather than later, giving compound interest plenty of time to work in my favor.

It all just works - and for all of the complexity that publications like Money try to throw into the mix, that simplicity is what we all strive for.

Remember: don’t overthink things. The perfect is the enemy of the good, and if you get obsessed with the perfect, you’ll lose the good along the way.

Where the women are strong, the men are good looking, and all the children are above average.
- Garrison Keillor, A Prairie Home Companion

Sure, that line is used for laughs on NPR on Saturday afternoons to describe the placid, fictional Lake Wobegon, but the humor points to a rather serious matter: people constantly overrate their own achievements and capabilities in relation to others.

Here’s a simple example. Let’s say I took you and ninety-nine other random readers of The Simple Dollar and gave you all a battery of tests to rate your intelligence. Where would you predict that you would rank in the end? Would you be in the top half? Would you be in the top ten?

If I were guessing, I would probably put myself somewhere in the middle of the pack. I think I’m fast at putting simple ideas together into a somewhat more interesting larger grouping (I’m good at Jeopardy!, in other words), but I’m not particularly brilliant or anything. I find myself consistently falling short of where I hope I would be in lots of areas.

If you gave me the same question ten years ago - or even five years ago - I know quite well that I would have ranked myself very high with such a question. My set of experiences, to that point, had vastly overrated my small gift of relative speed and convinced me that I had special abilities. Constant positive reinforcement of those abilities didn’t help - seeing people surprised at my speed of limited recall and limited association and having them tell me how impressive it was further inflated my perception of myself.

The same is true for most people and most features. Almost all of us have abilities or features that we consider above average - quite often, we consider the sum of these abilities and features to be above average. And why not? The world around us has shown it to be true - people give us positive feedback all the time, so we must be good, right?

A few things to take into account here.

First, people generally prefer positive interaction. Most people prescribe to the notion that if you have nothing positive to say, don’t say anything at all. They’ll look at an individual, identify whatever traits they can that they deem to at least not be a huge negative, and complement the person on those traits.

A person with average looks - perhaps a below-average figure but above-average eyes - may have heard many complements on their eyes and thus believe that their overall looks are above average - after all, people are complementing you, right?

Second, it’s a good survival strategy to believe we can handle anything. Without an underlying sense of success, people would be afraid to try anything new. New technologies wouldn’t be proposed or even introduced. New ideas wouldn’t be shared. In short, confidence is useful.

Here’s the problem, though. We often overextend our healthy level of confidence to an unsafe point. This happens in two directions - we’re overconfident in some areas where some degree of confidence is appropriate (our own skills, for example) and confident (often quietly so) in areas we have no control over whatsoever (like our continuing health).

Each of these directions has a different set of tools to help you succeed.

For overconfidence, try placing your skills in competition with others - the more direct, the better. Many people avoid competition because they fear losing or looking bad. I argue that losing is actually more valuable than winning. It teaches you that you’re not the best and shows you what you need to work on.

For example, I often use my subscriber count as a way to compare myself to other bloggers. It’s easy to see that I’m left in the dust by many other blogs - Daily Kos and TechCrunch, for example, have orders of magnitude more subscribers than I do. This is proof positive that I’m not the best writer out there. I respond not by thinking “I’m a failure,” but by thinking “I know I can do better than that” and seek ways to reach out even more.

For misplaced confidence, visualize some worst-case scenarios. What happens to you if you’re hit by a truck tomorrow morning? What happens to you if you get a serious disease? What happens if those things happen to your spouse? Your child? What if your company goes under tomorrow morning and you walk in facing a pink slip?

Those scenarios often point you in the right direction for finding appropriate ways to actually back up your personal confidence. Start an emergency fund. Create a master information document. Get a good term life insurance policy. Build good relationships with people in your career field - and in your neighborhood.

In other words, back up that confidence with something real. The better the structure behind you, the more likely it is that you really are living in your own Lake Wobegon, where things really are above average, safe, and secure.

When I first started writing The Simple Dollar, one of the biggest struggles I had was figuring out how to redefine some of my friendships - a struggle I discussed at length.

The problem was that a good number of the people I spent lots of time with were constantly engaged in activities that involved spending a lot of money. Constant golf trips, constant traveling to gaming tournaments, constant shopping for music and electronics - these were simply the things that we did.

Eventually, I came to realize that for some of the friends, these expensive activities were the sole basis for our friendships. Without the weekend golf outings or gaming tournament trips, several of my friends simply vanished into thin air. Other friends, of course, were (and still are) quite happy to do other things not necessarily based on expensive activities or shopping excursions.

In fact, one of our biggest social highlights now is inviting friends over to play board games in the evening - games like Ticket to Ride and Puerto Rico and Power Grid. An evening with dinner, a glass or two of wine, a few small snacks, a thought-provoking game, and some great conversation is a spectacular way to spend time.

Even further, I’ve found that engaging in frugal activities in my community - such as participating in service groups, attending community events, and so forth - has connected me to many new friends with whom I share a lot in common.

Some of you may be asking yourselves, “I have no interest in dumping my friends in order to get ahead financially!” And you shouldn’t! Friendships aren’t things that should be tried on and discarded on a whim like so many blouses on a discount rack.

Instead, a truly worthwhile friendship grows and changes with you. If your interests change - if who you are and what you value begins to change - then your friendship will either gradually grow with you or it will melt away, replaced by new friends.

I often look at friendships as falling into two classes:

One, you have friends that you associate with primarily because of shared interests. When I played Magic: the Gathering, I had friends who also played, and that was our primary touchstone of friendship. The same holds true for many things: location (the neighbors that you invite over for barbecues on occasion, but wouldn’t keep in touch with if either of you moved), employment, and so on.

These friends are wonderful to have, but their friendship is limited to the external things you have in common. As those things begin to change, your friendship will go away.

Two, you have friends that you associate with primarily because you care about one another. These friendships often begin with a shared interest, but then they grow into something more: a genuine interest in and caring for each other.

Take, for example, my closest friend, John. Our friendship began thirteen years ago simply because we lived on the same dormitory floor. Later, we found we had common interests in gaming (to an extent), but over time, it developed into a true friendship that has lived through many moves, career changes, interest changes, and so forth.

Why does the friendship persist? We care about each other. Not only am I concerned about his well-being (and he about mine), that caring extends to pretty much any aspect of each other’s lives that we’re willing to or wish to talk about. If John has a new interest, I’ll want to learn about it. If he has a problem, I’ll do my best to help him through it.

The problem comes in when people believe that the first type of relationship is actually the second type. They’ll keep working hard to maintain a friendship, even though the basis for that friendship is slipping away. They’ll keep going out for expensive golfing excursions, even though the cost is one that now makes them feel guilty and keeps them up at night. They’ll keep going clothes shopping, even though they’re trying to cut down that wardrobe.

In the end, the lesson is simple: don’t be afraid to lose friends if you change interests, passions, or activities. True friends will stick with you no matter what you choose, and when you do make that switch, you’ll find new friends that share your new passions.

The biggest stumbling block for this is that we all fear change. It’s easy to imagine losing the friends - it’s harder to imagine gaining new ones. Thus, we imagine ourselves lonely and empty and thus we keep engaging in things that don’t make us happy in order to stave it off.

Don’t be afraid of the right kind of change. Follow your heart - your true friends will follow, too, and you’ll find new ones along the way.

Charles writes in:

The real reason people want to be rich isn’t so they can buy stuff. It’s so they can have power over others. People want influence and respect and they see that people with money have influence and respect, so they seek money.

I agree with the point Charles is making - many people do want influence and respect. Similarly, people with money often seem to have a great deal of influence and respect. Thus, on a very simple level, many people who seek influence and respect do it by seeking money.

There’s only one problem: money does not result in influence and respect - instead, influence and respect often lead to money.

Many entrepreneurs want to be Richard Branson - he’s a billionaire, he’s dashing, and he has influence. What they don’t see is that in the late 1960s, he was selling records out of the trunk of his car at cheap prices. People came to him because he could help them find cheap, good records - not because he had a pile of money.

Many bands want to be The Beatles - they had more influence than pretty much any pop band ever and all of their members are/were fabulously rich. The Beatles had influence and respect first, though - they paid their dues for pennies in the clubs in Hamburg and played for years in obscure little clubs in Liverpool with barely enough money to put food on the table. They became THE BEATLES only after honing their craft for years and building not only a great local following, but good relationships with other bands on the Liverpool scene.

Many writers want to be Nora Roberts - her books are read by millions, she has an adoring fan base, and she brings in $50 million a year in royalties (my “writing hero” is Stephen King, but the same things largely apply to him). What they forget is that she wrote genre romances by the shovel full in the early 1980s for book-churning publishers like Silhouette, slowly building influence but not earning much at all.

What do these examples have in common? They built respect and influence first. Money came later when their influence and respect became clear.

If you’re sitting there worrying about how you’re going to become rich, it’s very likely you’ll never become rich. You might be able to earn a solid living in that area, but true and sustaining riches follow respect and influence, not a great scheme to put cash in your pocket.

So how do you get respect and influence?

You find something you can throw your heart into. If you don’t enjoy doing something, you won’t find yourself compelled to do it every day. If you don’t find yourself compelled to do it every day, someone else who does feel that compulsion will be the one who succeeds.

Many people tend to take this advice down the wrong path. They’re passionate about golf and thus they get in their minds that if they play obsessively every day, they might be able to get on the PGA Tour. Likely, that’s not true. You have to find a good balance of your passion and your natural talents. Perhaps you can become a golf teacher. Maybe you can become a salesman or an equipment designer for Callaway.

You work diligently at it. This isn’t just a matter of putting in long days of work - although that’s valuable, too. In order to really thrive, you have to practice the finer points of what you’re doing, smoothing them out until they’re perfect.

For example, if you want to be a writer, you need to write every day, even if it’s not for sale or for public consumption at all. If you want to be a great salesman, practice selling everything in a wide variety of situations. If you want to be a great musician, practice that instrument until your fingers bleed - and just attempting to play Seven Nation Army over and over again doesn’t cut it.

You find ways to share your work widely. The Beatles played several shows a night until they were ready to pass out from exhaustion. Nora Roberts wrote for a label that didn’t pay her greatly but distributed her work widely. Richard Branson carried his first record store around in the trunk of his car, taking the records to the people who wanted them.

The internet makes this easier than ever before. You can share your work as widely as you wish. However, there’s a new problem - a lot of people are doing the same thing. So how do you stand out? Be better than everyone else. Engage interested people as much as you can. Join in conversations that interest you even if they have nothing to do with what you’re doing (people will find your work if you’re interesting).

You live your life in such a way that you don’t need riches. The less you spend, the less reliant you are on what other people tell you to do. This gives you the freedom you need to actually throw yourself into something where you can build influence and respect.

It’s a lot harder to take a big risk if you need that fat paycheck provided by your employer, after all.

So, here we have it: my argument, in a nutshell, is that the path to riches comes from influence and respect, and the most powerful way to build influence and respect is to live your life so that you don’t need riches at all.

If you dream big, hop on board the train to your dreams. It passes through Frugality, makes a few stops at Passion, Diligence, and Hard Work, and finally finds its way to the twin cities of Respect and Influence - the place where your greatest dreams begin to come true.

My wife and kids and I went camping for four days this past weekend, starting on Thursday afternoon. We camped in a state park in rural western Illinois. The highlight was watching our kids enjoy campfire meals, then fall asleep in the flickering light of a campfire, dreaming happy dreams of running around in nature all day long. The rain was a bit intrusive at times, but we had an incredible amount of fun on the trip - and we can’t wait to do it again.

This is what summer is all about.

Anyway, on to some personal finance articles. Now that I’ve settled into a regular writing schedule at OPEN Forum (as I’ve mentioned in the past, I’m now contributing articles at OPENForum.com through the end of the year), I have three new articles to share with you (well, they’re new if you haven’t seen them on my Twitter feed).

What Does Your Business Really Need? Get the Basics Right First! discusses in detail my thought processes in deciding whether investing in mobile broadband was really a necessary expenditure for my work.

Six Ways to Improve Employee Morale Without Breaking the Bank details six methods that I’ve experienced that really work for keeping morale high in a workplace without spending a lot of money. My favorite boss (the aforementioned Carolyn) used most of these tactics at work and it made the workplace a lot more enjoyable, even when the road was bumpy at times.

Finally, Five Essential Reads for Small Businesspeople - And How to Get Them for Pennies mentions some of my favorite business books for modern workers and workplaces and then touches on some methods for getting that information to you for free or for pennies.

It’s rather fun for me to think about - and try to write for - a somewhat different audience than The Simple Dollar has, while still trying to cover many of the same basic principles.

Anyway, here are several interesting personal finance articles I found in the last week.

How to Tell if a Recipe is Cheap and Healthy Just By Looking at it This is a great set of rules of thumb to quickly figure out if a given food is going to be good for you or not. Apply these rules of thumb at the grocery store (along with your usual thriftiness) and you’ll wind up with a cart full of good stuff at good prices. (@ cheap healthy good)

Tax Records You Should Save & For How Long This is great advice, particularly for people who have a hard time imagining ever throwing anything away. There’s a point where tax records become clutter, after all. (@ my life roi)

Get Inspired by Breaking Out Of Your Routine Every time you break a tired routine, it’s like a fresh new awakening. There are opportunities abound. (@ pick the brain)

Where We’re Starting From Everybody starts from somewhere - but it’s a different place for almost everyone. Our paths are not the same, but there’s enough in common that we can learn from each other. (@ get rich slowly)

Spend Less Than YOU Make: Taking Responsibility If you constantly blame others for your problems … you’ll always have problems. Instead, focus on taking responsibility - what can you change to improve your situation? (@ saving for serenity)

Are You Taking Responsibility or Playing The Blame Game? Another excellent article on a similar topic. Putting blame on others is a sure route to failure. Put blame on yourself and figure out how to fix things and you’ll find success. (@ christian pf)

The fourth episode of The Simple Dollar Podcast focuses on food. I talk about ten tactics for reducing your food bills without reducing health and taste and include a lot of recipes and food suggestions along the way. I also tried a different approach - instead of reading from detailed notes, I tried a more conversational tack. Total time - 21:46.

Listen In!

Other options for enjoying The Simple Dollar Podcast include:
Listen to this episode on a separate page
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Though I hope you do subscribe using one of the above methods, don’t worry - each episode will be featured in its own post, much like this one, on Tuesday afternoons. The podcast itself may appear earlier than that, however, if you subscribe using one of the above forms, but the notes won’t appear until I post about it here on The Simple Dollar.

Episode Notes
Here are some additional notes that go alongside the comments in the podcast. Approximate times for the corresponding links and notes are listed.

0:00 - The theme song is a public domain recording of a Camper van Beethoven concert on October 25, 1986. Listen to the concert in its entirety.
0:29 - Some background reading - tactics for making healthy, simple, and cheap meals for you and your family.
1:57 - You’re not “frugal” if you don’t buy the cheapest thing, right?
3:11 - Read my review of Michael Pollan’s In Defense of Food for more on finding real value in food.
5:58 - and that’s the way … we be-came … The Brady Bunch!
7:20 - Here are six examples of simple main dishes based on such staple ingredients.
7:52 - A detailed guide to the art of the marinade.
8:06 - The basics of kitchen spices
9:03 - Is a deep freezer worth it? Yes!
10:11 - This is a great strategy for saving time and money - we do it with more than just chicken breasts.
10:23 - Slow cookers rule! Here are five great recipes for it … and five more.
13:30 Bulk buying can save a ton of money - more than you might think - if you do it right.
13:55 - Here are nine great ways to re-use leftovers in the same vein.
14:12 - … and how to make straight-up leftovers more tasty.
15:54 - Additional details on the “flexible casserole” including a version similar to what I talk about here.
17:11 - Just make your own cream sauce - as healthy as you want it.
19:11 - The neighborhood cooperative concept - or even just cooperating with a neighbor or two - can save you tons of money.
20:01 - Here’s a great way to start planning your meals.
21:40 - A preview of next week’s topic.

One thing I’d like to do in a future episode is have an audio reader’s mailbag. If you have a microphone on your computer and can record an MP3 of a simple, short question you might have on personal finance, careers, pop culture, or anything else you’d like me to answer, record it as an MP3 and send it to me. Keep the total recording under 15 seconds, please. Also, if you use Skype, feel free to ask your question that way - my username is trenttsd.

Comments and suggestions welcome.

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!