First let me apologize for this being so late. Year end client stuff has kept me jumping.

Hopefully by going through the process of reducing costs, we've found some ways to reduce monthly expenses. I'm going to assume that we've reduced our costs by $500 a month. That may seem laughably high or laughably low to you depending on your situation. It's just for illustration purposes. Regardless, executing our plan will be exactly the same.

I'm going to suggest a few things that will go against some of the common wisdom about getting out of debt. What we want to do is pay the monthly minimum for all of our various debts. Then write an extra check for $500, paying all of it toward the debt with the smallest outstanding balance. No, we're not going to worry about interest rates, and we're not going to spread the money around to various debts by increasing our monthly payments.

This will accomplish some important things. By paying off the smallest debt first, we will see some progress. If we just pay a little extra here or there, it seems like nothing is happening. But if we can eliminate one of those debts quickly, there is a sense of accomplishment. This is also where our reward kicks in, time for another brownie! Why write an extra check? For two reasons. First, it's a representation of what we're accomplishing. We can see every month that we are making progress. That will be important months down the line when this all becomes a bit of a drag. Second, we want to establish the habit of writing that extra check. Because when all the debt is gone, we'll be writing a check to go into our savings account, or to the mutual fund company. The process of becoming wealthy starts in month one! We are writing an extra check toward our financial well being.

Paying off the smallest debt has an added benefit. We quickly eliminate a minimum monthly payment. Our $500 a month, becomes $525 (or whatever). We have even more money to pay toward the next biggest debt. By the time we get to the nasty last big one, we should have significantly more money to whittle it down.

Of course if there is a dramatic difference in interest rates, like the biggest one is 20% and all the others are under 10%, you might want to flip that around. But not if you'll get discouraged and quit. Do what works for you.

So that's it. Understand how you work, find places to reduce ongoing expenses, and pay them down one at a time, the smallest one first.

But what if that isn't enough? You went from a $100,000 a year job to a $50,000 a year job after the recession. There just isn't enough money. If that's your situation, you are going to have to make some harder choices. It will require lifestyle changes. A two car family might become a one car family for awhile. Or a one car family becomes a buses and bicycle family, with a weekend car rental once a month. It might include part time work stocking shelves during the holidays.

Much of that will seem pretty dreary. But it's about reframing and re-imagining. What if you always made $50,000? What would that lifestyle have looked like? That's where you need to be for now. Ignore what you had, that's not where you live now. Instead, focus on where you are, and again remind yourself that what is important in life is usually not about money. A day with the family at the beach is just as much fun as a day at Disneyland, but it costs $500 less.

Now as promised, links to help.

Unlimited cell phone service for as low at $20 a month at Ptel
www.ptel.com

Free checking, free bill pay, and ATM fee rebates from First Internet Bank
www.firstib.com

Mercury usually has among the lowest rates for car insurance
www.mercuryinsurance.com

Coupons for everything. Always check before you make a retail purchase
www.fatwallet.com

Find a debt counselor if you need one
www.usa.gov/topics/money/credit/debt/out-of-control.shtml

There are a number of websites and blogs with ideas about living on the cheap. Here are a few:
www.frugalhomeliving.com

www.livingonadime.com

www.livingwellspendingless.com

www.livingrichlyonabudget.com

Good Luck! (and have a brownie).

Ok, lets do the most important thing first. Figuring out how you're going to reward yourself as you proceed! That's part of the taking the grind out of it, that you have a little reward for yourself at each step. So think about something special that *doesn't* cost much money. That would defeat the whole purpose. For me, it would be a brownie. For you it might be skipping the gym for 2 days. Or binge watching 3 hours of Gilligan's Island. We're talking guilty pleasures here. I'm not worried about your diet, one self help process at a time. Pick something you would really look forward to, and really indulge as you go. It's another way to make this a little fun.

There are two ways to get out of debt. More income, or less spending. But more income has taxes and expenses associated with it. If you increase your pay by $100 a month, you'll have taxes, social security, medicare, unemployment and disability insurance deductions. So in reality it might only be $60. But the money you save, you've already been taxed on. You can think of it as 1 penny saved is 2 pennies earned. It makes a bigger difference. So we're going to go after expenses first.

What expenses are important? Answer, the ongoing ones. I mean, it's all fine and good to save $25 on your new garbage disposal, but that won't get you out of debt. But saving $25 a month on your cell phone bill? That might. That doesn't mean you shouldn't shop for major expense items. Of course you should. But it's the continuing expenses that will just kill you. They are also the ones that go from luxury to necessity almost overnight.

So here's what to do. Do a rough budget of your ongoing expenses. This is where my caution about knowing yourself comes in. If you won't do it to the penny, don't let that stop you. If all you do is estimate things off the top of your head, that's better than stopping because it's too complicated and too boring. Make a spreadsheet of all your ongoing expenses. For example:

Rent
Mortgage
Insurance
Cable bill
Phone bills
Groceries
Gasoline
Gym fees
College expenses
Lattes
Netflix
Utilities
Eating out
Storage space
Hair Salon
Magazine and Newspaper subscriptions
Parking
Dry cleaning
Dentist
Etc, etc, etc.

This is of course not an exhaustive list, just some ideas to get you started. And break out each individual item. Insurance should be broken out into car, health, homeowners and life insurance for example.

Ok, now for the challenging (but I think fun) part. Your goal is *not* to eliminate those things. Your goal is to figure out how to get each one for 15% less than you are spending now. 15% is your stretch target. Some of those things will be difficult to reduce much. Some can be dramatically reduced. It requires some creativity and legwork. We're going to go after that 15% goal very hard. Remember we're after the wealth creator, living on 85% of your money. Here are a few examples of the types of things you can do:

Your local library has a ton of DVD's to check out for free. Netflix maybe can go by the wayside for awhile.

Your local sanitation department may give you a discount for using smaller trash barrels.

Cell phones is an easy one. Look into one of the pay as you go plans, which are usually even cheaper than they look. Pay as you go has no extra taxes and fees. You know that a $80 a month Verizon plan actually costs $90 a month. But a $40 pay as you go plan costs $40.

Call your local newspaper and ask for a discount. The LA Times cuts my fee in half just for asking.

Did you know that dry cleaning isn't good for your garments? They wear out faster. Instead, get them pressed if they are not dirty. It costs less and your clothes will last longer.

For your work clothes you of course need to look nice. But for your workout outfit or the kids play clothes? Nice stuff for dirt cheap at the thrift store.

Haircuts? Shop around. Maybe you can do Supercuts every other visit instead of the expensive salon.

College expenses? Two years of community college before the university will cut that bill by 40%.

If you and your SO eat out once a week I'm about to put $300 a year (equivalent to a $500 raise) in your pocket. That ice tea with tax and tip is $3 x 2 or $6 each time x 50 weeks a year. Here is your new drink order "Water with lemon please".

In general a lot of this will be shopping. Shop your health insurance, car insurance, cheapest local gas station.

Be creative. Think outside the box. Keep that stretch target in mind.

Get family members and friends involved. In fact that is a really key thing. Let people know you are doing this. It can help remove some of the awkward problems that come when friends invite you out for drinks or to that expensive new restaurant.

Done all that? Great! Time for a brownie!

Be careful of one trap. Spending a lot of money to save some money. I know people who have sold their old car and bought a new Prius to save on gas. An old car is free. A new Prius is $25,000. If you improved your mileage from 20mpg to 45mpg by doing that, and if you drive 15,000 miles a year, your payback period is about 12 years. Factor in increased insurance, and registration costs plus financing that car, and your payback period is never. If you can"t get a payback from a new expense in say, 6 months, skip it. We're trying to reduce expenses here, not incur new ones that you'll probably have to finance. Always do the math.

I'm going to give you a bunch of links to help with some of this. But I'll do that next week, as this tip is already long enough. Next week we'll look at how to execute the plan. We'll also look at what to do if you're deeply in debt and this still isn't enough.

Getting Out of Debt - Part I, Preparing
There is a lot of stuff on SavingAdvice.com about dealing with debt. Here is my take on the process. Many people have found this to be useful.

We can't invest until we have money to invest with. And for many, possibly most people, that's a dream because they are drowning in debt. So I'm going to do a 3 part series on how to get out of debt. My intention is not to make this some dreary thing like going on a diet. What I hope I can do is make it as painless as possible, and maybe even a little fun. In fact getting out of debt is easier than a diet. On a diet, as you lose weight it gets harder. But getting out of debt, as you pay off debts you have more money. It gets easier.

To start you need to be completely honest with yourself about yourself. You cannot deal with debt if you start doing what you 'should' do, rather than what works for you. My analogy for this is as follows. You walk into the store to buy a package of light bulbs. One is $3 with a $3 rebate. The other is $2. Which one is cheaper? The 'obvious' answer is the $3 package of light bulbs. But for most people, it's the wrong answer. Why do they offer a deal like that? Because they know that most people will not send in the rebate. For most of us, the $2 package of light bulbs is cheaper. The key is to know yourself. If you will send in the rebate, buy the $3 package. If you won't, don't sweat it about what you 'should' do, and then feel guilty because you don't. You buy the $2 package and call it a day.

So the you need to know yourself and what will work for you. If you decide you are going to eat at home for the next 3 months, and you're happy doing that, fine. But if you'll chafe at it, and then decide to heck with the whole thing and quit, it's not helped you much. So with every change you make you need to ask yourself the honest question "Will I keep it up?". If the answer is no, find another way. If impulse purchases are a problem, maybe you need to take the credit cards out of your wallet, or just don't visit those stores where you will spend. Out of sight, out of mind. Figure out what will work for you. That's the key.

Ok, now I will reveal to you the great financial secret of the ages. The single rule that can take you from being in debt to being wealthy. All wealth flows from this one rule. If I was doing an infomercial I could probably get people to send me $29.95 plus shipping and handling to reveal this secret. Are you ready? It's this. Live on 85% of your income. That's it! Almost anyone, if you live on 85% of what you make, you will become debt free, and eventually have real wealth. The average NFL player blows through his millions in a few years after he retires. That's because he lives on 110% of his millions. But someone with even modest income can eliminate their debt, save and eventual be wealthy if they live on 85%.

Of course, that's the trick isn't it? It's *hard* to live on 85% of your income when the roof leaks, you need a new cell phone, and you are paying for the kids college. So what we're going to do is this. We're going to try to figure out how to reduce your existing expenses so that you're living on 85% of your income, giving up as little as possible. This is not going to be about eating macaroni and cheese every night be candlelight and playing cards for entertainment. This is going to be about figuring out how to have most (or even all) of what you have now, but just doing it for less money. I think of it as a game, and I think it can be pretty fun.

Now that said, there may be some areas where your expenses are just too high and there are things you need to cut back. And that's always so hard. Luxuries become necessities in a big hurry. But I want to you keep this in the back of your mind "What makes me really happy?". What things in your life have really made you feel good. Your first date? Your time with your best friends? Finally running a mile in under 6 minutes? Now think, how many of those things were about money? Probably not very many. I think money is about security and freedom. And for that security and freedom, we need to get the debt monkey off our backs. And man, you want to talk about making you feel good? Getting rid of the grinding worry about debt is way up on the list.

Next time we'll talk about the process of getting to 85%.

Yesterday I received an offer in the mail for a credit card. In big letters on the front it says "0% interest on balance transfers for first 9 months". But read the fine print and it says "5% balance transfer fee or $10, whichever is higher". Well it turns out much to my surprise 5% is not 0%. And in fact that interest rate is even higher than 5%, as you're paying that all upfront on the original balance.

One of the things I truly hate about the industry I work in, is that they feel it's their obligation to trick the general public. Fees only disclosed in the fine print, special offers that are almost impossible to achieve, huge penalties if you make even a small mistake.

Here is the problem. Reading and understand that stuff is a) is boring as hell, and b) makes you feel like an idiot because you can't figure out what they are saying. But you have to do it. So here are a few things I suggest you do whenever you're dealing with any contract related to the financial services industry.

1. Ask them to tell you what the downsides are. Ask them what the fees are, what happens if you make a late payment. Getting it in email is best, it may give you ammunition down the road if they don't disclose something.

2. Get someone else to go over it with you. It really will be 1/2 as much pain if a spouse, partner or friend helps you go over it.

3. Ask in the financial forums like Savingsadvice about what to look out for.

Don't let them make you feel like a victim. You work hard for your money. Don't let the financial services firm trick you out of some of it with their confusing fine print.

There is a 'secret' way you can become wealthy, and it doesn't matter much how much money you make. The boxer Mike Tyson spent all of the over $100 million he made. On the other hand, I have a couple who are clients. She works as a clerk, he works as a carpenter when he can find work. They are worth well over $1 million. There is a 'secret' (well it's not very secret) to their success, and to Mike Tyson's failure.

The trick? Live on 85% of your income and invest the rest. If you save 15% of your income (generally considered to be the magic number), it almost doesn't matter how much you make, you will eventually accumulate significant wealth. And if you live on 105% of your income, you will eventually be bankrupt no matter how many millions you made. Easy? No. Though unlike a diet, it does get easier as you go. The more money you accumulate, the more you can accumulate.

This website is a great place to find ideas about how to get to that 15% number. There is *nothing* like the easy sleep you'll have when you have enough savings to weather any storm.

I think the very best deal out there for banks in at First Internet Bank (www.firstib.com).

First IB is a full service bank that provides checking, savings, car loans, mortgages, IRAs, CDs, etc. But they only have a single branch, their primary business is on the web. That keeps their costs way down. Some of the cool stuff:

1. 0.55% interest on checking
2. 0.80% interest on money market savings
3. $10 per month rebates on ATM charges at any ATM
4. Some of the highest rates in the country on CDs
5. Free Financeworks software (Essentially Quicken)
6. Postage paid envelopes for deposits

Altogether that should save you a good $200 a year versus some of the majors like Wells Fargo.

But I think maybe one of the best things is that since they actually do run a physical branch, you are not dealing with some call center based in India when you have a question. You talk to one of the bankers at their branch in Indiana. They answer the phone quickly and they know their stuff.

The downside? Cash deposits can be a bit of a pain, as with any web based bank.

Considering the combination of high rates, full service banking and free services, I think it's the best banking deal out there, maybe the best ever.