In the typical large company raises usually come out once a year. Sure there are those occasional promotions and new positions every now and then, but some sort of pay raise is generally expected about once a year. It’s a time that is usually looked forward to, but then quickly forgotten as people move on to other things. So how is it best to handle a pay increase before it quickly gets absorbed into our spending and then forgotten?

Make a Concerted Effort

First of all, tell yourself that as far as your lifestyle is concerned, it never happened. If that’s too tough for you to handle then pretend that the raise was significantly smaller than in actuality. It’s important that you get your mindset right before you take any action with it, otherwise you’ll soon wonder how you ever “scraped by” without it. Keep your lifestyle in check and then you can move on to what you actually should do with the few extra dollars.

Just as there are a lot of stupid ways to spend a bonus, there are equally as many dumb ways to fritter away your raise. Even if you don’t purposely change your spending or buying habits, the tendency will be for any little extra amount of money to somehow get spent. Somehow the lifestyle will inflate to fill the means if not consciously kept in check. I don’t want to get into all the unwise uses for your raise though; I’d rather focus on the more savvy uses thereof.

Savvy Ways to Spend a Raise

1. Increase your contribution percentage to your company sponsored 401(k) or other retirement plans. This is probably the simplest way to ensure that you don’t just spend the extra funds since they’ll be deducted automatically from your paycheck and you’ll never see it. It’s also one of the few ways to actually save all of the raise since contributions to these qualified plans can be exempt from any tax.

2. Set up automatic transfers, or payroll deductions if your employer has the capability, to a high yield savings account and you’ll again never miss the money since it’ll never pass through your hands. This is a great way to bolster the emergency fund, save for a down payment, or achieve any other financial goal that you have. It won’t take much time at all to set this up and then you can leave it on autopilot.

3. Use the extra funds to pay down any debt that you owe. I will caution you though, that this won’t make a bit of difference if you don’t also resolve not to rack up the debt again. Paying off debt shouldn’t be free license to go out and spend again putting you back in the same situation you were to begin with. And once your debt is paid off, go back and see number 2.

4. Consider donating to a charity or helping others in need. This is a great way to remind yourself of what’s really important in life. Being able to give and help others is one of the greatest feelings around. And it’s just a side benefit that you don’t have to pay taxes on these funds either. You’ll be surprised at how rich you’ll feel when you’re able to help someone in need.

I’m sure that you can think of many other great ways to make use of your raise, but the point is to make a conscious effort to use the funds wisely and improve your financial situation or that of another. What are some other ideas you have to make the best use of your raise?

There are many more than just eight reasons why people fail to get ahead financially. This is not meant to be an exhaustive list, yet these are some of my thoughts about why so many people continue to struggle financially.

1. Failure to Plan

You’ve all probably heard the saying that goes something like this, failure to plan is planning to fail. While this does cause one to stop and think, I don’t actually think anyone reading this site is deliberately planning to fail. The concern though, is not having a workable plan for improving your financial situation and thereby staying content with the status quo. Very few people wake up one day and are suddenly financially free and successful. If you haven’t already, take the time to develop a financial plan and start moving forward.

2. Focusing only on Yourself

If you look at charitable giving as money you could otherwise put to better use, you’re missing the point. By reaching out a helping hand and giving to others of your time and means you’re shifting your focus away from yourself. You will realize that it’s not the new flat panel TV and the hottest car that ultimately makes you happy. It’s much easier to control your spending in order to get ahead when the focus isn’t always on you.

3. Not Making Savings a Priority

How often have we all heard that we should start and maintain some sort of emergency fund. For one reason or another things just happen that we weren’t expecting. Your savings, or emergency fund, is one way to plan for the essentially unplannable. Make your savings regular or even automatic, and you’ll find that getting ahead is within reach.

4. Impatience

It’s no secret that we live in an On Demand society, but financial freedom and stability don’t play by these rules. You can’t be impatient and expect unreasonable results. Learn the virtue of patience and you’ll actually be surprised by the results.

5. Lack of Follow Through

This goes hand in hand with impatience. Once you’ve created a plan and set things in motion it’s imperative that you execute and follow through. Opening a savings or investment account and then failing to contribute after six months is a recipe for the same. Little adjustments here and there will be necessary along the way, but getting ahead is going to take some doing.

6. Underestimating the Little Things

How often have you heard others or even yourself say, “it’s only $x.xx”? I hate to break it to you, but all of those little things add up over time. Just $5 for lunch every day at work adds up to over $100 per month or over $1200 for the year. That just happens to be about the amount of the coming tax rebate. Just think, by saving just about $23 per week you could give yourself the equivalent of this tax rebate every year. The small things add up.

7. Have Now, Pay Later

It’s a depressing feeling when the bulk of your paycheck goes to pay for things that you don’t even remember buying. Because you have to have the latest gadget, you end up mortgaging your future earnings. How do you expect to get ahead and plan for the future when you’re constantly paying for the past?

8. Lack of Financial Knowledge

How can one contribute to a 401(k) if he doesn’t know what it is or how it works? Having a goal of a million dollars or so seems impossible if you don’t understand the principle of compounding. It’s also difficult to grow any semblance of a nest egg without at least a basic understanding of investing. Getting ahead will require some effort on your part, and that includes learning at least the basic tenets of financial management.

As I’ve written about before, it seems that all we hear about in the financial news is that the economy is getting worse and headed for a recession (if not already in one). Most of the news is doom and gloom as is most of the associated commentary. So what is an individual to do in times such as these? I thought I would list some of the most talked about and feared areas and give some thoughts on how we can proactively handle them.

1. Gas prices are continuing to spike upwards. Some of the most recent reports have average gas prices approaching the $4 mark fairly soon. When I hear people talk about this, it’s mostly disbelief followed by a lot of complaining. Well, I hate to tell you, but complaining about the situation isn’t going to change it and make it go away. We need to think of things that we can do in order to lessen the effect of higher gas prices. For starters, we could drive less. Be conscious and aware of any unnecessary errands and trips. Make a conscious effort to lay off the gas pedal a little; there’s no rush to get to the next stop light. You might want to think about trading in your gas guzzler for something a little more efficient. The point is that we need to focus on the things that we have control over instead of just complaining about the situation.

2. The market continues to plummet. This shouldn’t be a shocking revelation to anyone at this point, but it’s still a point of concern. There are also many ways to handle the situation and you’ve got to choose what is best for you. For some people it would be best to cut your losses and have the peace of mind that you won’t lose any more money in the market. Others are able to convince themselves that they are in it for the long term and so they choose to just wait it out. Still others will see the current market as a buying opportunity and choose the role of a contrarian. I’m not going to say which of these paths is the best since everyone is in a different situation and has different risk tolerances. Again, the point is that we have choices of things that we can do.

3. The dollar continues to weaken. I’m going to say that for most people this really is that big of a concern. I don’t know how often the average person goes out and buys a bunch of Euros, but I would guess it’s infrequent. I understand that it has ramifications in the global economy and that imports can be more expensive and such, but the main concern with this would really be inflation which is also talked about quite a bit. There are volumes written already about ways to save money and to live frugally so I’m not going to go into specifics here, but rising prices can be dealt with.

These are some of the items in the financial news that I continue to hear about on a daily basis. I haven’t yet seen widespread panic in the streets, but people are getting fearful and the market will at least show you that people are panicking. While I believe and understand that there is some cause for this, I think we should worry a little less and be a little more proactive about our situations. People will get into tougher situations by letting things happen to them instead of making things happen for themselves.

So what are your thought about all of this? Am I way out in left field with it?

Debt Kid is running an interesting contest over at his blog where you can win his Nintendo DS Lite, and all you have to do is write about your dumbest purchase ever. Since it instantly came to me, I figured I’d share mine with all of you.

When I was 21 and in college I bought my first car. It was a silver 2002 Hyundai Elantra, nothing too extravagant really. I still have this car and am planning on keeping it until it finally gives out on me; it’s also not my dumbest purchase ever. That would be what I bought for the car after a couple of months of owning the car.

I had just been approved for a credit card from Sears, which is where I worked at the time. The new card gave me zero percent interest for six months, I believe, and I figured that I could pay off my new purchase way before then. So, I went down to the Sears Auto Center and picked out some new wheels for the car. They were 17″ Motegi rims which also necessitated the purchase of four new low profile performance tires. I won’t say that the new wheels didn’t look great, but I definitely regretted the purchase afterwards. Total Cost: $1200

I remember getting a couple of flat tires that I couldn’t repair because the tires shredded themselves (low profiles don’t have much room until you’ve hit rim). Each time, a new tire cost me at least $120, and that’s just for one. So the cost of this purchase didn’t end with the initial purchase. I kept paying for it over and over.

I finally had enough of the rims since they were costing me more money than they were worth, and I sold them to someone else. Obviously, I didn’t recoup nearly what I payed for them, but just having them gone was enough for me. I’ve definitely learned my lesson and hopefully won’t make another dumb decision like that one. So what’s your dumbest purchase ever…?

This may seem odd to many of you out there since I do many things online, including run this blog, but I haven’t ever used my bank’s online bill pay until just recently. I’ve always seen the link in the sidebar when I log into my account online, but I’ve never done anything with it for a number of reasons I suppose. It was something new to me and I wasn’t really sure that that payments would get to where they needed to be. Mostly, however, I was just content handling things the way I had always handled them.

Just a little while ago though, I was talking with a friend of mine about the whole online bill pay thing. He was pretty surprised that I didn’t use it, and the more I thought about it, I wasn’t sure why I didn’t use it either. I hadn’t given it much thought recently, but I figured now would be as good a time as any to give it a shot.

How It Works

If you’ve never used it either, you may be a little confused about how it works. Once you log into your online banking account you should be able to find a link to the bill pay section. Most banking institutions have a large network in place with many of the places to which you would need to make a payment. For most bills, you’ll just need to search for the company name and then provide your account number on the bill.

If for some reason you’re not able to locate the company by searching, you can still pay the bill online by giving the address of where the bill needs to be sent and some other account information. In this case, your financial institution will end up cutting a check to the company on your behalf and send it to them. You won’t even have to pay for the postage.

Benefits and Advantages

I already mentioned one of the main benefits and that is not to have to pay for any of the postage anymore. With the price of a first class stamp continuing to escalate, having to send out even ten bills a month can add up to quite a bit over time. Even if you don’t think postage is that bad, why wouldn’t you want to save a little money with such a small effort on your part?

That actually brings me to my next point. Paying your bills online is so much simpler than having to write out checks, fill out the return portion of the bill, and remember to put it in the outgoing mail. There aren’t a lot of things that simplify your life and save you money, but this is one of those things.

If you haven’t already signed up for online bill pay at your bank, all I can say is why not? I don’t have a “disadvantages” section for this post since I can’t really think of any. What are your experiences with online bill pay? Would you also recommend it to others?

Now that 2007 is behind us and we’re a little ways into the new year, many people will be receiving year end bonuses and the like from their employers. Some of these bonuses could be considered enormous (if you look at some Wall Street firms) and others are a little more modest. Whatever the size of the bonus, there are smart things to do with it, and there are some not so smart things. I’ll explore both sides of the coin here.

Smart Bonus Moves

1. Start or enhance your emergency fund. I know, how boring. You just got a chunk of change and all you do is transfer it into an account where it’s going to just sit there. Well, sometimes boring is what’s best. And once you start to see the balance of your emergency fund continue to grow, it will get more exciting I promise.

2. Beef up your retirement accounts. This is a little more eventful since you’ll most likely be investing the balance in some sort of fund or possibly even stocks. Even if the bonus is paid out to you before being able to put it into your 401k, you can change your contribution amount that is deducted from your paycheck until the balance has been fully transferred. Keep in mind that you can contribute $15,500 to your 401k, $4k to an IRA for 2007, and $5k to an IRA in 2008. If you’re over 50 you can make catch-up contributions, but all that is for another post. Your Retirement accounts would be a great place to stash this extra windfall.

3. Pay down/off your debts. Here we go with another boring idea. It can also seem as if you never even got a bonus since it all went to pay off what you already have. So use this as the opportunity to rid yourself of the debt millstone and remember what it was like when you could keep your entire paycheck for yourself instead of handing a portion of it over to [insert favorite bank/lender here].

4. Invest in something. I’m not going to specify what sort of investment since we all have our preferences and different risk tolerances. I wouldn’t have a problem using it as a down payment or partial down payment on an investment property. Others may prefer to throw it in the stock market or try their hand at forex trading. Whatever your inclination is, give it a shot and put the money to work for you.

5. Start your own business. If you’ve ever thought about starting a business, there’s no better time than the present as they say. All you’ve got to do is check out Inc. Magazine to see how many businesses have been started with almost nothing. This isn’t the right thing for everyone, but I know there are some out there that have always wanted to and are just trigger shy. Give it a go.

Stupid Bonus Moves

1. Buying a new big screen TV. You could also substitute whatever gadget or toy you’d like, but the point is the same. Why would you go blow this extra money right out of the gate when you have the opportunity to greatly improve your financial situation? I see this one happen all the time and I always just have to shake my head.

2. Going for broke at the casino. I actually heard of someone that was going to take their bonus and head to Vegas for a weekend and just blow it all. There weren’t even any hopes of winning; he just wanted to blow it. I hope he takes a lot of pictures since the memory will be all he has after he loses the camera in a poker game. Unbelievable.

3. Splurging on some fancy restaurant. I wouldn’t mind if you wanted to treat yourself to something like the Big Deal from Jack in the Box, but going all out at some swanky place where you pay more and more for less and less food is something I don’t understand. There are much better ways to utilize your bonus money. If you just have to celebrate by going out to eat though, at least be savvy about it and use Restaurant.com to get a great discount.

4. Making a down payment on a new car. You might say that it’s good to put the money down on a car so that you don’t have to finance it 100%. But what’s wrong with your current car? If you actually need to get a new car (and I don’t actually mean new) there might be an exception here, but I would seriously evaluate the supposed inability of your current car to get you from point A to point B.

5. Doing anything that does give you actual value. This is kind of a catch all for thoughtless consumer spending. Does any of it add to your bottom line and increase your net worth? Will it help you reach your financial goals and ultimately allow you to spend more time with friends and family or doing what you love? These are just some of the questions you should ask yourself before hastily going out and spending that bonus.

So there you have it. 5 smart things and 5 stupid things to do with your bonus (or any lump sum payment for that matter). If you’ve got any other suggestions or something to add, let us hear about it in the comments.

I believe that there are two main methods by which people save money, that is if they save any money at all. But one of the ways is definitely better than the other. If you’re really serious about saving some money this year and improving your finances, you might want to change the way you approach savings.

Most people get paid at some sort of regular interval and will use the money to take care of necessary expenses, bills, and then for other things that they want. After all this is paid for, they may then save what is left over. While this is one method of saving, it unfortunately leaves money on the table. Our natural tendency is to spend money that we have and we’re pretty good at it. If we’re waiting to put money away into savings until after we’ve spent money on everything else, it’s highly likely that there won’t be much to save.

In order to improve our saving process from what is explained above, we just need to change the order in which we do things. The first thing we need to do after getting paid is to put a certain amount into our savings. Once this has been taken out, we’re then free to spend the rest on our bills and other things that we want. By doing it this way you will guarantee a specific savings rate. You will also save more than you otherwise would have because when you run out of money to spend, you’ll just have to stop spending it. You will have forced yourself to think ahead and better plan out your spending and expenses.

It’s a very simple process to save, yet so many people fail miserably at it. And all you have to do is follow a few simple steps. It really is this simple.

• Get paid
• Put a percentage into savings
• Spend the rest

To get started with this process, just open up a High Yield Savings Account with ING Direct and you can make these simple transfers. This is what I do, so obviously I highly recommend it.