The book The Millionaire Next Door has an awesome approach to personal finance.  The authors say that financial security is a mix of good offense and defense (everyone loves sports analogies, right?).

In personal finance, a good offense means having a good income.

A good defense means frugal and wise spending habits.

A  winning personal finance strategy is a combination of good offense and defense. Let’s look at some ways to improve both:

Good Offense

1) Ask for a raise

Perhaps the quickest way to improve your income is to ask for a raise.  Notice how I said quickest, not easiest. It’s an uncomfortable process, but will improve your finances faster than starting your own business or looking for a side job.

Take the time to review your recent performance at work, make sure you have concrete examples of how you have performed above expectations.  Then, take these examples to your supervisor and ask for a raise in pay to match your raise in performance.

2) Look for side income

Step away from the TV and spend your time in more profitable endeavors.  If you need to pay down debt fast or build up savings, look for a side job you can work around your full-time position.

This would be a short-term solution, since you probably don’t want to be working 60 hours a week for someone else for the rest of your life.

3) Start your own business

Does the thought of working for someone else during your free time not appeal to you?  Then strike out on your own and start your own small business.

Chances are, you have some sort of skill you can monetize.  Are you good at an instrument? Teach lessons.  Do you enjoy writing?  Start a blog and offer free information along with paid.  I turned my hobby of web design into a nice side income by designing sites for small businesses.

Take the time to inventory your skills and there’s a good chance you can make money from one or two of them.

4) Work more hours

Don’t do this if you can barely stand 8 hours at your day job.  Personally, I would only use this option for short-term needs.  Work more hours if you need to quickly pay down debt or increase your savings.

5) Sign up for a high-yield checking account

I am constantly surprised by the number of people who still pay to have a checking account.  I thought the days of fee-based checking accounts were long gone, but many dinosaurs remain.

If you are paying your bank to have a checking account, dump it!  Your bank should be paying you to use their services.  Check out your local credit unions for the best rates on interest-bearing (sometimes called “rewards”) checking accounts.

Good Defense

1) Build an Emergency Fund

I have an earlier post dedicated to building an emergency fund.  This is such an important part of a successful personal finance strategy.

Some people call them emergency funds, rainy day funds, or umbrella funds.  Basically, an emergency fund is cash savings set aside for the express purpose of covering an unexpected expense.  Save up 3-6 months (or more) of expenses in an easy-to-access place, such as a high-yield savings account.  Then, don’t touch it unless you have an emergency.

2) Monitor your spending

Mint.com is the software you need.  It’s a free service that allows you to track all of your financial accounts in one place.  Mint.com is an integral part of my personal finance system.

Use it to track your spending by putting all of your transactions into categories (gas, clothing, restaurants).  Then, after a few weeks, go over your expenses and you will be amazed at how much you spend on certain things.

Monitoring your spending gives you a better awareness of where your money is going.

3) Make a budget

After monitoring your spending, I’m sure there are some things you want to change. Maybe you want to spend less on eating out and more on your Roth IRA?  Mint.com allows you to set budgets for all of the categories you use.

After creating your budgets, Mint.com will track your spending, letting you know where you are and alerting you when you’ve gone over the limit.

4) Pay down debt

Too many people, instead of thinking about how much something will cost them, think only about monthly payments.  Can I afford $400 a month on my lease?  This way of thinking, in the long run, will make you much poorer than your potential.

I have a post devoted to my favorite method of paying down debt, what many call the debt snowball.  In brief, list all of your debts, from smallest balance to largest, then pay them off in that order.  Read my post for more detailed instructions.

5) Invest for retirement

We Americans are not saving enough for retirement.  If you are not currently investing in your company’s 401(k) or your own personal IRA, plan on flipping burgers into your 80′s.  You need to be saving at least 15% of your income for retirement.

For lots more information on investing for retirement, check out my free guide, The Minimalist Guide to Investing.