Consider a Financial Detox for Healthier Money Management - American Credit Foundation

Consider a Financial Detox for Healthier Money Management

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Unless you’ve been living under a rock in a cave on the far side of Antarctica, you’ve likely heard of a cleanse. These cleanses or so-called “detoxes” seem to be all the rage, at least when it comes to your physical health. Supposedly they can serve to reset your hormones, flush toxins out of your body, jump-start weight loss, or all of the above. Certainly I can’t speak to whether or not any of these methods actually work, but I can take a page from this type of thinking and recommend a technique I believe constitutes solid advice when it comes to your finances – a financial cleanse.

A financial cleanse is meant to reset your finances if you find your spending out of control, help you sort out the good expenses from the bad and/or unnecessary, and hard push you onto a path to a healthier, i.e. bigger, bank account.

How to do it, you ask? Check out these six steps but be warned, we’re starting with a jolt.

  1. Clear out the junk. This means identify and eliminate anything in your life that tempts you into spending needlessly. Think last-minute trips to restaurants where you inevitably spend more than you would had you eaten what’s available at home. Don’t plan hangouts at the mall. Take yourself off any email mailing lists from your favorite stores, which only serve to lure you to take advantage of the latest sale. In essence, you’re going to shock your system a bit so you can start clean and move forward with more controlled spending.
  2. Time to fast. By this I mean you should designate an amount of time where you will strictly only buy what you need and none of what you want. Before you throw your hands in the air and declare this task impossible, remember I’m advocating you only do this for a certain amount of time, ideally a month. However, if that’s too much, start with two weeks. During this time you will actively track your purchases and only buy what you absolutely need. Outside of the obvious needs of food, shelter, and clothing (and even clothing is questionable as I’m sure you can go without new duds for a month), this is something you will have to figure out for yourself. I can only encourage you to be honest and aggressive in your decision-making process if you want to reap the full benefits of a financial fast.
  3. Ditch the credit cards and go green. Excepting major expenses like rent/mortgage, electricity, and other regular monthly bills, don’t purchase anything using plastic and instead pay cash. You remember cash, right? Trust me, using it is like riding a bike – you never forget how it’s done and once you’re back in the saddle it feels so good. The other boon is it makes you more conscious of your purchases and how much you’re spending. Actually seeing your money stash shrink over the course of the month puts into sharp perspective exactly how much you’re spending and goes far toward helping you to pull back on mindless shopping.
  4. Write everything down. Now that cash is (mostly) king, it’s time to track how much you’re spending and on what. Again, this will take diligence and persistence, but remember your goal: an overall better financial picture.
  5. Take a second look at your spending. Now that you’ve fasted, now that you’ve paid special attention to your true needs and wants, and now that you’ve zeroed in on exactly where your money is going each month, now is the time to make informed changes if needed. Were you spending too much on weekend activities when cheaper or even free alternative were available? Were you needlessly buying new clothes when you have a well-stocked closet? When it gets tough, as it inevitably will, remind yourself that these changes are the ones that are more forward-looking and will continue to benefit you as you move into the future. In other words, these are the concrete shifts in spending habits that will help you realize your long-term goals like buying a home, preparing an adequate retirement account, or taking a long-awaited vacation.
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  6. Increase your monthly savings. If you’ve followed through with the above steps, it’s a pretty safe bet that you will find yourself with more expendable cash than you had before. If that’s the case, now’s the time to put that money into a savings account. It’s a sad fact that as the cost of living has increased faster than wages Americans simply aren’t saving as much as they did in years past and not nearly as much as they should. Don’t let this be you. If you don’t have access to an employer-matched savings program don’t be deterred. If you haven’t already, set up an automatic payment to your savings account every time you get paid. If you already do this, aim to save as much more as you can, even if it’s just five percent. You likely won’t even know it’s gone, especially if you direct the transfer to happen automatically.

There you have them, six steps to move you from financial detoxing to a more secure monetary future. The path can be rough, especially at the start, but like most things worth doing, a hard beginning leads to a fulfilling end. The folks at American Credit Foundation can help you on your way. Give us a call at 1-800-259-0601 or drop us a line to learn more.