Just one week of financial mindfulness can help you stop spending and break bad money patterns. These three women tried it -- and came out focused, motivated, and (yes!) richer. By Kenrya Rankin Naasel, REDBOOK.
There's something super-appealing about starting January on a clean financial page, especially if last year's page was covered with red ink. Experts suggest that you begin 2013 with a spending cleanse: a short, intense exercise that clears your head, zeroes in on your goals, and kicks off better buying habits.
"If you're trying to change, short-term interventions are a good first step," says Arlen T. Olberding, a certified financial planner in Fort Collins, CO. "They can break old routines and help establish successful new ones."
We found three women raring for a reboot and had them each try a reinvigorating, belt-tightening one-week plan crafted by a financial advisor. To start off any money cleanse, you need to figure out exactly what you're spending, so all the women followed the simple steps on YouNeedABudget.com to add up their necessary expenses and suss out how much cash was left after. (Mint.com and Quicken are popular budget-makers too.) Then, they plunged into their plans. After a week, they emerged slinging around words like epiphany and counting the savings that were already piling up in their accounts. These cleanses work, so pick one, pick a date, and get started.
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Swear Off Plastic
THE PLAN: Withdraw each week's spending money from the bank, in cash. When it's gone, it's gone.
THE PURPOSE: Cutting back on those willy-nilly impulse purchases.
"Many people talk about how important their long-term goals are, but their daily buying decisions don't support those aims," says Melody Townsend, a Lexington, KY--based financial planner. "This cleanse takes away your credit and debit cards, so you notice the dollars and cents behind every purchase."
At the beginning of the week, you'll tuck 25 percent of your designated monthly spending money into an envelope. This is your allowance for the next seven days; all purchases--that sandwich from the food truck, movie tickets, a new dress--must come from this cash. Research has shown that merely the act of relying on greenbacks makes you likely to spend less. "You're giving up something physical, while with a credit card it almost doesn't feel as if you're paying," says George Loewenstein, Ph.D., a professor of economics and psychology at Carnegie Mellon University in Pittsburgh. Plus, few things make you question whether you really need that manicure like realizing you only have $20 left for the week.
THE RESULTS: "I've always believed that if you made good money and kept your basic costs in check, you could buy what you wanted," says Natalie Black, 33, an Atlanta-based public relations executive. "But between trying to give my kids the best, wanting to look chic, and indulging a craving to eat at hot restaurants, I'm in debt!" After accounting for necessities and credit card payments to erase that debt, Natalie's new budget allowed for $150 a week in spending money for her and her two children, ages 12 and 3. "So tight, so tight," she fretted. But the end result? "An epiphany!" she says. "I grew up in a poor family, and I realized I buy just to prove that I can. Take my morning Starbucks run: It isn't about the coffee, it's about what buying premium coffee says about me. Giving it up was hard--but also so empowering. I brewed at home and took back my mornings, instead of rushing out the door to stand in line for a $5 latte." Natalie ended the week with $15.72 to roll forward--and plans to continue using cash envelopes. For long-term change, Townsend suggests that she enlist an accountability coach, either a financial planner or a supportive friend. "A meeting to review the month's spending and map out the next's will motivate her to stay on track," Townsend says.
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Set Up "Auto-Save"
THE PLAN: Program regular account transfers that feed your savings on a steady schedule.
THE PURPOSE: To sock away cash for retirement, an emergency fund, and fun goals like a vacation, before you can even miss it (much less spend it).
The great thing about this cleanse is that it literally automates your savings, so money for things you care about won't get spent on things you don't. Begin by making a list of everything you want to save for, from somber necessities (a three-to-six-month emergency fund) to your dreamiest goals (next Christmas in Cabo). "Write down everything and don't judge," Olberding says. "Once you take care of the basics, you'll be able to divide up what's left completely guilt-free." Next, open enough new savings accounts to hold each of your stashes. Decline debit cards, to make dipping into these accounts more difficult. If you go with an online bank, choose one that requires slow-moving transfers for withdrawals. (ING, Ally, and others make it simple to create multiple linked accounts, and you can even name them according to your goal, like "house down payment" or "new Mac.") Lastly, set up automatic transfers or direct deposits that'll move money into each account on payday. Little drips add up: With just $30 from each paycheck, in a year you'll have $780.
THE RESULTS: Tracie Smith-McCarthy, 41, and her husband, a school administrator, had a long history of halfhearted savings attempts. "I'd put money in the bank, but it wouldn't stay there," says the Portland, OR--based administrative assistant. "When my kids wanted fast food or I craved a new fitness video, I'd end up raiding my reserves. As we speak, my car needs a repair that I can't afford!"
Her first step: cutting up that debit card. ("I don't want to, but I will," she said gamely.) After a long look at her family's budget, she dedicated some savings accounts--"rainy-day fund," "new car fund," "Christmas gifts," "vacations"--and allocated monthly contributions, which her employer now deposits directly. "Calculating these amounts helped me visualize where our money is going," Tracie says. "Now I know that we can save and still actually have quite a bit at the end of the month, if we stop spending frivolously." The experiment also exposed a key budget-buster for her: her teen and tween kids' requests for new kicks, cell phone upgrades, movie tickets, and so on. Olberding suggests that she automate these, too: "She can give each child $50 a month and let them decide how to spend it. They can learn to prioritize, and she can stick to her plan." As for the shredded debit card? "Without seeing it in my wallet, I wasn't triggered to use it," Tracie says. "I forgot it existed!"
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Eliminate Your Problem Area
THE PLAN: Find a single overspending category and slash it.
THE PURPOSE: Helping anyone who lacks control mainly in one area--like clothes or Saturday nights out.
For one week, you'll go cold turkey on your particular money-sucker, and put the cash you would have spent in the bank. These savings could be the key you need to getting yourself back in the black, financially speaking.
THE RESULTS: One look at Paige Martin's monthly expenses and the White Plains, MD, mom's problem was clear: Her money was disappearing at local restaurants, deli counters, and coffee shops, to the tune of $400 a month.
"I don't pack a lunch, so I buy it almost every day," says the recently separated Air Force tech sergeant, 40. "And the last thing I want to do after picking up my 3-year-old from day care is cook, so we eat out a couple times a week." Her cleanse was simple: Cook at home.
Paige added $25 to her weekly grocery budget (taken from the cash she would normally spend out) and found a way to efficiently whip up a week's menu. "Thank you, digital pressure cooker!" she says. "The tilapia with asparagus risotto was fabulous." Also awesome were her savings, which totaled more than $100 in a week.
Olberding says a gradual reduction in one area can also work. "If you're spending $500 a month on clothes, budget $450. Then take it down by $50 each month and see how well you get by," he advises. "But make sure you shift the extra money into savings, so you don't just spend it somewhere else."
Paige, for one, is feeling motivated. "Just by reducing these expenses, and then turning off cable and switching to a more basic cell phone plan, I could save up a house down payment in three years!" she says. "It's so simple, there's just no sense in going back."
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