Author: Dominique Bergel-Grant
So the new financial year has started, you have been no doubt tried to put your best foot forward and set ambitious goals, but it never takes too long for old habits to creep back in. Particularly when it comes to money matters. Overhauling your spending habits is harder to do today than ever before thanks to new technologies like pay pass, pay wave and tap and go; they make it easier than ever to spend without consequences. At least until you see your bank balance.
Being jolted into reality by a scary credit card debt or a meagre bank balance can be like going out for a night on the town and waking up the next morning with a throbbing headache. It seemed like a good idea at the time, but in the harsh light of day, it’s not so clear. If you’ve been in this situation and want to take control of your financial health, it might be time for a financial detox.
This is my step by step guide to a financial detox
Step 1: Pay your overheads first
Sit down and review what your monthly expenses are that come out of your accounts via direct payment such as your mortgage, rent, phone bill and private health insurance.
Step 2: Pay your future self next
We all have financial goals, such as saving for a home, paying off that credit card or building an investment portfolio. Decide how much you want to put towards your financial future each month and put this money aside upfront.
Step 3: Pay yourself
This is the difficult part. Leave the credit card and debit card at home and take out a month’s worth of living expenses to cover your groceries, entertainment, and other bills in cash. That’s right, cash! For the next month, cash is your king and you have to make it last the whole month. If you can’t trust yourself from picking back up your cards, hand over your cards to a trusted friend or family member and set an agreed date when you can get them back.
Step 4: Keep on track
At the end of each day write down what you spent the money on and rate it as either a ‘want’ or a ‘need’ item and keep a running tally of how much money you have left.
Step 5: View your results
At the end of the month assess your spending habits between ‘wants’ and ‘needs’ and assess if you are happy with your results. If more than 30% of your spending is on ‘want’ items then you need to assess if you living a lifestyle today that you cannot maintain. You may be putting your financial future at risk. Also compare your spending to your normal pre-detox expenses. The results should speak for themselves.
Spending with cash always leaves you feeling more accountable; it is far harder, emotionally, to hand over $50 notes compared to tapping a credit card. If you find this strategy works for you, continue to the detox. The next month however you can break down step 3 to fortnightly cash withdrawals and the month after to weekly.
We start with a full month first, to ensure a full financial detox and the value of money is reinstated.
Even though I am a financial adviser, I still give myself a weekly cash allowance to cover my living expenses and I encourage all my clients to do the same. Cash keeps you more accountable and if, at the end of the week, you find yourself with money in your wallet, you can take out a little less the next week, helping you put more aside into savings for your future self.