If you read my last column, you're already familiar with my new 30-day Financial Cleanse. It was inspired by my own rewarding experience with a food cleanse. The Financial Cleanse is a week-by-week program offering three simple steps per week that, hopefully, will be a real boost to your financial health, and maybe to your physical health as well.
The idea behind it is to take control of your spending for 30 days--to practice what I call "mindful spending."
Catching up on Week
To get everyone up to speed, let me do a quick recap of Week 1. The first week of the Financial Cleanse is about taking control of your day-to-day expenses. It starts with a commitment to try to use cash for your everyday, casual spending--you know, all the times you just shell out for impulse purchases on things like lunches, hair appointments, morning coffee, outings with your kids, date nights, you name it.
All you have to do is estimate what you'll spend for the week, then go the ATM and get the cash. Of course, you then have to stick with using the cash. Okay, there may be times when cash just doesn't work, but the point is that using cash makes you more aware, more mindful, of what you spend. Ideally, during this first week, you'll also keep a record of what you've spent--and figure out where you could cut back.
Getting going on Week 2
Week 2 takes this spending awareness a step further to track and categorize ALL your monthly spending. Think about it. When was the last time you looked carefully at how much you're paying for utilities, cable and Internet service, and the dozens of other expenses that chip away at your bottom line each month? If you're like most people, a lot of your essential spending is probably done kind of automatically. Now's the time to pay attention.
You can do it in three easy steps:
1. Begin to track your essentials as well as out-of-pocket expenses.
If you have a stack of bills, go through them. If you have most of your bills on auto-pay, check recent bank statements. From mortgage or rent to utilities and insurance premiums, add up all your essential living expenses.
2. Make a budget, by category, separating out your essentials from your nice-to-haves.
Start with the essentials. Make each household expense (mortgage/rent, utilities, phone, groceries, etc.) a line item. Then, list things like car maintenance, tuition, student loan payments, pets, and medical costs--EVERYTHING you spend money on in the course of a month. An online budget planner can help you create the categories. And don't forget to prorate expenses that only come up once or twice a year, such as property taxes or insurance premiums.
Next list the nice-to-haves--the extra specials like concert tickets or a weekend getaway--plus the weekly out-of-pocket expenses you're already keeping track of. This should give you a dollar figure for your complete month.
3. Compare your total monthly spending to your monthly income.
Here's where the rubber meets the road. Subtract your monthly expenses from your take-home pay. Are you in the black or the red?
Where to go from here
With these monthly numbers in front of you, you can begin to make more mindful decisions. If you have the good fortune to be in the black, perhaps you can direct more money toward savings--or even treat yourself to something special now and then. If, on the other hand, you're falling short, you'll want to take another look at your budget. Where are you spending too much?
Maybe that gym membership you purchased two years ago isn't worth it anymore. Or you might look to renegotiate your cable and Internet costs. And what about those credit card bills? If you regularly carry a balance, it might be time to see if you can lower your interest rate. Sometimes all you have to do is ask!
But remember too that it's not so much about doing without, but rather about spending mindfully. Much better to consciously cut back than to unconsciously put extras on a credit card.
I hope by now I've got your attention, and that you're intrigued by the idea of mindful spending. If you're interested in taking it further, you can download a Financial Cleanse Quick Start Guide.
If you want to see what other participants are doing and learning, check in on my Carrie Schwab-Pomerantz LinkedIn page or join @CarrieSchwab Twitter followers by using the #Financial Cleanse hashtag.
Next week is all about goals. Till then!
Looking for answers to your retirement questions? Check out Carrie's new book, "The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions."
This article originally appeared on Schwab.com. You can e-mail Carrie at email@example.com, or click here for additional Ask Carrie columns. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. Asset allocation and diversification cannot ensure a profit or eliminate the risk of investment losses. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. Diversification cannot ensure a profit or eliminate the risk of investment losses.
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