Have a toxic relationship with money? The answer might be a
If you have bad money habits you want broken, try a monetary version of the popular nutritional detoxification program and go hard-core on an aspect of your
financial life that you want to change. Then, after two or three months, with bad habits broken, you
can incorporate a more moderate approach to maintain that new, healthy attitude
toward your finances.
Here are five challenges aimed at helping you readjust your
approach to the green stuff. Also
included are steps to incorporate your newfound healthy habits long-term.
Sample them all, or select just the ones that will help you
No. 1: Take spending off automatic
Automated bill-paying is a great feature, especially if you
travel or tend to forget to make payments. But when money comes in
automatically and goes out the same way, it's easy to get disconnected from
your finances, says James E. Burroughs, a University of
Virginia commerce professor who specializes in consumer behavior.
To get down to the basics, you have to understand where your
money is going, he says.
Take things off of autopilot for a few months and really
read the bills and statements. Are you being hit with convenience or penalty
fees? Are there charges that you didn't authorize? Are you now paying for
services that were free when you signed up? Are you paying for services you're not using?
You also want to track your spending. "Ideally, you
should be logging every expense you have in some way," says Burroughs.
"Then periodically go through and look at those expenses and cross-check
against your bank statements to make sure things are proper."
"It really gives you a sense of empowerment that you
are in control," he says.
App, computer software or old-fashioned paper? "There
is no right way," says Burroughs. The important thing is "that you do
Once you've tracked your spending, you can create a budget,
he says. What does it cost you to live every month without reaching for the
credit cards? What expenses are ripe for cutting?
With a budget, "once people find success, it becomes
reinforcing," he says. "You are in control of your finances."
Think about automating some of the bills if that makes your
life easier, as long as you keep an eye on statements. But if certain bills tend
to creep higher while on autopilot, or if automation make it difficult to track
spending or get refunds for billing errors, keep paying those manually.
And keep the budget.
No. 2: Shelve the credit cards
If you've been fighting a losing battle against balance creep,
or you're often afraid to open that statement at the end of the month, take the
cards out of your wallet and put them away (in a safe place) for a few months,
says Dave Jones, president of the Association of Independent Consumer Credit
Here's why: The brain registers parting with cash as a
"loss." You instinctively realize you're trading one thing (money)
for something else (goods or services), says Douglas E. Hough, associate scientist with the Johns
Hopkins Bloomberg School of Public Health.
That doesn't happen when you hand over a card, and the clerk
hands it right back to you, he says.
Repeated studies find that, when we pay with plastic, we
spend more, says Kit Yarrow, consumer psychologist and author of "Decoding
the New Consumer Mind." "Credit cards put a buffer between people and their
money," she says.
The solution: "Go cash-only for three months,"
says Jones. "That is going to be very tough for a lot of people, no doubt
about that. It's drastic, but it will also save some people a lot of
money," he says.
It's also a good way to train yourself to curb spending, says Jones.
FYI: It's an urban myth that you have to carry a credit card balance to
maintain a good credit score. With most cards, you do want to use them every three
months or so just to keep the accounts active. But pay that balance in full if
you want your best score.
Post-cleanse: When you put the cards back in your wallet,
limit charging to what you can pay off that month, says Jones. That will mean
eliminating outstanding balances and tracking spending throughout the
month, he says.
Once you pinpoint places where you tend to overspend with
plastic, such as the grocery store or the big-box electronics place, that's
where you keep using cash only, says Yarrow.
No. 3: Eliminate fees
For the next three months, cut those nasty surcharges from
your life, says Ruth Susswein, the deputy director of national priorities for
That might mean opening a checking account at an institution
that doesn't levy ATM fees or one that has more ATMs, so that you aren't
charged out-of-network fees. Or setting up direct deposit to qualify for free
It could mean juggling bills (or redirecting money), so you
don't get hit with late fees. It might even require putting credit cards on ice
until you pay down balances.
Your goal: Go fee-free and see just how much you save.
You're no longer paying invisible fees automatically, so you decide when and if
that extra fee is worth the expense.
No. 4: Automate savings
You know how much you should be able to save every month.
But when you reach for that money, it's never there. So have that amount
automatically transferred to savings as soon as your paycheck hits your
account, says Susswein.
That way, you can use it to pay off debt, save for a big purchase
or build your emergency fund, she says.
In some cases, an employer may offer the service for you, in
others, you may have to set up an automatic transfer every month with your
bank, she says.
The idea: You can't spend it because "you never see it,"
Susswein says. "I think that this automatic deposit idea can make this
happen as painlessly as possible."
One strategy: "Deposit 10 percent of salary in
savings," and force yourself to live on what's left, says Kathleen Gurney, author of "Your
Money Personality: What It Is and How You Can Profit From It."
While this one can be painful, it's temporary "and
transforms into a sense of empowerment and control," she says.
You've paid off that card debt or stockpiled money for a new
car or vacation, now what?
"Instead of going back to your old ways, see if you can
take that same amount and put it into an emergency fund," says Susswein.
"Because you may need that."
No. 5: Cut back to 'needs,' skip 'wants'
Running out of money before the end of the month? Have
enough for basics, but can't seem to put cash together for bigger goals, such
as savings, vacations or retirement?
Start keeping a log of where you're spending your money,
says Jones. Chances are you'll see "wants" masquerading as
"needs." $10 lunches? $100-a-month premium TV? Phone plans with all
Would the world stop turning if you cut back to free
television, a basic phone plan or a bagged lunch? How much could you save?
"People get into habits," says Jones. So switch it
up for a couple of months. Spend on the needs, skip the wants. Scrutinize
bills you pay without thinking (such as phone or TV service).
"In neurology, our brains set new patterns after about two months,"
says Yarrow. After that, carefully
reintegrate the things you truly missed, on a more limited basis, she says. You'll
appreciate them "10 times more."