How to go on a (spending) diet

Going on a spending diet is similar to going on a food diet. Here are some diet misunderstandings that also apply to your finances.

Extreme Dieting:
We have all heard that you should not try anything extreme (anyone care to figure out what the financial equivalent of the Cabbage Soup Diet is?) because once you’re off the diet you gain back all the weight. The same thing happens with your finances. Say you decide that you’re not going to spend any money on new clothes. Great. You’re fine right now. We’re good for a while with older clothes and can find new ways to wear them, but ultimately something takes over and you find yourself wanting to redo your wardrobe. The whole wardrobe. And suddenly you’re at Target with your credit card smoking and a whole slew of cheap plastic hangers.

So instead of getting drastic and fatalistic, try using the same careful calculated eye you do when you put food in your mouth. Ask yourself “Do I really need this? Am I buying it for necessity or because I’m fulfilling another need?” True that many of us use retail therapy for relaxation or stress relief. Here’s a cheaper way to take care of that: deep breaths.

You Eat 2-3 Huge Meals instead of 4-6 Smaller Meals:
Have you even opened your bank account online and seen that there are only $3.44 left in it? Of course you have, that’s what you’re reading this. Where did your paycheck go? You must’ve eaten a huge meal and not spread your calories out over the day.

The financial equivalent of this is called cash flow. For instance you get your paycheck on Friday and you know that you’ll get another in two weeks. You have your rent, water bill, and a credit card due this week and your electricity and another credit card due in two weeks.

Question: during which pay period should you go buy a new DVD player?

Answer: In the second pay period. You have fewer, cheaper bills due in the second period and since you’ll have more money available then, you should buy the DVD player then.

(2nd Answer: I don’t buy a DVD player.)

The only exception to this is life-sustaining purchases: diapers for your baby, gas for your car. But avoid filling up the whole way and save some of your paycheck for emergencies. If it’s a true emergency like a hospital stay, or your car breaks down, that’s what your emergency fund is for, right? Right.

Your Meals Don’t Have Enough Fruits and Veggies:
This is both literal and figurative. Literally, you should be eating more fruits and vegetables because they are cheaper than expensive cuts of meat.

Figuratively, this refers to your budget not consisting of enough essential expenses and more discretionary spending. I believe that your essentials shouldn’t cost any more than 50% of your take home pay. This is your mortgage/rent, utility bills, food, insurance, and loan payments, anything that you would incur a late fee for not paying on time and your basic human needs. I know this is not easy. I myself live with my essentials coming in at 56% on average. This is where you can try and trim with lower interest on your credit cards, consolidating loans, and doing simple stuff like turning off the lights and setting a new level for your water heater (or doing what my parents do, which is turn off the breaker to the water heater when they aren’t home. It has saved them at least 25% on their electricity bill).

30% of your income is for non-essentials: eating out, Internet and cable, clothing, movies. I’m proud to say mine is only at 32%. By next year it will be down to 19% once I dump a monthly massage membership that I can’t convince my insurance to pay for. Fine. I’ll get rid of it.

And guess what the last 20% is? I bet you know. SAVINGS!!! Enough said.

Deluding Yourself About What You’re Eating:
Start a spending journal. You probably think your few daily expenses are fine, but somehow you’re still living paycheck to paycheck. You=deluded. Write it down. Or have a service like Mint.com record it for you. This is the same as dieters who write down what they eat. Different studies show this reduces caloric intake from 10%-30%. Imagine if you spent 30% less in your discretionary spending. Suddenly you’d be saving much more.

Boyfriend and I are using a file sharing service to update an excel spreadsheet that he has cleverly come up with. That’s right, HE did it. Not me. It’s pretty awesome, I must say.

Going without a goal:
What is the point of your financial diet? Do you want to know where your money is going? Do you want to spend less?

Boyfriend and I went in trying to figure out how much we could live on if one or both of us were unemployed. This is especially important since the arts are shrinking and we want to buy a house. What are our bare necessities?

Weighing Yourself Too Often:
If you weigh yourself everyday you would go insane. (“I gained .3 pounds today!!!!”) Your weight fluctuates daily and so do things like your investments and your accounts. You can check in once a day, I do. But avoid obsessing and being crazed with checking your account balance after every purchase. If you write down what you spend and are careful, you should be able to check your finances once a week or so.

Go forth and tell me how your own financial diets go!

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