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Take the Money Diet Challenge

Are you tired of living paycheck to paycheck? Do you ever find yourself thinking that the end of the month has come, and all your money is spent? Wouldn’t it be great if you received an unexpected increase in your income? Spending money is a lot like eating. If you’re not careful, you could end up bloated with debt. What’s the best way out? A spending diet.

There are only two ways to improve your financial health. You can either make more money or you can reduce your spending. You may or may not be able to increase your income, but you can always control what you spend. Give yourself a raise by taking the Money Diet Challenge. Every dollar you spend is your decision. The amount of money you will have saved by the end of the month is up to you. Good luck and have fun!

PHASE I

Step 1: Chart Your Course

Where is your money going? You must give yourself a reference point to measure from. Start by gathering your financial statements from last month. This includes bank statements, credit cards, and receipts. You should familiarize yourself with the expenses of your household. It doesn’t matter if you use Cash, Credit, Debit, or a Check; they are all expenses that should be included in your monthly cost of living.

Step 2: Prioritize Your Spending

You must prioritize your payments so you know what needs to be paid first.

The Essentials - There are the obvious necessities of life. You need a place to live, so you must pay the mortgage or rent. You need to stay warm in the winter and lighting year-round, so make sure you pay utilities. If you owe child support, paying that is necessary not only for your child, but also to keep you out of jail. Medical emergencies also fall under this category.

Miscellaneous - Student loans are often backed by the government. Just like back taxes, the government can come after these loans using methods that other creditors can’t use. The government could potentially seize your tax refunds and garnish your wages if you’re delinquent. In some cases, your Social Security benefits could be at risk also. Fortunately, there’s usually some flexibility regarding repaying student loans.

Everything Else - This category includes all of your other debts – debt from bank-cards, department stores, and payments for furniture and appliances. Don’t misunderstand – you still have to pay them. You borrowed the money; you still should be responsible for that debt. But if you’re in a situation where you know you won’t be able to pay every creditor right away, these are the debts you put on hold.

PHASE II

Step 1: Create a Monthly Spending Plan

A spending plan is a previously established system for how you spend the money you earn. This is also referred to as a budget; however the word budget usually carries a negative connotation as many people think of budgeting as cutting back or penny pinching. To the contrary, a spending plan should be viewed as a positive motivational tool which helps you plan for long-term financial achievements while still allowing you to indulge now and then.

Have you ever wanted to make a purchase and realized you don’t have as much money as you thought, or wonder where all your money went at the end of the month? Well, this is exactly what a spending plan solves. Instead of just sporadically spending the money you earn each month and wondering where it went, a spending plan helps guide your monthly purchases through thoughtful planning so you know exactly when and where your money is being spent.

Start by entering your monthly expenses and obligations (rent, cell phone, car payments, credit card bills, food, and so on) into The Money Diet Challenge Worksheet under the column labeled “Last Month Expenses. Then take a look at your monthly income and make sure that you are spending less than you make. Once you have done this look for expenses that you can reduce so that you can apply that money towards debt. You do not want to cut out all of your fun money as this sets you up for failure, but you can reduce it significantly and still have fun.

The easiest way to save money is to find more cost-efficient ways to continue what you already do. Find at least three areas or categories and plan to reduce them by at least $50.00 a month. If you can do this, then you will have an extra $150.00 to put towards debt each month. If you can find more money in other categories do it as well.

Use the following percentages as a rough guide for allocating your take-home pay. Remember, these percentages should be taken from the part of your income that you bring home, not your gross income.

  • 30% Housing
  • 5% Debt
  • 15% Transportation
  • 16% Food
  • 24% Other
  • 10% Savings

After you have completed your spending monthly plan and compared your net income against your living expenses, you will be left with either a positive (money left over) or a negative (spending more that your net income) cash flow.

Disposable income is also known as positive cash flow and it is the surplus money

That you are left with, after deducting your living expenses from your net income. This disposable income is best used to increase savings, pay down debt, or save for an anticipated major purchase such as a car or a vacation.

A deficit or negative cash flow is when your monthly living expenses are more than your monthly net income, which leaves you with less money than you earn each month.

You should avoid a negative cash flow at all costs as this means you are spending more than you earn and ultimately accumulating debt. If you find yourself in this situation, go back and look at your daily expenditures tracking sheets. Use these as a guide to find areas where you can save more money in order to get your spending plan to a point where you are left with a positive cash flow each month.

For immediate assistance or advice, please call 1-800-351-4195 to consult with a Certified Financial Counselor.

Step 2: Track What You Spend

To properly analyze your family’s spending habits, first you need to identify where your money is currently going. To find this everyone in the household should track what they spend. Write down everything that you spend your money on – that packet of gum, the morning news paper and, of course, those sodas and coffees. At the end of each week, total the columns and keep the tracking sheets in a safe place. You will need each completed sheet to calculate your monthly spending totals. Begin a new sheet for a new week, or when it becomes full. At the end of the month (or on the end of the 4th week), gather all the completed tracking sheets and total your monthly expenditures. As you total each column, start looking for patterns of where money is consistently spent – this will help you identify family spending habits.

You may be surprised at where you or your family spends their money. People often find the largest expenditures in the most unexpected areas. This is where planning really comes into play. Look at the areas where your spending amounts are largest or may have been a surprise to you. Now, think of ways you can save money in those areas.

Remember, planning your spending should be something you enjoy, not a dreaded chore. The easiest way to save money is to find more cost-efficient ways to continue what you already do. The idea is to create a way to stay on track in reaching your long-term financial goals.

Now, track all your expenditures again for the next month using your ideas for saving money. You will soon begin to see how much difference this makes in how much money you have left at the end of the month. Repeat this process as many times as you like.

Money Saving Tips

Step 3: Trim Your Expenses

If you want to get out of debt and attain financial stability, you have to stop spending frivolously. Here are some suggestions to help decrease your costs so you can increase your happiness!

  • Don’t keep credit cards in your wallet or purse (only debit/ATM)
  • Write checks and pay cash
  • Reject credit line increase offers
  • Create specific funds for special occasions, like holiday presents, vacations, anniversaries, etc.
  • Tell friends what you’re trying to do to so they can support your efforts
  • Don’t create bills that you won’t be able to pay in full at the end of the month
  • Avoid late fees by paying credit card bills on time
  • Visit the ATM no more than once a week
  • Reject credit card offers such as airline miles, gas cards, etc.

PHASE III

Step 1: Understand Your Spending Behaviors

Most of us walk through life buying and spending and never really understand why we do it. It is an unconscious decision that could be influenced by any number of factors. Different people do it for different reasons, and understanding why you do what you do is the key to eventually changing those behaviors.

By consciously taking control of your spending habits, you can make your Money Diet a way of life, not just a temporary fix. Take this self-assessment to figure out why you are spending money.

Look at the list of five statements below. Select a statement below that best describes your mood when shopping.

  • I am with my family or friends and having a good time. (Entertainment)
  • I feel empty, alone, or like I need to buy something to make myself feel better. (Mood Repair)
  • I am wasting time and buy something just because it’s there. (Habit)
  • I am thinking about something else and buy things I never planned on buying. (Impulse)
  • I get a rush and feel out of control, but I can’t stop myself. (Compulsive)

Entertainment

For many people, shopping is a social experience. You meet your friend at the mall in order to be together and you buy things together because that’s something else you can share.

How to Resist: Delay, delay, delay. Put a mandatory time limit on yourself before allowing yourself to purchase an item. You can put the items you want on hold and, if you’re still desperate to have them tomorrow, you can return to the store and buy them. Separating yourself from the purchase by time and distance will help you evaluate it more rationally.

Take gun stores as an example. A three day waiting limit is enforced to help prevent crimes of passion. It gives time for angry people to cool off and reevaluate their situation. Your shopping may not be a crime, but it could be a purchase of passion. So give yourself some time to cool off and decide if it’s really necessary.

Mood Repair

Some people shop to fill the gap between who they are and who they want to be. You think your life will be better and you will be a different person if you own those shoes or that new outfit. It won’t and you won’t.

How to Resist: Understand your particular motivation for buying. Is it because of a fight with your spouse? Is your scale telling you that you’re a few pounds heavier than last week? Did you just get a bonus and feel the urge to splurge? Are you lonely and grateful for the seemingly sincere salesperson who wants to make you happy?

The next time you head towards the register, ask yourself the following questions:

  • Why am I here?
  • How do I feel?
  • Is this purchase part of my spending plan?
  • Is this something I need or want?
  • How long did it take me to earn this money I’m about to spend?
  • Do I have other things I would rather use this money for?

After asking yourself these questions, You might discover that you no longer wish to purchase the item.

Habit

For many of us, shopping is a trained response – much like Pavlov’s dog. Our favorite store is in a convenient location and we drop by just to see what’s new. We don’t always know what we want to eat, so we buy a bunch of stuff that we think we might want to eat at some point in the future. Then we end up with a lot of stuff we didn’t plan on buying. And the Internet makes it easier than ever to check sales virtually as quickly as you can check your email.

How to Resist: Generally, there’s a chain of events that leads you to buy. If you always stop by the book store on your walk between your office and your car, you’ve taken a number of steps. You left the office. You turned left. You passed by the window of the book store, and noticed a number of new books in your favorite genre. You look at your watch and see you don’t have to be home for another 25 minutes and you stop in, where you inevitably buy something. What could you have done instead? You could have stayed in the office for another 15 minutes so that you really wouldn’t have time to shop. You could have parked in a different lot so that you would have to take a completely different path. You could have taken a right and headed to the library to borrow a book for free.

In order to resist, you must recognize your behavior patterns in detail so that you can change them.

Impulse

In this age of consumerism, modern stores understand that shopping is a conflict between desire and willpower. When your desire for things overwhelms your willpower, then you make an impulse purchase. Impulsive spenders are people who buy on a whim and make unplanned purchases. They usually lack self-control in buying and have not established clear spending priorities. Impulsive spenders are happy with the instant gratification of buying something now rather than planning and saving for the purchase. If left unchecked, impulsive spending can lead to severe financial difficulties in the future.

How to Resist: You are most likely to buy on impulse when your ability to self-regulate has been depleted. You may be tired from a long day at work or maybe from the previous three hours of shopping. Or maybe you’re worried about your kids or work. Whatever type of stress it is, it can make you more prone to buy impulsively. You must monitor yourself. Don’t surf to your favorite website after you’ve had a glass of wine, a spat with your spouse or a hard day at work. And don’t visit stores when you know you’re not at your best.

Compulsive Behavior

The difference between impulse shopping and compulsive shopping is frequency. Impulse shopping happens when you occasionally find yourself faced with a purchase that’s too tough to resist. Compulsive shopping is when you find yourself feeling unable to stop shopping.

Compulsive spenders are those who buy to find value in sources outside of themselves due to their own lack of confidence or low self-esteem. For compulsive spenders shopping can become just as addictive as alcohol or gambling. They are preoccupied with spending and the impulse to buy becomes irresistible. The inability to overcome these impulses can result in harmful consequences.

There are four basic types of compulsive shoppers:

  • “Revenge addicts” shop in order to get back at another person – typically a spouse – with whom they cannot communicate in any other way.
  • “Existential addicts” shop because the act of finding the right thing at the right price makes them feel important and gives their life meaning.
  • “Serial addicts” are those who also have many other compulsive behaviors (like eating, drinking or drug abuse) and for whom compulsive shopping is just one more on the list.
  • The fourth group shops to boost their mood. When they make a purchase their mood plateaus then quickly falls off. Soon thereafter their good feelings disappear and guilt sets in.

How to Resist: There is no quick solution for compulsive behavior. You need to develop an emotional system that will help you tolerate distress in other areas of your lives. You also need help.

Some resources to consider:

  • Debtors anonymous. If there is no chapter in your area, try Gamblers anonymous. Although debt and gambling problems manifest themselves differently, they are actually fairly similar.
  • You can also search for a therapist at the website Psychology Today. To narrow the field, specify on the second pull-down menu that you’re searching for help with an addiction. Then ask the therapists that you call if they’ve helped other compulsive spenders.

For immediate assistance or advice, please call 1-800-351-4195 to consult with a Certified Financial Counselor.

Step 2: Protect Yourself & Start Saving

Now that you understand your spending issues, you can begin to save. In times of financial crisis, a savings stash can keep you from sliding back into debt. If an emergency arises, you might be tempted to pay for it with your credit card, which will impede your progress. If you have a savings stash, you can avoid that pitfall. Savings is also the first step in preparing for the future so – once you get out of debt – you can end up wealthy.

Look around the house and see if you have anything that you do not use anymore. You can consider big ticket items as well as smaller ones. Think of the old gaming system you used to use until you got the new one. Look at the video games that you know you'll never play again. Consider the DVDs you don't use or your old iPod or cell phone. You should be able to find a few items that you can sell. Then decide how you will sell them. eBay and Craigslist are both easy places to sell. If you are selling through Craigslist you may want to ask for cash or a money order. You may also consider having a yard sale.

Finally look at the items that you are paying payments on and consider selling them. Do you use the boat enough to justify the payment? What about your car payment? Can you sell your current car and get one for a lower payment? If your car is worth more than half of your annual income, then you have spent too much on your car and you should consider scaling back.

Turn Protection Into Profit

  • As you start to pay down your debts, put aside a portion of money each month and put it into savings – 3-5% is a good start but you eventually want 10-20%.
  • Put your savings in a safe place, such as the highest paying money market account you can find (try www.bankrate.com to find the best rates). Do this until you have accumulated a substantial emergency cushion equal to 3 to 6 month’s salary. That’s your protection. If you get laid off or need a new car, you’ll be able to live and pay your bills without falling back or going into debt.
  • Once that emergency cushion is in place, start investing that money in a portfolio that can help you build a strong long-term foundation of wealth for your future.

For immediate assistance or advice, please call 1-800-351-4195 to consult with a Certified Financial Counselor.

Other Helpful Resources:

Financial Calculators

Debt Management Program (DMP)

Credit Building Toolkit

On-Demand Financial Education Training

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