Get Easy Cash With a Money Diet

By: Elizabeth Partin

This is the time of year that many of us tend to indulge. We want to have our special holiday butter cake along with every treat that ends up at the office. After all, we deserve it. Then one morning, when the muffin top (your stomach) pooches over your low rise jeans, your mind starts thinking after the holidays. I think I need to go on a diet. Judging from the news reports, food is not all we indulge in. A lot of retail therapy seems to be happening too.

Just for fun, replace food with money and go on a money diet. If you can not pay off your credit card completely within two months, you are ripe for a money diet. A money diet works just like a real diet. There are three phases. Phase 1 is for preparation, then you move into the losing phase (stage 2), and finally you reach the maintenance phase. By the time you reach the third phase, new behaviors are firmly in place and you are making sustainable changes. Eureka. Time to get started.

Phase 1 This is where you figure out the state of affairs. Just like a real diet, you have to weigh yourself. Instead of scales, you need a calculator. What do you owe? Count everything except your mortgage. This is painful, but you must know where the starting line is. This is also the time that you start weaning yourself and moving away from temptation. On a food diet, you would get rid of the chocolate chip cookies, chips and ice cream you have stashed in the kitchen. The equivalent for the money diet is to replace shopping trips both on line and in person. Yes, that means drug store shopping too. This is where you tell yourself you are going to get toothpaste, but come back with picture frames, toys for the kids or dogs, make-up, light bulbs and maybe toothpaste.

Phase 2: You have stopped your bad shopping habits and now you must stop all unnecessary spending. You have to take a hard look at what you consider a necessity. Every bit of fat you cut out of your money diet is applied directly to paying principal down. Treat this like a game. How much can you devote to principal only and how fast can you pay it off? Just like losing weight the amount of time it takes to accomplish this will depend on where you start. Losing 100 lbs takes more time than losing 10 lbs and the results are also more outstanding. This phase will not last forever, but it is an important step.

After you complete the first two phases of the diet, you will begin to notice a positive change. You do not want as much. Just like food. You are starting to learn there is a price in terms of freedom for every purchase you make. You will begin to embrace the realization that buying that extra special TV will cost 30 hours of your time (labor). Additionally, you may decide it is not worth that to you at any time, no matter how much money you have to spend.

Phase 3: Debt has been paid down and now it is time to build a cushion. As you might guess, stage 3 is not as spartan as the other stages. You have developed new habits and are committed to not going back to the level of spending that caused the problem to start with. You can loosen up a little. The majority of the extra cash should be divided among three piles. Short term, medium term and long term:

Short term: Fun Stuff. This will be for planned fun stuff. There may be some room in this pile for impulsive stuff, but you will only spend out of this pot for impulse, so this type of spending will have cap on it.

Medium Term: Planned replacement fund. You know you will have to replace the washer, dryer, etc. sometime, so you keep this fund in reserve for those items. The goal is to be prepared before a necessity arises and causes further debt.

Long Term: One day, you will want to quit working or work the way you want to. Either way you need money to do that. I often hear employees say something like I am going to work until I am 85 years old. Take a look around. You do not see many 85 year olds reporting to their desk. Be realistic about this and value yourself. You need to save for this stage of your life. Period.

Money diets are not just for people in trouble, you can also use them to get ahead when you are anticipating an event. In my family, we have done a money diet a few times to get a cushion in anticipation of an event. Think of it like dieting before you go to the high school reunion or because you are going on a cruise and know you will overeat. You build a reserve account so you can enjoy yourself.

We use a combination of strategies to build reserve ranging from cutting out some spending, reducing some events, making more money, and reusing so that we will not have to buy new.

Just like all goals everything can not be a priority or nothing is. Make sure you figure out your true goals and make funding them a priority. Following a money diet to get you back on track will keep you moving in the right direction. Food or money, both require a disciplined approach, but the long term rewards are fantastic and beat the short term high every time.

Money Management
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