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The Financial Detox

My previous article was making a case for the digital detox, although a very modified version. In today's article, I am going to take a closer look at an even newer phenomenon: the financial detox. You might be thinking: "I can't just switch off my online banking and hope for the best." I am with you there, and that is (thankfully) not what financial detoxing is about. Financial detoxing is about looking at your own financial decisions critically and decide what you can live with, and without!

Check yourself Check yourself before you wreck yourself. No statement could have been better fitted for this specific section of the article. What do you spend, where and how much? It is time to get an overview of you bankstatement. Many apps can do that for you if you prefer, as long as YOU get the picture, rather than leave it on your phone to gather dust. Once you know how much you spend where, you can decide for yourself whether you find this an appropriate amount, or an appropriate expenditure at all. If you suddenly realise you spend a lot more on Chai Lattes than you thought, maybe it is time to restrict yourself and make a budget or some type of allowance. Again, an app can help with this, if you think you won't be able to restrict yourself properly.

Creature of habit It is easy to see that maybe we don't need to buy 16 Chai Lattes a month. But what about those expenditures we see reoccuring every single month? Are they useful? Are they necessary? For a lot of people that gym membership they started in January is still being deducted in Apart from needless expenditures, are there things you need, but could maybe get a better deal on? Things like insurance are always a good thing to look out for. A lot of companies offer a lot of advantages if you decide to switch to their service. Often, you'll get a much better deal. Also do this for your energy provider, phone provider, and maybe even your bank (think loans and mortgages). These companies count on your inertia, meaning they'll take you in with a good deal that only lasts for a limited period of time, and then count on you sticking with them even though the deal is no longer valid for the rest of the time you'll be with them. This might take up some time and will require some action on your part, but it'll be worth it!

Retail therapy A more difficult habit to figure out: what mood are you in when you don't spend at all? And what mood are you in when you go all out? Certain events trigger emotions and moods that just plummet us into one of these states. And suddenly we are living of noodles to make sure we won't spend a dime, or have just blasted through hundreds of pounds in minutes. You need to figure out what sets you off. If you can feel yourself becoming a spendthrift, cap the card. Put some type of restriction on it. Or just lock yourself up in the house, without internet, because online shopping counts too. Distract yourself. Go for a run, through the woods, not the mall.

It is important to also keep your tightwad-ism in check. Because often, what you'll find is that after a period of restriction, you're much more likely to have an "attack" of spendthrift-ism. You are best of when you are stable with regards to your (financial) moods. Moodswings don't tend to be ideal. Nor financially healthy.

Keep it stable. Not stable? Not spending!

Sell out Finance is not just about the money we have (or someday hope to have), it is also about the money we have already spent. Look around you. Are you happy with all the stuff that you have? There is a reason Marie Kondo is so popular. She has (re-)introduced to concept of deriving happiness from your belongings. If it doesn't bring you happiness it is time go. Why do I recommend this in a financial detox? Because we waste a lot of money on buying things we already have, or at least already have a version of. And the more stuff you have, the more space you need to store it. We get bigger houses to fit all the stuff. But now we have more space, as such we can get more stuff. This only stops when we run out of money. How about we reverse this process, and just have less stuff, and aim to have less stuff. I'm not suggesting you go full-blown minimalist on me here. But going through everything and selecting what you want and need to keep will put things in perspective. First of all, it will show how much you already have. Second, it will make you more aware of the things that you own, and will continue to own if you decide to keep them. Both ensure that you buy less, and reduce the likelihood of buying doubles.

The things that you decide to get rid off can be donated or sold. The things that you manage to sell will give you some extra cash, which is pretty sweet. Do put a deadline on when you want these things to be sold. If they are not sold by then, they will also need to be donated. Otherwise, you'll still own a lot of stuff, and have just moved it around. Which is not the point. Donating things is super easy to do, there are many charity shops around, just google them.

Money that costs money

Another thing to definitely look into: do you have any outstanding debts? Credit card debt costs a lot of money. This can be avoided by also switching credit card providers (and taking the debt with you, as many provide a "free" first year). But better is to have less to no debt. If you have savings, pay off the debt. Because holding onto the debt just costs money, whereas a savings account hardly generates any, because the interest on it is so low. To compare: there are many credit card companies charging over 20% on any outstanding debt. A savings account in the UK generates less than 1%. This is per month. The difference will not pan out in your favour. You really have to ask yourself what you are willing to get into (credit card) debt for to begin with. Are we talking investments such as education? There is a good argument for education: it will (likely) repay itself. Should you go into debt for fulfilling your need for consumption? Well, once the good/service you bought is consumed, it's gone. It's unlikely to repay itself. Yet, you are still stuck with the debt, and the interest on that debt. Not great. This consumption is costing you increasingly more. Not smart. Other things that cost money: hitting your overdraft. It doesn't seem to matter whether the overdraft is authorised or not, banks will find a way to charge you for it. This can quickly become a very expensive habit. So, if this applies to you, it's time to figure out what's going on here. When do you hit overdraft? Was it a forgotten direct debit that got you into trouble? Or does this seem to be a more regular occurence? If it's rather regular, you seem to have an issue keeping track of your balance. Maybe it's time for you to switch to cash, even if it's just for a few trial months, so you can properly appreciate the physical limit that money has to offer, even if it's just numbers on a phone screen. A lot of people seem to find cash easier as a budgetting tool. So there might be something to it. The lucky thing is, once it's gone, it's gone. You cannot hit overdraft with cash, so having cash won't cost you anything. One warning: don't take out cash advances on a credit card. Those charge you extra as well. Meaning you have just paid money to get to money. Be smart about it.

I think that is all that I would recommend when it comes to financial detoxing. Bit of budgetting, bit of Marie Kondo, bit of not-spending-the-money-you-don't have. Think of me when your house is empty, your eBay is buzzing and your bank account is full.

Happy detoxing!


Behavioural Science

Personal Finance



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