How many of you have started a diet only to break it in a matter of days? I know I have. In fact, nearly 90% of people who go on diets end up gaining all of that weight back. So what does that say about diets? They don’t work. Similar to food diets, money diets don’t work either.
Diets don’t work because they focus on restricting certain foods for a certain amount of time. They tell you to stop eating this and that and generally be miserable in order to shave extra pounds.
The best way to improve your health is to develop the right habits. Creating the habits of eating well and exercising is the most straightforward way to improve your health.
You don’t need to cut pizza out of your life entirely, but it shouldn’t really be part of your weekly meal plan.
You also don’t need to sign up for the next 10K in order in order to exercise. Walking, hiking, biking, swimming, yard work – these are all ways to be active.
Starting slow and adjusting your lifestyle is key. Dramatic, change-everything-right-now tactics don’t work for your health, and they don’t work for your wealth either.
What’s a money diet?
A money diet is just what it sounds like – a restriction on what you can spend money on. Limiting your spending isn’t a bad thing, but I argue that setting the proper limits is just as important as cutting back.
Limiting spending to essentials like groceries, gas and medicine for a month is not going to solve your spending problems.
Extreme saving for one month out of the year will offer a short-term increase in your bank account, but it won’t develop the type of habits needed to create long-term wealth.
Instead, start slow. Remember that pizza example? Think about that as you start to cut your expenses.
If you are buying a $10 lunch every day, try cutting it back to one or two days a week. If you find yourself spending too much at the grocery store, make a list and stick to it.
Create a habit and you will find success.
Take the long road
Just as you should invest for the long-term, you should plan your spending based on long-term goals.
But first things first – to make an effective spending plan you have to know what you are actually spending your money on.
I suggest signing up for Mint or Personal Capital and tracking your monthly expenses through one of these platforms. Track it for two or three months before deciding to make any dramatic changes to your habits.
It will be easy to identify which areas you overspend in once you start tracking your expenses. Once identified, figure out how you want to cut back in that area.
Challenge yourself, but don’t challenge yourself so much that you become stressed.
Fast forward a few months… by now you have successfully cut back in a problem area (or two… or three) and are ready for the next challenge.
At this point, I recommend implementing a zero sum budget in order to get the most out of your money. The zero sum budget allocates every dollar you earn toward expenses or savings, effectively making every dollar you earn work for you in the best way possible.
Commit to a at least three months of this and watch your bank account balance behave like you want it to.
Trust the process
If you follow this brief outline, you’ll spend the next 6-8 months developing great spending and budgeting habits. Habits that you have developed over time and will stick with you longer than any short-term challenge.
That said, now that you have developed good habits, you might be looking for way to take that next step. Now is the time where a short-term challenge could benefit you. At this point, a short-term challenge might incentive you to be even more effective with your spending.
Here are two challenges that I think are great for people who have developed good money habits, but want challenge their spending habits even more:
But remember, short-term challenges are just that: short-term. You will need to trust in yourself and in the process to truly change your spending habits.
Adjust your life permanently
Similar to eating well and exercising more, spending less and saving more is the key to long-term wealth.
It requires a lifestyle change, not a short-term test, to create the long-term wealth that you are after.
But you don’t need to cut out everything. Find what makes you happy, what inspires you or what drives you, and don’t be concerned with spending money on those things. Budget for them, and cut back in other areas.
Live your life the way you want to live it, but remember that developing good spending habits doesn’t happen overnight.