What is a Financial Detox?
What is a financial detox, and is a detox different than a cleanse? What about a diet?
We’re going to assume a financial detox and cleanse are synonymous for the purposes of this post, and that they’re a little more… staunch than a financial diet.
While the value of a detox is often debated, it’s hard to argue the practice doesn’t yield results. At the very least, a so-called detox forces us to identify and remove key elements from our diet, whether sugar, caffeine or processed foods.
Supporting Our Good Intentions
And it’s that practice, the act of identifying certain “toxic” choices and activities—toxic spending?—and removing them from our financial diet, that serves as a jump-start to healthier financial habits.
Just like a food detox often jump-starts weight loss on our path to healthier eating, a financial detox practice will, in turn, provide us with the tools and insights to maintain the good intentions behind our financial well-being and overall saving goals.
Financial Detox Tip: Prepare
There are always tips and tricks to dieting. For detoxing, the best tip (or trick) is preparedness.
When you divorce things like sugar, caffeine and carbs from your system, you need supplemental, authorized foodstuffs at the ready! Lots of water and green tea. Nuts. Healthy snacks. Bacon (yes, bacon).
A financial detox is no different. If we’re divorcing things like spending (it can be the sugar in this analogy) from our financial diet, we need to ensure we are prepared to get through the detox period on less spending.
Compile a list of everything you spent money on in the past month.
Segment it into essentials, nice-to-haves, and extras.
Commit to not purchasing any of the extras. This early preparation will remove any uncertainty around what you can, can’t, should or shouldn’t be spending money on. Do you need this? No. Therefore, you can’t buy it!
No Finances on Your Phone
“The intersection of mobile and money is leading to more impulsive, less thoughtful behavior, with real risks for consumers and investors alike,” (“Warning: Your Smartphone Could Lead To Dumb Money Mistakes”, Forbes).
““Let’s think about smart phones, do they make it easier to save or do they make it easier to spend,” asks Shlomo Benartzi in the Forbes article.
With more and more financial transactions available via your mobile device — over half of adults with smartphones have downloaded an online banking app, offered by most banks these days — the downsides of impulsive behavior are exponentially more dangerous. Imagine being able to cash out your life savings in one click. “That’s where we’re going,” Benartzi warns.
Either delete certain apps from your phone for the period of your detox, or commit to not spending any money on your device.
Side note: Benartzi also makes an interesting comment in his Ted Talk about our relationship with our phones, insurance and how we often make sure we are protecting our devices, but won’t protect ourselves with, say, disability insurance.
How many of you have iPhones? Anyone? Wonderful. I would bet many more of you insure your iPhone — you’re implicitly buying insurance by having an extended warranty. What if you lose your iPhone? What if you do this? How many of you have kids? Anyone? Keep your hands up if you have sufficient life insurance. I see a lot of hands coming down. I would predict, if you’re a representative sample, that many more of you insure your iPhones than your lives, even when you have kids. We’re not doing that well when it comes to insurance.
Like any detox or diet, it’s important to be a little flexible. Or, at least, it’s important to not give up if you slide or cheat a bit. While our financial detox is a commitment, give yourself permission to slip up once in awhile.
This doesn’t mean you should go on an online spending spree or binge. Pick a special time or event during your detox period where you can treat yourself. Buying that coffee through your phone app during a Sunday morning stroll isn’t a failure. It’s an indulgence.
Once we’ve completed the financial detox, it’s important to not go back to the way things were. Sure, many of us will return to certain habits and start spending on many of those extras again. So, try to identify areas where you can make a difference without fully detoxing.
For example, one of the definitions—or components—of a financial detox is investing cleaner. Ethical investing. Now, more than ever we need to know where our money is going and how we can make better choices.
Try to work philosophies and like-minded healthy activities into your financial diet so that a financial detox isn’t such a hard concept to embrace the next time around.