Whole new year ahead so make a clean start

19:02, Dec 26 2013

Sluggish finances? Not sure where your money goes? Do you get to the end of the month with a light wallet, hefty credit card statement and debt weighing you down? A 30-day financial cleanse could be the detox your finances has been begging for.

Much like a physical cleanse, a detox for your finances is all about ridding yourself of the debts, overspending and bad habits that are keeping you financially unhealthy.


The first step in your financial cleanse should be the weigh-in. This will allow you to gauge by the end of the month what impact your detox has made to your finances, but it's also the moment of truth: how out of shape are you?

It's the personal finance equivalent to putting on a pair of togs and staring at your body in a full-length mirror. Uncomfortable but necessary.

EnableMe personal financial trainer Hannah McQueen says you have to "get on the scales" - print out your credit card balances, mortgage balances and savings balances and open all the bills and expose your financial situation to yourself.


"Then take a breather. This can be very confronting," McQueen says.

Once you've caught your breath, write down your income and your fixed expenses. If you have no money left over, you are either earning too little or spending too much.

"Which is it?" McQueen asks. "Or is it both?"

Financial adviser Liz Koh says you should go through the last three months of bank and credit card statements. Put the transactions into three categories: financial commitments (such as rent, mortgage, and insurance), discretionary spending (eating out, entertainment, gifts and other non-essential items) and essential spending (food, transport).

Look in particular at how much you are spending on non-essential items. Then prepare to go without.


McQueen says you should work out your average spend per month on non-essential items - and then cut it by 75 per cent.

"Shock the system."

Australian accountant and shoe addict Melissa Browne says she undergoes a month-long spending cleanse every year. This means she spends only on essentials for one month. This will save you money and also "reset your unconscious spending patterns".

Essentials are just that. Petrol. Food. Power bills. Rent.

Wine is not an essential. Neither is beer. Takeaways are not essentials. Going to the movies is not essential. You get the picture.

If you can't stick to spending only on essentials, set some goals and stick to those for the month.

McQueen says you could budget 15 per cent of your leftover money - after the bills - to spend on yourself. This could be on clothes, alcohol, socialising or entertaining.

It's up to you whether you go the full monty and spend only on essentials or go for a stiff budget, but make sure to withdraw a set amount in cash; that's your lot.


"If you have trouble with alcohol it's a good idea not to have too many bottles in the house," says financial adviser Martin Hawes.

He says that, much like a sugar detox or battle with the booze, a financial detox means you need to get what is tempting you, or causing you difficulty, out of your life.

If you have an addiction to high-interest credit cards, get them out, Hawes says.

"Take the scissors to them," Hawes says, "then don't allow them back in."

It's pretty basic - if you don't have the credit card in your wallet you can't use it to satisfy a spending binge.

Same goes for finance company cards - eliminate the option.

Mangere Budgeting Services Trust's Darryl Evans says pay with cash or use lay-by.

"Don't be enticed by interest-free deals or use your credit card or store card," he says.

Welcome to your detox - forget about money on credit cards or trying to come up with clever ways to stretch the amount you can spend, or hiding your spending on interest-free terms.

To make it work you have to stop spending - or else it'll just be business as usual.


McQueen says you should take this time away from your credit cards to look for a better deal.

If you are on a high-interest card and are carrying debt over from month to month and incurring interest, you can swap to another bank and take advantage of low-interest deals.

ASB is offering zero per cent interest for five months on any new credit card, and KiwiBank is offering 1.99 per cent for switched credit card balances for six months.

Koh, meanwhile, recommends that you start saving.

"Decide how much you want to save each payday and set up an automatic transfer into a savings account for this amount on the day you get paid," she says.

Then start making good choices with your savings.

You can use your savings to pay off high-interest, short-term debt, set up an emergency fund or save for a short-term goal like a holiday.


If you've made it through the month with spending only on essentials, give yourself a pat on the back.

McQueen says that even if you have only done one of the tips suggested above then you are better off than you were before.

It's about breaking habits and realising you don't need to spend without thinking - staying engaged with your finances is crucial.

Now that you've proven you can do it for a month, set your sights higher.

"Focus on what you want to achieve, not what you have done. Take a breath, suck it up, and take control back," McQueen says.

Fairfax Media