What I Hope You've Learned After This Month-long Financial Cleanse

Congratulations! With three weeks of the Financial Cleanse completed, you’re now in the home stretch. In this final week, you reap the benefits of all of your work and introspection.

Week 4 of our journey to mindful spending is about putting all of the pieces together. First, you’ll take a newly informed look at your current spending. Then you’ll think carefully about the goals you outlined in Week 3. And finally, you’ll ask yourself the all-important questions: “How connected are these? Is my spending supporting my most important priorities? Am I really putting my money to its best use?”

Let’s take a look.

1. Review your spending patterns in light of your goals.

For the last three weeks, you’ve been tracking your spending, both your day-to-day incidentals as well as your more substantial monthly obligations. As you look back at it all, are there any obvious places where you’re not getting enough bang for your buck? The truth is that many of us waste a certain amount of our money; that’s inevitable. But we can improve. So with one eye on your spending, and the other on your goals, ask yourself, are there things you’d like to do differently?

Of course not everything is within your control. You may believe that you’re paying too much for rent, or child care, or you name it. And if that’s the case, perhaps you can start to think about making some fundamental changes.

But before you contemplate a major shift, focus on the things that would be easier to adjust. This might be as simple as eating out less often, spending less on that health club you rarely use, or relying more on public transportation. Or for those of you who tend to scrimp and save too much, it might involve making a conscious effort to spend more on the things that truly bring you joy.

Your adjustments don’t have to be huge. One of my colleagues who wants to save more calculated that if she brings her lunch one day a week (saving $10/week) and cuts her cable bill by $40/month, she’ll save $1,000/year, which she figured can grow to $46,000 in 20 years earning 6% per year. Likewise, an extra $150 a month added to your 401(k) and earning 6% annually can grow to just over $100,000 in 25 years. In other words, small changes can add up to big payoffs over time.

2. Project your budget for an entire year

In Week 2 you took a first stab at a monthly budget. Now that you have an even better sense of where your money goes every month, and have started to plan the changes you want to make, it’s time to expand and refine that budget to cover an entire year. As I mentioned earlier, be sure to include everything – from things like property taxes or insurance premiums that may come up only once or twice a year – to payroll taxes and other expenses that automatically get deducted from your paycheck. And now that you understand exactly how much you spend day in and day out on all of those incidentals, include every dollar!

Next, once you’ve got all of the numbers plugged in, compare your annual expenses to your annual income. Hopefully you’re in the black! If not, consider this an opportunity to think bigger and make adjustments that could affect your long-term finances as well as the day-to-day. Keep adjusting the numbers until they're in balance. You might also find it useful to run different scenarios, spending more or less on specific categories.

 Quick Tip

Don’t forget to include savings as a line item in your budget – and then make sure to follow through by having the funds automatically directed to your savings or investment accounts. Do the math to make sure you’re setting aside enough to meet your goals.

 3. Commit to keep it going.

When it comes to learning something new, practice makes perfect – and mindful spending is no different. In fact, I think of building financial skills in the same way that I think of building physical skills. If you’re trying to perfect your backhand in tennis, you repeat your swing thousands of times. An accomplished dancer will practice spins for hours. And an astute money manager will continue to practice the techniques for mindful spending until they become second nature.

So as you continue on your road to mindful spending, here are some basic rules to keep you on track:

• Stay in close communication with your family and trusted friends. Tempted to blow this month’s savings on a new pair of designer shoes or the latest tech gadget? Talk it out before you spend. Personally, I like Carl Richard’s 3-second rule.
• From time to time, refer back to your written goals. Saving for your dream vacation? Don’t lose sight of what that will take.
• If you feel yourself slipping off course, go back to your cash-only diet for all of your incidentals. As you now know, dealing in cold hard cash can give your awareness a very powerful nudge.
• Want a refresher? Download our handy Financial Cleanse Quick Start Guide and then tack it up in a plainly visible place at home or in the office.

We sincerely hope that the last 30 days have given you a whole new way to relate to your money. As the weeks and months go by, please stay in touch here on LinkedIn and on Twitter using the #FinancialCleanse hashtag. I'd love to know how you’re doing. Discovered ways to keep yourself motivated and focused? Or traps that others should avoid? Your experiences and discoveries will be invaluable not only to my team at Schwab, but also to fellow cleansers who are embarking on their own journeys to mindful spending.

Thank you for your participation, and I wish you nothing short of financial success.

Carrie Schwab-Pomerantz is president of Charles Schwab Foundation and senior vice president at Charles Schwab & Co., Inc., Member SIPC. Charles Schwab Foundation is a 501(c)(3) nonprofit, private foundation that is not part of Schwab or its parent company, The Charles Schwab Corporation.