Every year, the top New Year's resolutions are to lose weight, pay down debt, and save more money. While gym floors are packed in January and plenty of people start a diet, getting a handle on your finances can be overwhelming.
But as with any regimen, the key to trimming your spending is to have a plan. So right now, while your resolve is still firm, kick your financial resolutions into high gear right out of the gate with a month-long spending diet.
Keep your card in your wallet
Start your spending detox by setting a tangible goal -- anything from paying off the holiday purchases you charged to scraping together an emergency fund to saving enough money to take an all-cash, paid-in-full vacation.
The rules of the exercise are relatively simple: Commit to spending only what is absolutely necessary. That means no movies, no theater tickets, no coffee shop runs, no gifts, no restaurant meals, and no shoe-buying splurges.
Researchers have found that it takes about 30 days to break a habit, so the idea of the challenge is not simply to generate some extra dollars for that one month, but also to wake you up to the reality of unnecessary spending.
What is "necessary" spending?
Most people have three big spending categories: necessary monthly outlays for things like rent and utilities; work-related spending, such as commuting, takeout lunches, clothing and dry cleaning; and purely recreational spending for social activities and entertainment.
Clearly, it's impossible to cut all spending for an entire month. You still must pay your mortgage or rent, car payments, insurance premiums utility bills, day care and other essentials. But there are big expenses in each of the three spending categories where keeping costs down -- even to zero dollars -- can pay off in spades. Food is a good example. Of course you need to eat. But for one month, can you avoid relying on carry-out or restaurant meals? Start by using up your existing groceries and then being a mindful shopper when you do go to the grocery store.
Get creative with your cost-cutting. For example:
Carpool or ride your bike to work instead of driving or taking the bus.
Shop your closet for "new" outfits created out of items you haven't worn in a while.
Borrow books and movies from the library instead of buying or renting them.
Organize a potluck recipe-sharing evening instead of going out with your friends.
Give a homemade gift or offer your services instead of buying a present.
Check for free activities in your community.
One easy way to track your spending is to sign up with a free service such as Mint.com. You can also use financial software programs, mobile phone apps, or pencil and paper -- whatever works for you.
For extra credit, keep track of what you don't spend (like that that $2 on coffee or $20 on a pizza delivery) so you can direct specific dollar amounts toward your goal.The key is to know where your money goes and to categorize it.
Finding your motivation
For most people, New Year's resolutions are quickly broken. But you may just find that keeping track of the money that's going toward a financial goal is motivation enough to stick with the spending diet for more than just 30 days.
If you need more incentive, plan your own "prizes" for reaching certain milestones. Perhaps after one week of eating only home-cooked meals you can treat your family to a pizza night; just be sure that the cost of the reward doesn't wipe out any progress you've made.
For those who are are motivated by monetary rewards, SaveUp.com, an organization that promotes saving money by offering prizes, has its own "SaveUp No Spend Challenge" that offers a prize-linked savings plan that operates under sweepstakes laws in all 50 states and the District of Columbia. Register one or more credit cards, and every day that you do not use plastic gets you one entry toward $10,000 in cash prizes.
Throughout the year, you can win prizes such as a weekly gift card drawing, vacations, cars, and a $2 million jackpot from SaveUp by making deposits in your regular registered savings account, checking account, investment account, or retirement account and by making payments on your credit card debt, car loans, mortgage, or student loans.
Will you take the no-spend challenge? Whether you choose to register with SaveUp or are motivated by the need to revamp your budget, let us know how you do on the 30-day financial detox diet.
Michele Lerner is a Motley Fool contributing writer.