Money on your mind?

Here we are at the end of a the 30-day Financial Cleanse. Similar to the time I had an ill-fated experience with a 3-day juice cleanse, there were cravings and one bout of binging (I “needed” those Cole Haan waterproof hiker boots). Unlike the juicing, I refocused and recommitted to finishing this cleanse strong. This recommitment came in part from a conversation I had with Carrie Schwab-Pomerantz.

We all fall down…

I bluntly asked Carrie for her advice for all the people who start a process like the financial cleanse just to fall off the wagon midway and say, “screw it!”?

“It gets back to the diet thing – you just don’t let yourself give up,” Carrie told me. “You’re bound to have some slip-ups, but if you don’t give up and you stay focused, you will make progress.”

The diet to which Carrie was referring was actually her inspiration for creating the 30-day Financial Cleanse. Carrie belongs to a gym that hosts a variety of different diets and challenges throughout the year. Right before the holidays, the gym employees began to promote a “30-day Clean” Challenge.

“I usually avoid these programs.  I just slide into the gym and get out as quickly as I can,” Carrie admitted, laughing. “But I finally agreed to join the Cleanse …   and ended up really liking it.”

And as it turns out, the 30-day Clean Challenge made Carrie aware of her mindless eating habits. In fact, she got so into it that she ended up pushing herself to stick with clean eating long after the 30-day period had ended.

“I was thinking about what worked for me with the health cleanse, and it was making a commitment,” Carrie told me. “And then the lightbulb went off!  I realized that the same principles would apply to money management. What if on a Sunday we start to think about what we’re going to spend for the next week? Then we go to the ATM to get enough cash to cover the next week’s expenses? This will force us to think about where our money is going.”

The Cash Diet certainly worked that way for me. As I mentioned in my first post about this challenge, one of my goals in 2017 is to recalibrate my spending habits to help ease into the adjustment of having variable income as a freelancer. Money in pending invoices may make things look fine on paper, but it can’t be used to pay bills. This is a big reason I’ve been working hard to cut down on my own mindless spending. The Cash Diet, combined with working toward Zero-Sum Budgeting (using last month’s income to pay this month’s expenses), is helping to plug the leaks. (Not sure where you’re spending your money? Schwab offers a free, printable spending tracker.)

Three financial behaviors we need to ditch… 

Carrie sees mindless spending as one of the three financial behaviors she wants people to change. The other two are failing to save and failing to plan for specific goals.

“A lot of folks convince themselves that they don’t have money to save,” she explained. “But most of us can put at least a little money aside, if only by being a bit more mindful about what we’re spending, and paring back in areas that are less than essential.”

Millennials notoriously have a difficult time saving for retirement. Plenty of stats point to stagnant wages, student loan burden, or a general YOLO attitude. But the answer may be more simplistic than that – it’s hard to save for your future self because you feel disconnected. A study published in the Harvard Business Review does claim that seeing an aged photo of yourself encourages you to make better decisions for the future, like contributing to that 401(k). You can use AgingBooth to get a picture – but I warn you that it’s slightly terrifying.

If checking out the aged photo of yourself makes you wonder if Botox is covered by your health insurance, Carrie has a more practical suggestion.

“When people ask me about where to start planning for retirement, I say just put pen to paper and think how much you have now. Then determine how much you’ll need to have saved by the time you hit retirement age.  A quick rule of thumb is that you’ll need to save approximately 25 times the amount you’ll want to withdraw every year. So if you want to be able to spend $50,000 a year, you’ll need to have saved $1.25 million by the time you retire.”

Alternatively, you can play around with numbers by using a retirement calculator. This way you can also see how much you need to put away every year.

For those skeptical millennials who tend to procrastinate, Carrie recommends considering the minus 10% rule. This rule is pretty simple; all you have to do is subtract 10 from the decade of your age.  So if you’re in your twenties, you can reach your savings goal by putting at least 10% of all your earnings into retirement saving. If you don’t get started in your twenties and wait until you’re in your thirties, you’ll have to save 20%. If you wait until your forties, then you’ll need to save 30%. The moral of the story is to get started now!

As far as what’s next…

“I would say, learn the basics of money management,” Carrie emphasized. “It’s a life skill we all have to have. Understand how to budget, how to save and start to invest in for your future. Those are foundational life skills no matter your income.”

You can get started on Carrie’s advice by going to Schwab MoneyWise to find calculators, worksheets and guides.  Follow Carrie on Twitter and LinkedIn to get ongoing advice on the Cleanse, and much more.

This post was sponsored by Charles Schwab

Image from Unsplash