9 Money Moves to Make for LentNew Year’s Resolutions, LiteForty days before Easter (not counting the Sundays), the faithful all over the world begin observing Lent, a time of penance and sacrifice to commemorate Jesus’s last days. But it’s not just Catholics who recognize the value of personal sacrifice.
Even die-hard atheists use Ash Wednesday (today) to take the initiative and give up an indulgence as an experiment in doing without. Think of it as New Year’s Resolutions (Lite). Instead of giving up Starbucks for a year, you can give up Starbucks for 40 days and know that if you turn into a helpless narcoleptic you can always go back to your lattes in April.
Such a non-committal change in behavior can actually have long-lasting effects. Kelly Campbell, an analyst and financial adviser in Arlington, Va., has seen the strategy work.
“The beauty of giving something up for Lent is that it takes 21 days to develop a habit, so any changes you make for 40 days can last a lifetime,” he says.
With debt and spending on consumers’ minds everywhere, MainStreet spoke with some experts to find out some of the best changes that people can make for Lent to improve their financial picture in the short and long term.
As Campbell says, “Do it for Lent, do it for life.”
Sacrifice CreditAmericans love to live beyond their means, and sometimes it’s easy to forget that there is another type of card in our wallets besides the credit card: It’s called a debit card, and it works just like cash.
Campbell sees this as one of the most important ways to change your financial picture, and something of a no-brainer. “Give up credit cards. Using a debit card will never let you spend money you don’t have. It’s that simple.”
Of course, he cautions that you shouldn’t close your credit accounts, but rather just stop using them for 40 days. After all, keeping an open credit card on which you pay at least the monthly minimum is an important way to improve your credit score and help you deal with a financial emergency.
Make a PlanOf course, if you are going to rely on cash you have to know exactly how much cash you have every month and where it goes.
“It’s amazing how few people even know how much they spend,” Campbell says. “The best thing is to put together a budget, because only if you know what you spend can you identify what you can give up.”
Sometimes you have to spend money to make money, and while developing a real financial plan with a professional can cost you from $500-$3,000 depending on your net worth, Campbell, for one, thinks it’s more than worth it.
“It’s equivalent to a GPS in a car,” he says. “You may already have a map, but a GPS gives you several options to get where you’re going.”
Stay HomeAaron Patzer, the founder of Mint.com and current general manager of Intuit Personal Financial Group, has a unique window on people’s regular spending behavior, as Mint’s 5 million users link their bank accounts to the site, which categorizes monthly expenditures. By far, Patzer says, restaurants and entertainment account for users’ biggest expenses.
“It’s a bit depressing to look at it this way, but whenever you go out and have fun, it is costly,” he says. “Try and amuse yourself more at home and cook more meals at home – it will be cheaper and will also be a bonding experience for your family.”
He says that 40% of Mint users have found that their awareness of how much they spend on food and entertainment helped them cut back significantly by bringing those activities into the home.
Encourage Children to SacrificeSpeaking of families, many people forget that all members of a household are responsible for the household budget. Ted Beck, president and CEO of the National Endowment for Financial Education (NEFE), a nonprofit that supports programs in schools teaching financial awareness, sees Lent as a great way to educate children about spending and get them involved in saving money.
“Your sacrifice can be a good example to others in your family,” he says. “The period of Lent has a lot of teachable moments, and in 40 days you can teach your kids a lot about credit and budgeting.”
He recommends talking about your sacrifice with your children, and giving them ways to participate in Lent by giving up soda or chocolate for the period, which can be a surprisingly large part of some families’ budgets.
Get the Right Bank AccountWhile it may not follow the purity of self-sacrifice upon which Lent is based, giving up your current bank account or credit card for a better one is a behavioral change that can save you big money in the long run.
“Most people have the bank account they have because it’s from the bank closest to their house, or it’s the first one they signed up for when they got their first job when they were 16,” Mint.com’s Patzer says. “A better savings account can save you a couple hundred dollars more a month, and you can find $400-$500 a month in savings just by changing to the right credit card.”
Mint.com helps its users find better bank and credit card rates once they set up a profile and link their Mint account to their current checking, savings and credit card accounts.
Don’t Sacrifice Your FutureJust like paying an analyst to help set a financial budget, there are other suggestions for Lent that fit the spend-money-to-save-money philosophy: Make your retirement plan a little more robust. An investment in retirement can be multiplied by a number of associated benefits, and Campbell, the financial analyst, recommends that all employees take the opportunity to invest in their 401(k) plans.
“The beauty of putting $1,000 in your 401(k),” he explains, “is that it’s equivalent to $1,300 in the long run because it’s tax-free.” Campbell also recommends that everyone who has a 401(k) plan should contribute at least the maximum amount that their employer will match, because free money is, well, free money.
It’s important to note that any retirement contributions you make before you file your 2010 tax return can be counted for that tax year, even if the payment is made in 2011, so it’s not too late to get an immediate tax benefit.
Sacrifice for CharityInstead of giving up an indulgence, using your cash for another purpose can lead to significant savings as well. For example, Campbell recommends using Lent to put a slice of your financial pie to charity.
Taking 40 days to research a few charities worth donating to (MainStreet’s look at the 20 Best Charities in America is a good place to start) and earmarking a monthly amount to pay toward that will make you a better citizen and net you some important tax breaks come tax season.
For any skeptics, Campbell invokes an old saying: “They say ‘the more you make, the more you spend’,” he notes, “and the more you contribute, the more you make.”
Eliminate WasteSometimes the things we spend money on seem like essential parts of our lifestyle, but looking at your spending behavior with fresh eyes and a sense of humor may show you that pursuing a favorite hobby does not have to mean spending a lot on it.
The NEFE’s spendster.org helps people do just that, claiming to have shone a spotlight on more than $2 million of wasteful spending. NEFE’s Beck has seen the effects personally.
“I live in Colorado, and have four boats in my garage, even though the closest place to use them is 1,000 miles away,” he told MainStreet. “When I looked at it, I realized how illogical it was and it convinced me to get a subscription to Sailing Magazine instead. Before, I was buying all this gear, but this change brought my boat-related spending down to $12 a month.”
Redefine ‘Utilities’Just as you can save big by re-characterizing how you view your hobbies, Beck recommends that people redefine what they consider as utilities. When he realized that his family’s schedule meant they hardly used their premium movie channels, he took a look at the cost and was surprised at how easy that was to give up and how much it saved them.
“Once we gave it up then we realized how much it cost,” he remembers. “We were kicking ourselves because we had never gone back and looked at how much we were spending versus how much we used it.”
It’s an easy trap to fall into – for example, it’s easy to forget that while you need a telephone, you may not need the $130 or more you may be paying every month for a smartphone with unlimited data and text messaging.
“Even though people consider those as utilities, it’s not the same as heat and light,” Beck says.
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