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Go on a Spending Diet

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Anyone who's ever tried to lose a few pounds knows that not every diet works for every person. Similarly, it may take a few tries to find a system for managing your personal finances that you can adhere to successfully.

For many people, a simple program called "Wealth Watchers" could be the solution. As its name might imply, Wealth Watchers features the journaling technique popularized by Weight Watchers, where you track every morsel eaten -- or in this case, every dollar spent -- each day.

The idea is that by carefully monitoring your spending habits, you become more aware of, and thus, more likely to change, behavioral patterns that caused you to overdo it in the first place. The program also places heavy emphasis on the importance of financial education.

Wealth Watchers was born from adversity. Its founder, Alice Wood, was a successful estate-planning attorney whose occupation made her very knowledgeable about personal finance issues. But after sustaining a brain injury during a freak airplane accident, Wood suddenly found that she was becoming forgetful, unable to concentrate and prone to making poor financial decisions that later plunged her into debt.

Another byproduct of her accident was unexpected weight gain. Wood notes, "I went to Weight Watchers to help drop the extra pounds, and in one of those 'lightbulb' moments, I realized that the solution to both my weight and spending problems lay in the simple, daily discipline of keeping track."

After developing and practicing the core principles that would come to define Wealth Watchers -- such as "spend less than you make" -- Wood began sharing her ideas with family members and friends, and eventually with larger groups. Then, in January 2010 she published a book entitled "Wealth Watchers: A Simple Program to Help You Spend Less and Save More" (Free Press, $19.95).

The book contains formulas for calculating what it costs your family to live each month, as well as worksheets to track your daily disposable income (DDI), which is the amount you can safely spend each day without going into debt. "The difference between your DDI goal and your actual average daily total of expenses will show you if you are staying on track," she explains.

Another feature I like is the "Call to Action for Consumers," a 16-step roadmap for achieving financial health. A few of those steps people sometimes overlook include:
  • Make sure your partner is on board with your goals, since money problems are the No. 1 cause of divorce.
  • Define and understand the difference between fixed, semi-fixed and discretionary expenses.
  • Know your credit score: If it falls below 700, make it higher, since lower credit scores translate into higher interest rates and increased difficulty qualifying for credit accounts and loans. You can find tips for raising your credit score at www.whatsmyscore.org.
  • Set up and strictly follow a bill payment system to avoid late payment charges. Many people find automatic payments from their credit card or checking account to be helpful. If nothing else, you can set up an automatic payment for the minimum amount due (in case you're on vacation or forget) and then make a supplemental online payment later on.
  • Know your "small leaks" -- spending weaknesses that can undermine your goal (e.g., buying the latest electronic gadget, even though you don't need it).
  • Share your goal with others. That's why so many folks find Weight Watchers meetings helpful. Think about forming a "money club" to share ideas, resources and moral support.

The bottom line is: Find a system that works for you. For Wood, adapting techniques she learned from Weight Watchers to track and control expenses was the key to her financial recovery.

This article is intended to provide general information and should not be considered tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific on how tax laws apply to your situation and about your individual financial situation.

Follow Jason Alderman on Twitter: http://twitter.com/PracticalMoney