Updated: 9/10/2010 9:00 AM ET|
What's your daily disposable income?
The Wealth Watchers method makes it simple to track your budget each day and catch overspending quickly. It's like a diet program -- only for your wallet.
It took a brain injury for Alice Wood to create a budgeting system virtually anyone could use.
Wood was an estate-planning attorney, comfortable with numbers and in charge of her finances, when she was injured during a flight. The plane lost cabin pressure, and the oxygen mask that dropped down in Wood's seat wasn't working.
The temporary lack of oxygen turned Wood from an organized, competent woman to one who was fatigued, befuddled and forgetful. She couldn't recognize clients she'd met just a few weeks earlier or handle the demands of her job. Her income plummeted while her spending skyrocketed. At one point, after losing her sunglasses, she couldn't decide on a replacement pair and so bought every single pair that was on display at a store.
After a lifetime of living within her means, she began to carry credit card debt. Depressed, she gained weight.
It was in a Weight Watchers meeting that she had the revelation that eventually led to her new budgeting system -- a system that was adapted by Visa International and used by McDonald's and other employers to teach financial literacy to their workers.
It's not about weight, it's about wealth
"I think it works because it's so simple," said Wood, who lives with her husband and children in Naperville, Ill., and whose book "Wealth Watchers" describes her approach. "This isn't just for rich people or poor people or college-educated people. Anyone can use this."
As Wood describes the system, it's basically Weight Watchers for money. In Weight Watchers, foods are assigned a point value, and you're given a certain number of points you can consume, or "spend," each day.
With Woods' Wealth Watchers program, participants deduct their monthly bills from their net income to determine their "daily disposable income," or DDI -- what's left to spend on the consumption over which they have the most control: groceries, gas, gifts, meals out, entertainment and everything else. Participants then track their actual spending against their DDI goals. Weekly, monthly and quarterly totals help them track their progress.
Bills include fixed payments for expenses like mortgage or rent, car payments, insurance and child care, as well as "semifixed" expenses that can vary month to month, including cable, phone and utility service. Wood recommends looking back over your bills for several months to come up with an average for those variable expenses.
Why it works
By not including food in the semifixed category, Wood acknowledges that what we spend on this category is hugely flexible -- and one of the first areas we can look at for savings.
Like the weight-loss program, Wealth Watchers gives users accountability along with some flexibility:
- They can see quickly when they're starting to overspend, so they can cut back.
- They can also save up for a splurge by trimming their spending in advance.
- They can see how every dollar counts and how little expenditures can add up over time.
The real power of the program, Wood said, comes in the simple act of writing down every single purchase in a journal.
"It's hard to keep track of how we spend because spending is so easy, with all the different ways to pay like auto pay, PayPal, credit cards, debit cards, checks," Wood said. "How do you know what you're spending?"
When you don't track, it's easy to fudge. You might dismiss the impact of a bite of something here, a taste of something there -- until you have to write it all down and realize you're consuming hundreds of extra calories a day.
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