How to Detox Your Finances

Curious about detoxes?

While January is often designated "detox month" after the excesses of the holidays, a deep clean can happen at any time of year — and can include your finances. Here's how.

A Four-Step "Detox"

1. Fast, Then Slow A hard-core detox is more than a superficial change, like occasionally skipping dessert. A detox is a deep cleanse that aims to remove stagnation from the body. This often involves a specific diet or even fasting.

What can investors do? Just as our less-healthy lifestyle habits can catch up to us, leading to feelings of lethargy and irritability, we often have investing habits that can throw us off balance. Kick-start your finance detox with these questions:

• Do I have any toxic investing habits? Maybe you've taken on more risk than you're truly comfortable with, or perhaps you're overly focused on trying to time the market. It might be time to revisit your goals and why you started investing in the first place.

• Am I addicted to financial media? A total media fast might not work for do-it-yourself investors, but if you're finding the wealth of information overwhelming, you might consider reducing your media consumption to just your most trusted sources.

• Is my portfolio bloated? As companies reorganize, we can sometimes accumulate holdings that differ from our original intentions. Normal fluctuations in the market can also shift the composition of our portfolios. A detox can include reviewing your asset allocations and individual security weightings, and identifying and selling any "stragglers" that don't fit your needs.

2. Get Moving Head outdoors and rejuvenate with some fresh air. Changing up our routines can shift our mood and perspective.

What can investors do?

Sometimes investors operate on autopilot, so it can be good to seek out fresh perspectives. There are many online forums that allow investors to share ideas, like RBC Direct Investing's Community, Reddit and RedFlagDeals. Getting new ideas through an investment community, or by choosing different reading materials, can encourage us to rethink our goals and actions.

3. Eliminate and Circulate Detoxing is, by definition, letting go of something that is suboptimal for our health. Traditional detox methods involve using steam baths or saunas, body brushing, exercise and other methods to help the body excrete unwanted elements, which can strengthen immunity and mental clarity.

What can investors do?

Start by asking yourself a few questions to help get things moving in the right direction. A little review could help you build a cohesive strategy aligned to your goals. Consider questions such as:

• Do I have too many different accounts in different places? Pooling accounts and consolidating investments could help you better manage your finances and possibly save on fees.

• Do I use too many investing styles? Choose what you are most comfortable with and knowledgeable about. You don't have to master every investment approach to be successful.

• How about the health of my day-to-day finances? How do you manage your household budget? Cash flow is much like oxygen and blood in the body — necessary for healthy function. What can you do to make money management and saving for the future simpler, even joyful? Check out The Art and Joy of Saving for some ideas.

4. Refuel After a detox, it's time to put good energy back into the system by maintaining healthy habits. Changing habits isn't always easy, so investors should anticipate setbacks and challenges. Overall, refuelling means avoiding slipping back into risky habits that will undermine our health.

What can investors do?

Having a financial plan with goals that are personally meaningful can often be the right "fuel" to keep us on track. Also, diversifying the risks we take with our investments could help keep us on an even keel even during challenging times.

In a recent letter to shareholders, Warren Buffett said that he focuses on the redwoods, not the twigs. Try putting energy into achieving your most meaningful long-term goals instead of expending it on the less-important twigs that may be cluttering up the bigger picture.