Conscious spending
How to spend lavishly on what you love.
Ever felt a little guilty after buying something you love? That momentary joy quickly replaced by a critic thought, "I probably shouldn't have spent money on this." What if you could spend lavishly on the things that truly matter to you, without a shred of remorse? Enter Conscious Spending, a refreshing and practical approach to personal finance popularized by Ramit Sethi in his book, "I Will Teach You To Be Rich."
Conscious Spending is about intentionally directing your money towards what you value most, while ruthlessly cutting costs on the things you don't. It's a departure from restrictive budgeting, empowering you to design a life you love, one deliberate purchase at a time.
The Conscious Spending Blueprint
Ready to embrace a more intuitive way of managing your money? Here’s a simple guide to bring Conscious Spending to life:
Identify Your "Rich Life": What brings you joy and fulfillment? Is it traveling to exotic destinations, attending live concerts, or having the freedom to pursue a passion project? Get specific.
Know Your Numbers: Once you have a clear vision, it's time to understand where your money is going. Ramit suggests dividing your after-tax income into four key buckets:
Fixed Costs (50-60%): This includes your essential expenses like rent/mortgage, utilities, and transportation.
Investments (10%): This is non-negotiable. Pay yourself first by automating contributions to your retirement and other investment accounts.
Savings Goals (5-10%): This is for short- and medium-term goals like a down payment on a house, a new car, or an emergency fund.
Guilt-Free Spending (20-35%): This is where the magic happens. This is the money you can spend on anything you love without a second thought.
Automate, Automate, Automate: Set up automatic transfers to your investment and savings accounts the day you get paid. This ensures your future goals are taken care of before you're tempted to spend that money elsewhere.
Spend Lavishly on Your Loves: With your fixed costs covered and your future self provided for, you can now joyfully and consciously spend the rest of your money on the things you identified in step one.
For me, my conscious spending philosophy is centered around travel. This means I'm willing to spend generously on creating incredible travel experiences with my family. To make this a reality, I optimize in other areas. For example, we own a reliable, 6-year-old family car, and I bike to work. This not only saves a significant amount on a second car payment, insurance, and gas but also keeps me active and healthy – a win-win!
A Word on Guilt
It’s common to feel a sense of guilt when you start consciously spending on things you enjoy, especially if you're used to a scarcity mindset. This feeling often stems from old money stories we've internalized. The key to overcoming this is to remember that you have a plan. You've automated your savings and investments. The money in your guilt-free spending bucket is meant to be enjoyed. It’s the reward for your discipline and foresight.
Ultimately, Conscious Spending is about turning your money from a source of stress into a tool for building a life you genuinely love. Embrace the joy of spending on what matters. Each conscious purchase is a step towards living your Rich Life.
Let's Talk Money!
What is one thing you would spend more on if you knew all your other financial goals were being met?
What is one expense you could cut back on that you wouldn't miss?