Conscious Spending Plan: Budget by Looking Into the Future (2024)

Budgets often fail because they set hard limits on your expenses, in which you’ll stick to them resentfully, or fail to because they’re too rigid.

I want to introduce you to my Conscious Spending Plan – a personal and flexible way to manage your money without the stress of budgeting, or the guilt from spending on the things you love.

Let’s start with an overview of your money and spending. You should be able to categorize your spending into four different types:

• Fixed costs (rent and bills)
• Important investments (401k, Roth IRA, emergency fund)
• Savings goals (home down payment, vacation fund)
• Guilt-free spending (dining out, movies, happy hour drinks)

Let’s break those down even further.

Starting with the fixed costs, list everything you need to spend during the month, including rent/mortgage payments, car payments, loan repayments, insurance, and utility bills. Get it all written down and write the cost next to each one.

Once you’re finished, add an extra 15% on each one. Why? This will cover the things you haven’t accounted for. This way, if you have an emergency or surprise expense, it won’t derail your month.

Then, subtract this total cost from your monthly take-home pay. Ideally, this figure should be around 50-60% of your net income. What you have left over is for savings and some fun.

The next thing to look at is financial goals for the future. You can split this section up into short-term, mid-term, and long-term savings.

Short-term savings are things like gift purchases or a brand new pair of AirPods you’ve been desperate to justify buying. Mid-term savings include things like a down payment on a car and long-term savings are for big-ticket items such as a down payment on a house or a college fund.

If we’re following the 50/30/20 (50% essentials/30% wants/20% savings) rule, savings goals and retirement savings fall in the 20% bracket. This means that 20% of your take-home pay should end upin savings.

The guilt-free spending part is the hard part. It’s all those little costs that add up before you know it. The Uber rides, popcorn at the movies, an extra co*cktail at happy hour. These kinds of things can be difficult to prepare for unless you live a rigorously planned-out social life. Ideally, you want to set aside 20-30% of your take-home pay for this type of spending and variable expenses.

“But, I thought we weren’t allowed to spend on fun things when budgeting?”

This is where budgets become unsustainable.

Remember, traditional budgeting is a waste of time. Most of us are going to spend this money regardless of whether we’ve told ourselves not to. You might as well decide how much you’re going to spend on fun stuff rather than ban yourself from spending altogether.

By allocating your money in this way, you make sure all the important costs are taken care of first without leaving out the fun stuff. Inepisode 90 of my podcast, I discuss how you can end money guilt once and for all.

Now that you have a good idea of everywhere your money should be going, it’s time to bring automation into the mix.

First off, decide what percentage of your take-home income you want to put into each category. As I mentioned earlier, a good rule of thumb is 50% for needs (e.g. rent, groceries), 20% for savings (e.g. 401k, savings goals), and 30% for wants (the stuff you feel guilty about spending money on).Remember, budgeting is an organic process. It’s not the end of the world if you have to tweak the percentages a little bit. Don’t feel guilty about it, it’s all part of the process. The most important thing is that it works for you.

The next step is to split your money up into each category when your paycheck comes in. A simple way to do this is to set up regular transfers from your checking account to your savings accounts. That way, you don’t even have to think about it.

For example, you could automatically transfer money for your fixed costs to go into a joint account with your spouse. You could also move your guilt-free money to a prepaid card you use just for fun spending.Making these transfers automatic will have you thanking past you for not forcing you to make these difficult decisions each month.

Feel free to check out another post I’ve written aboutautomating your finances.

This part will probably sound familiar if you have ever downloaded a budgeting app before. But rather than starting off with a vague idea about making cutbacks and saving money, the conscious spending plan will provide a more focused approach.

So, go ahead and re-download that budgeting app or budget worksheet. Apps I recommend include Tiller Money or You Need a Budget.These all work in slightly different ways. For example, if you’re the type of person who prefers spreadsheets, (me! guilty!), Tiller Money is a great choice. Be sure to check out some reviews before picking one that works for you.

Using an app or a trusty spreadsheet to track your spending is a simple way to ensure you’re staying within the parameters you set earlier.

The world wants you to be vanilla...

Budgeting shouldn’t be about depriving yourself. It should be about spending where it really matters; spending on what you love and cutting back on the stuff that doesn’t matter.

That’s why the conscious spending strategy is about spending first and foremost. Most budgeting tips focus on what you can’t do, what you can’t spend your money on, or how you’re ruining everything by buying coffee you love. (P.S. You’re not. Coffee is fine, more than fine actually.)

I’ll be the first to admit that budgeting isn’t exactly fun. But if your budgeting method fills you with guilt, dread, and a sinking feeling every time you buy something, that’s a clear sign it’s not working for you.

There’s so much more to budgeting than numbers in a spreadsheet. In episode 105 of my podcast, I’ll tell you why keeping track of every dollar doesn’t matter as much as you think it should.

There’s definitely a place for frugality and sensible spending. I wouldn’t recommend splurging on designer clothes while your retirement accounts lie empty. But there’s got to be a middle ground between that and making your budget absolutely miserable. Frugality alone isn’t enough to get you where you want to be. Neither is reckless spending.

What will work is being conscious of your spending and deciding what’s actually important. That’s why the 50/30/20 split is so beautifully simple. It takes care of the important stuff first but doesn’t neglect the importance of spending on yourself.

To sum it all up, conscious spending is not about looking at your checking accountafteryou’ve spent the money and feeling bad. It’s about knowing how much you’re going to spendbeforeyou go on a spending spree. Look forwards, not backward.

Happy (conscious) spending!

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To recap: Conscious spending is like giving every dollar a job that actually matters to you. It’s about looking at your spending habits and asking, “Does this really make me happy?” You plan your spending around the things you love and cut out the stuff you don’t care about. Think of it as being super generous with the things that bring you joy and super stingy with the things that don’t.

For example: I’m not a big car person, but I care a lot about fashion – so I spend guilt-free on my personal stylist, Next Level Wardrobe, knowing that I didn’t bother with any fancy upgrades on my car.

It’s not about living by a strict budget; it’s about making smart choices that help you enjoy your life more, without wasting money on things that aren’t important to you.

Alright, when it comes to spending your money wisely, think of it as splitting your cash into four main buckets:

• Fixed Costs (50-60% of your take-home): This is the stuff you can’t dodge—rent, utilities, and those pesky debt payments.
• Investments (10%): This is your future money. I’m talking retirement accounts like 401(k)s, IRAs, or even investing in learning new skills.
• Savings Goals (5-10%): Whether it’s saving up for a dream vacation, a down payment on a house, or just stashing away cash for a rainy day, this bucket is all about planning ahead.
• Guilt-Free Spending (20-35%): Here’s the fun part. This is for the nights out, the Netflix subscription, or whatever else makes you happy.

The trick is to make sure you’re spending on purpose. Your money should be working for you in all these areas: covering your essentials, securing your future, saving for the big moments, and, yes, enjoying life right now. It’s about making smart choices, not cutting out all the fun.

The 50/30/20 rule is basic budget advice: You’ll spend 50% on needs, 30% on wants, 20% on savings. But let’s be real, life’s more complex than that.

Here’s the deal with conscious spending: you focus your cash on what really matters to you. Skip the strict percentages. Pay your bills, sure, but then invest in your future and spend guilt-free on joys, not just because some rule said so.

It’s about making your money truly work for you, crafting a budget that fits your real life, not the other way around.