Conscious spending: The finance approach that’s both smart and fun

How often do you feel guilty for living in the moment and spending money on that latte that you really want? Or for taking your family of four out to dinner when you have plenty of food at home? According to Ramit Sethi, the bestselling author of “I will teach you to be rich”, you don’t have to feel this way. His approach to money is called conscious spending which is a flexible finance approach. “Unlike a budget, which looks backward, a conscious spending plan allows you to look forward,” he says. “Conscious spending is all about spending extravagantly on the things you love, as long as you cut costs mercilessly on the things you don’t. It’s not about restriction. It’s about being intentional with your money, and then spending on the things you love guilt-free.”

Sethi doesn’t downplay the normal general guidelines for saving money, like having an emergency fund, they all still apply. Instead, conscious spending according to Sethi is “Yes, I want to go on vacation. Yes, I like nice clothes. Yes, I’m going to spend on these things guilt-free. I’m also going to invest, save, and make sure I can cover my rent.”

So, what exactly is conscious spending? According to Bradley Klontz, financial psychologist and associate professor of practice at Creighton University’s Heider College of Business in Omaha, Nebraska, we tend to experience unconscious spending. Things are just too easy for consumers with credit cards and tap to pay to just spend without any real plan. In order to undo unconscious spending, you must ask yourself important questions about your financial situation, goals, and desires. Questions like: What do I love spending money on? How much do I need for my fixed expenses? How much do I want to save? How much do I want to budget to impulse buys? What have I been spending my money on? Sethi and Klontz both say that your answers must be very clear. Just saying you want extra money for vacation is not enough, it must be meaningful. “What’s not meaningful is just some spreadsheet with numbers in it. Truthfully, nobody cares,” Sethi states. Once you have answered these questions truthfully and not in abstract way, it allows you to be excited about your financial future, and it opens your eyes about what is important to you making it easier to cut things out that really don’t matter.

Sethi refers to your answers to these questions as your “rich life”, they are unique to you and not influenced by what others think you should do with your money. Once you have identified what you value, it frees you up to not stress or feel anxious about certain purchases. For example, when Sethi was a child, his family could not afford appetizers when they ate out. Now something that is important to him or one of his “money rules” is to never question spending money on appetizers. “It gives me great joy to be able to buy any appetizer that I see looks good,” he added. “I don’t have to decide, ‘Should I pay this much? Or should I not?’”

Sethi encourages trying conscious spending for a month. Then check your account and your statements and see what worked, and what didn’t. “It’s not going to work perfectly the first time. It’s a system that you’re going to continually tweak,” Sethi said. “But overall, you’re going to start to get a sense for how it works and what you need to change. And then you just make the change each month after that.”

By: Beth Gray