You pick up your pencil, grab some paper, and start jostling your mind to remember how much you spent last month. You write down some of your expense categories like food, dates, and clothes. You begin to look confused as you can’t remember what you spent your money on. Meh, forget it! You probably spent only like $80 on groceries last month and $150 on dates, right?…. Right? The end of the month rolls around and you check your bank account, yelping “how could this happen to me?!” as you see your balance. Shrug it off, there’s always this next month. You’ll just spend a little less. It’ll be easy.
You’ve probably had a conversation with yourself similar to this before. You were probably inspired to make an extremely thorough budget with 30 categories. You probably set up strict spending limits for each of those categories and were convinced you wouldn’t screw up this month. Whoops, wrong again.
This sucks. Can we all just agree that budgeting is awful? It’s a perpetual cycle of depriving and disappointing yourself. Can you please admit to yourself right now that it’s not really working? . . . Try something that actually works and will make you much happier: conscious spending.
The Difference Between Conscious Spending and Consciously Spending
The concept of conscious spending is both liberating and generous. It incorporates the deeply personal and introspective qualities that minimalism focuses on, while also allowing you ultimate freedom in how you spend your money. Hannah and I do NOT budget. I’ve tried this for years, and it was never fun. You count every penny, rationalize every purchase, and shame yourself for every dollar you go over your budget. Quit making yourself feel bad for spending money!
Maybe you’ve heard the term “conscious spending” before. Maybe you thought it meant simply “being aware” of what you’re spending your money on—this is how most finance “professionals” view and teach the practice of conscious spending. I strongly disagree with this popular explanation of the phrase. If you are only “aware” of what you are buying, then you are consciously spending. This is not the same as conscious spending. For Hannah and me, conscious spending implies that we never restrict ourselves from buying something because we know what we need. It means that we’re entirely aware of what our expenses and savings are each month. But it means that we never budget a threshold for how much we can spend. And we always have enough money to do everything that we love most. You always have enough money for the things you love — you’re just spending it all on something else first. This concept can be hard to internalize; let’s dive in a little deeper with details and examples.
Conscious Spending Rocks
So how does conscious spending work? A couple of weeks ago – during week 2 of the Bootcamp Series – you received an awesome excel model that helped you determine what your personal minimalism looks like. Check at the bottom of that week’s email.. you should have received a link to download the model for free there.
Ok, now to the good stuff. Conscious spending cannot be put into practice until you understand (1) yourself, (2) the things of little consequence in your life, and (3) what makes you feel rich. You’re stupid if you even try conscious spending before you get your crap together. It won’t work, and you’ll end up in debt. Imagine yourself at 60 years old. What are the experiences you are going to want to say you maximized throughout your life? These are the experiences that you deserve to spend exorbitantly on. Do not allow yourself to live a life that isn’t yours by spending money on things and experiences that don’t matter to you. Hannah and I love traveling the world and exploring New York City, so we spend un-bashfully in these areas, and spend almost nothing in every other category of our expenses.
Check out the graph I “borrowed” from some random website. Economists love this stuff. Think about the return you get from clothes. The first 10 shirts and 2 pants you buy are going to bring you a lot of utility and “return”. As you continue to buy more, the return (or utility) you gain from each shirt will decline. You should have stopped in the green section when you had what you needed. As you can see, most people stop around the red line, where they start to get upset as they wade through the marsh of clothes scattered across their bedroom floor every morning trying to find that one pair of boxers that they’ve only worn once in the last month… probably time to do some laundry. This same principle applies to every spending category.
The key to this graph, however, is recognizing what the experiences in your life are that continue to provide maximum utility and return, regardless of how much money you spend on them. For me and Hannah, these are our date nights and our travels around the world.
Conscious spending is similar to forecasting and can be summarized in the following steps.
- You project your expenses for major spending categories
- You are aware (not restrictive) of what you purchase – you’re not counting pennies
- You observe trends of your retroactive spending habits so you can adjust your forecast estimates (and not budgeting restrictions)
- You enjoy life, confident that your spending habits are maximizing the utility that your current salary can provide you
This ONLY works though if you can live true to your personal version of minimalism; i.e. you don’t spend money on crap that doesn’t truly make you happy. Let loose of the stuff in your life to make room for worthwhile experiences.
Let’s evaluate what this really looks like. Hannah and I have created two makeshift MONTHLY conscious spending forecasts below to give you examples of how someone’s steady-state conscious spending plan may look in New York vs. Utah. We’re assuming most people reading this article are like us — we love traveling and we love our “fun money” to go out in the evenings and weekends to create experiences. Basically, fun money can be used on whatever you deem to be an experience: jet skiing around Manhattan, going to the Top of the Rock, or going out for drinks with friends. We changed the numbers to represent what we believe would be an average salary of a single person in each state, and added a fake category to see if you’re paying attention.
We recommend every conscious spending forecast include a healthy Chick-fil-a projection. Ok, kidding about Chick-fil-a (but should I be?… it’s soooo good), but hopefully you get the point. We took out the Chick-fil-a row from our savings calculations, by the way. We really shouldn’t have though.
A couple of assumptions we should mention: New York groceries can be a great place to save money because many companies provide meals to their employees. We assumed a 30% tax rate, which is probably too high honestly. Healthcare costs won’t be $25 every month, but it’s likely that you’ll have months with $0 and others with $100. This rule of thumb applies to several other categories in our intentional living plan. Some months you may spend much more than $500 with your fun money, but then other months you’ll be under. You’re learning to forecast the average month. And you’ve got some wiggle room when you’re expecting to save more than 25% of your salary every month.
Although this simple table looks like a budget, it couldn’t be any further from that. The numbers you see there are by no means a restriction to us or even a guideline for what we aim to spend each month. Seriously, repeat after me 3 times. Conscious spending is not a restricting budget. Conscious spending is not a restricting budget. Conscious spending is not a restricting budget… If you did this correctly, you should probably feel like how I hear fidget spinners make you feel: relaxed, relieved, and focused. You’re free. You never have to budget again.
Conscious spending is a projection of a true-to-yourself lifestyle, used to determine what your monthly savings and EXPERIENCES max capacity every month can be. You’ll still project your experiences/fun category, but this category is entirely flexible.
We wanted to share all of our Bootcamp Series thoughts about conscious spending with you this week, but we think it’s good to give you some time to digest this week. Take some time to ponder introspectively and determine your priorities — conscious spending CANNOT work for you until you are committed to living your personal minimalist lifestyle. Tune in again next week for part 2 of WEEK 5 about conscious spending, where we’ll help you dive into the details of forecasting and actually putting your conscious spending plan into action. And subscribe, if you haven’t already, to begin receiving our FREE finance materials and templates proven to increase your salary, get your finances in order, and travel the world for free! You’ll be joining hundreds of others in the Wall Street Minimalist community. You’re lucky, this stuff won’t be free forever! 🙂