Conscious Spending: What is It?

A lot of decisions we make with our finances are based on the notion that we deserve something, and that we should have it at any cost. And you know what, we are right.

We work hard, and I believe we deserve to have something to show for it. Where we are wrong, however, is the ‘at any cost’ part.

Conscious spending can help you achieve this without feeling guilty.

According to Ramit Sethi, conscious spending is simply laying out a plan in advance for how you will spend your money. This includes bills, groceries, entertainment, investing, saving, hobbies, etc. By laying it all out in advance, you are making deliberate decisions with your money.

For many, just laying this all out in advance is a financial coup.

It can also mean slashing spending in areas you don’t care about in order to spend big where it matters.

This principle of conscious spending came to me at a time when I was a big fan of Dave Ramsey. Dave would never let me go on a vacation given my current debt situation (no consumer credit, only student loans).

I understand completely what he is saying, but it never felt quite right. I feel that Ramit’s advice is a bit more realistic given our human nature to want rewards.

How to Implement Conscious Spending

Determining where you spend your money should be done after a careful determination of your goals and a deep assessment of where you stand with your finances.

Are you tens of thousands of dollars in consumer debt? If so, you probably shouldn’t be spending thousands more on a European vacation. But if you want to make a vacation a few years down the road a priority, conscious spending allows you to set aside a little each month, using the power of time to help you.

As long as you are doing things right (paying off debt, or if you don’t have any debt, saving a good chunk for retirement) there should be no real reason to feel guilty for spending lavishly in the areas that are important to us. There should be some reward to working hard and being diligent (and I’m not talking about the “reward” that comes after 40 years of work where they allow you to fade away slowly into retirement).

If there is no payoff, then why should I care? If I can’t reward myself with a nice vacation every two years, then what the hell am I working for anyway?

Let’s break down my family’s current situation: We have paid off probably $90,000 in consumer debt over the last ten years. Sometimes we were focused, sometimes we weren’t. When we got serious, we made rapid progress, and we will be debt free (minus house) in about 6 months.

I mentioned our upcoming mega European expedition in a post on my goals for 2012, and a commenter pointed out that getting out of debt and taking a European trip were two conflicting goals. And for some people, he’s right. In our situation, skipping the trip would bring us to debt freedom 2 months sooner. However, skipping the trip could mean that an opportunity is missed, and it would be a few more years before we could go again. I haven’t been on an international trip in almost three years, and it’ll be almost 5 years for my wife.

Postponing debt freedom by two months is something we chose to do as a priority. We view it as a positive tradeoff. Travel is the only thing I can spend $5000 on for two weeks of adventure without feeling guilty. In fact, I feel guilty if I don’t do it.

Conscious spending allows us to have these moments of fun without feeling like a failure. Maybe for you it’s attending a comic book convention once a year. If you save up in advance and work it into your monthly budget (and aren’t otherwise in financial meltdown), you should be rewarded for your hard work and progress.

When we decided to go on this trip, we made the decision about a year in advance. I had just gotten a raise, and we decided to pretend that the money never even came. What that means is that we earmarked some of it for our daughter’s private school tuition for next year (2012), and some for a European trip.

For us, we had to make something other than money a priority. Our reward is international travel. Nothing inspires me more than the feeling of adventure and self-reliance that I get from international travel. This is part of the reason why I work so hard – I want to experience the world BEFORE I’m 70 years old and decrepit.

How We are Using Conscious Spending to Take this Trip

1. By saving in advance
2. By not accruing any new debt to make it happen (cash-flowing it)
3. By not deviating from our set monthly budget and savings priorities

Additionally:

4. We have no credit card debt or car payments
5. Student loans are almost paid off (and will be soon after we return)
6. We have been sticking to a written monthly budget for almost two years

If you can save for your dreams and guilty pleasures by using the first three methods above (and you are using the last three steps to dictate your timeline), you should not feel guilty at all.

You have a plan, which puts you ahead of most people.

Like I said, even if you are in debt, you shouldn’t feel that you can’t put a small amount away each month on a longer timeline. Getting out of debt, if that is your priority, should stay your priority, though.

Can This Work for Everyone?

Conscious spending is something that should probably be practiced by anyone who is looking to take control of their finances, live on a written budget, or automate their finances. Whether you are in debt or not, you should be consciously spending (unless you are filthy rich and don’t care, which is fine).

But WHAT you spend on and HOW you spend depend on your situation. If you are deep in credit card debt and frustrated with trying to get out, you should probably skip the expensive vacation this year.

But if you are well on your way, have an emergency fund in place, are sticking to a debt payoff plan, and have been diligent for quite some time (I’d say at least a year), you shouldn’t be afraid to budget for the fun stuff.

So…

Personal finance is all about breaking rules. Though you may read a lot of articles and blog posts about DO THIS and 5 THINGS YOU MUST DO NOW, it’s easy to see that a lot of this advice is unconventional. It’s about breaking the rules set by banks, money lenders, and advertising agencies.

Feeling guilty about spending (when done smartly), in my opinion, is one of those personal finance rules we can stand to break. Conscious spending can get you there.

Trust me, your life will thank you.

Do you practice conscious spending?

 

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32 Comments
  1. Great post. Conscious spending is something that is big in our house. We spend on the things that matter to use like traveling and we skimp on the things that don’t. We always save for big purchases ahead of time and never pay interest. Everything is paid in full each month.

    • Excellent! This is exactly how you do it. I’d probably not pay $5000 for a car, but I would spend that on a vacation. Some think it’s strange, but some people get it.

  2. My wife and I are planning to go on a Hawaiian vacation this summer. We’ve been saving up since this past Fall. And since we’re planning way ahead of time, I feel better about going on vacation (even though it’s expensive)
    charles recently posted..Use Google Spreadsheet To Share Expenses With Your SpouseMy Profile

    • Congrats on your vacation. It isn’t easy to retrain our brains into not feeling guilty, but it sounds like you are doing it the responsible way. I hope you have a great time, and thanks for reading.
      John recently posted..Job Loss Protection: An Emergency PlanMy Profile

  3. I like you am going on a European vacation this year. I currently have a 18k student loan at 3.5% and the trip is going to cost roughly 65% of that debt total. Do I feel bad about going? Hell no. I can pay my student loans off in 5 months if I wanted too. But I can’t just up and go to Europe.
    YFS recently posted..5 Finacial Tips I Learned From Watching MTV’s The Jersey ShoreMy Profile

    • Now THIS is exactly what I’m talking about! You just summed up my entire post and point in 4 sentences. The future is the future, but living is NOW.

      If you don’t mind me asking, whereabouts in Europe are you going? (maybe we can meet up for a drink). We will likely be in France, Switzerland and Italy in the second and third weeks of June.
      John recently posted..Job Loss Protection: An Emergency PlanMy Profile

  4. Great points John. People really should go through their finances and determine what is truly important to them. For some people it might be a vacation or for others it might be a new house. Unfortunately there are plenty of people who feel that they deserve regular vacations or other luxuries regardless of their financial situation. That kind of thinking can be dangerous when it just puts them further in debt.
    Jeremy @ Modest Money recently posted..If You Found $100, What Do Buy With It?My Profile

  5. The key for us isn’t that I do, or my wife does, it’s that we communicate together. For us, conscious spending means articulating what we’re going to make a priority.
    AverageJoe recently posted..Should I Start an Emergency Fund or a Roth IRA?My Profile

  6. I am trying harder to practice conscious spending, especially as I’ve noticed that a lot of the things I spend money on, I don’t really remember or care for.

    It’s a process.
    Well Heeled Blog recently posted..The Monthly Cost of TechnologyMy Profile

    • Definitely a process. I’ve moved from always buying the cheapest item to buying the best value, the one that will last the longest. I actually hate having to shop for something that broke more than when I originally bought it.
      John recently posted..Best Personal Finance Writing – Week 5My Profile

  7. Good you make travel a priority, John. I’ve never regretted any of the adventurous travel my husband and I did in the past decade, even though our mortgage would be a lot smaller if we hadn’t gone. Like you, it’s our only debt but it’s manageable and I think that’s a key…as is having some emergency funds. With kids, you always need emergency $ (the other week, my son accidentally shot a hockey puck through our car window…crap, there goes $300). One note about the ’70 and decrepit’ comment…um, once you are over 45 (like me)..you try and think of 70 as the new 60 and it doesn’t sound so bad (just saying..and trying to feel better about my upcoming birthday this month…sigh). Tempus fugit.

  8. Conscious Spending. I love this phrase. It is not something I have practiced much of in the past. I feel very guilty for spending any money on anything while I’m in debt.

    I have been given a huge opportunity in June and I’m having trouble with accepting it. It will cost me some money but a good chunk of it is covered for me as a gift. There’s two reasons why I don’t feel right about it but 1 is that I shouldn’t be spending my portion while I have so much debt. I have been working on a post about this for the future. I’m afraid to write about it on my blog (I WILL get chewed out and probably deservedly so!).

    Europe sounds divine. I’ve never been. I think you should go w/o any guilt at all.
    Jessica, The Debt Princess recently posted..5 Ways to Make Money OnlineMy Profile

  9. Hey Joanna, good to see you again!

    45 is young! 70 is definitely the new 60, and when you are trying to retire, that sounds scary.

    Happy Early Birthday. You are not even to middle aged yet!
    John recently posted..Best Personal Finance Writing – Week 5My Profile

  10. Good article John, completely agree. What is the point working hard and saving hard if you can’t reward yourself for it? Hope you have a fantastic trip!
    Shaun @ Money Cactus recently posted..How to Have Anything You Want With No RegretsMy Profile

  11. Very interesting post. I like this. It reminds me of one that I wrote about living according to your own set of principles and making decisions based on those principles. I didn’t get too much into the personal finance or budgeting side, but there’s an overlapping theme between conscious spending and living according to your own principles.
    I liked the way you framed it and how you described what you’re doing. We could learn a little from that. A lot of it is very logical, but sometimes hard to put into practice.
    BTW – I like the title of your blog. I can relate.
    TheDailyThinker recently posted..Recommended Blog Posts from this WeekMy Profile

    • Thanks Daily Thinker. A lot of people do these things but don’t define it, which is great, because it’s getting done. Thanks for stopping by!

  12. I saw you mention that you’ve been on a written budget for a few months – do you consider budgeting the same thing as conscious spending? What do you see as the differences?
    Elizabeth @ Broke Professionals recently posted..The Most Painful AnnuityMy Profile

    • We’ve been on a budget for a few years, and I would definitely say that doing a monthly budget can be an act of conscious spending. I would say the difference is, is that conscious spending is the big picture idea while the budget is the tool to accomplish it. I would also say that not everyone who has a budget may be practicing true conscious spending.

      If the budget reflects your true goals and priorirites, we can look at them as similar enough to almost be the same.

      Sorry for the delayed reply but this question really got me thinking. Thanks for helping with the discussion.
      John recently posted..Questions to Ask Before Marriage: Money EditionMy Profile

      • Hi John, I have just been reviewing my conscious spending plan. Here is how my last 12 months have been…
        - Madly paying off debt for about 3 months and smashing about a quarter of it
        - Having a major meltdown at the end of it. Stopped, regrouped, and created a conscious spending plan after reading Ramit’s book (about 10 times for the relevant stuff)
        - Was saving for a holiday then Dear Hubby had his leave declined….as a result I was most annoyed for starters, for seconds, put my business building on full throttle so eventually our passive income from it is more than our expenses, and I put the holiday money saved from the CS Plan back into our loan.
        - Today, as I have come across your post, I am reviewing the CS Plan Part 2.

        I have to say, your post has re-inspired me. More frequent travel is my/our ultimate goal, and your comment “I understand completely what he is saying, but it never felt quite right. I feel that Ramit’s advice is a bit more realistic given our human nature to want rewards.” has inspired me to stop feeling guilty about our small debt load – after all, it is small by many standards, and to get out and enjoy the best of life without feeling guilty. Honestly, Ramit’s book has made the BEST sense of all the finance books I have read. There is care about the future, but there is also care about current enjoyment whilst still being responsible.

        Again, thank you for your inspiration and have an awesome vacation!

        • I’m so glad to hear this post has reinspired you, because your comment has done something similar for me: thanks for letting me know that these ideas are important to you.

          If we let work and money be 100% of our lives, we are cheating ourselves out of something. Whether it’s travel or our favorite hobby, we can’t completely deny who we are.

          Thanks so much for reading – I hope you come back!
          John recently posted..Food Insurance: 2 Weeks of Emergency FoodMy Profile

  13. Great Post John,

    As a credit counselor, I always encourage people to set aside money for entertainment. Debt can really take control over you, and your mindset and attitude has a lot to do with the outcome.

    • Thanks Kevin. I always like to hear the insights from people like you who are working in the trenches of debt relief.

  14. Good work. Keep it comin’. :-)

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