How to Create a Spending Plan

Budgeting is a term that often carries a negative connotation, but there's a more positive approach to managing spending called "conscious spending," a term popularized by financial expert Ramit Sethi. The key is to understand where your money is going, not to control every dollar but to ensure your spending aligns with your values and brings you joy. The ultimate goal is to be mindful about spending on things that truly matter to you.

Principles

Creating a spending plan based on conscious spending involves adhering to a few key principles:

• Mindfulness: Reflect on what your values are and how money can support those values.

• Intentionality: Use money as a tool to enhance your life, making deliberate choices about spending.

• Prioritization: Focus on spending for important things and cut back ruthlessly on what isn’t important.

• Happiness: Identify types of spending that contribute to happiness, such as shared experiences, time-saving services, and charitable giving.

Process

Developing a conscious spending plan involves several steps:

Understand Your Financial Values:

• Reflect on what brings you joy and satisfaction. Is it traveling, family time, education, security, or community involvement?

• Define your short-term and long-term financial goals based on these values.

Track Your Current Spending and Income:

• Use tools like Monarch or YNAB or simply collect your bank and credit card statements and use an Excel Template.
  

Analyze

• After tracking and categorizing expenses, analyze whether your spending aligns with your values:

• Compare your spending with expert recommendations for each category.

• Aim for a savings rate between 10-20% of your income.

• Assess if your spending truly supports your happiness and values and adjust your targets.

Implement

• Putting your plan into action can be revealing:

• Some might find they need to reduce spending, while others may realize they can afford to enjoy their money more.

• Prioritize savings that don’t impact your quality of life, like cutting unnecessary subscriptions and leveraging pre-tax spending options.

• Automate your investments to be sure that these don't get overlooked.

• Make gradual changes: if you need to reduce spending on dining out, start with small reductions and build on that success.

Revise

A conscious spending plan is flexible and should be revisited as your income or priorities change. While a deep dive is typically only needed once or twice a year, more frequent check-ins can ensure you remain aligned with your financial goals and values. Remember, the goal is to make your spending work for you, enhancing your life and bringing you joy.