According to a OnePoll for Ladders survey, the average U.S. adult spends almost $1,500 each month on things they can do without, such as restaurant meals, drinks, takeout or delivery, paid apps, streaming services, and coffee. At the same time, Americans aren’t spending money on some arguably essential items:
- 40% said they can’t afford to fund a retirement plan
- 28% can’t afford to pay off credit card debt
- 26% can’t afford car repairs.
Many of us have unsustainable spending habits for reaching long-term financial goals and a sense of financial freedom. However, it’s possible to break the habit of mindless spending. For many people, committing to spending deliberately rather than thoughtlessly can completely transform their financial situations.
A conscious spending plan is a personalized approach that considers your values and preferences, and gives you a roadmap for spending money based on your priorities. A conscious spending plan can be the strategy that breaks your cycle of mindless spending or your inability to stick to a budget.
Follow these four steps to develop a conscious spending plan that will work for you and your financial situation.
Set financial goals
The first step to developing any plan is to determine the results you hope to achieve. To create a spending plan, you need to set financial goals. It’s a good idea to set goals with different time frames for achievement, such as:
- Short-term goals take a few months to a few years to achieve, such as building an emergency fund, paying off a credit card, or saving for a vacation.
- Medium-term goals usually take a few years to achieve, such as saving for a car, a down payment on a house, or paying off debt.
- Long-term goals take several years or even decades to achieve, such as saving for a college education, building a retirement fund, or paying off a mortgage.
Consider what makes you most happy
In addition to working towards meeting your financial goals, you will also be spending money daily, weekly, and monthly. These are the purchases we often make out of habit and without much thought, such as splurging on shoes and clothes, automatic monthly payments for apps, streaming subscriptions, and grabbing takeout or fast food rather than planning and cooking at home.
Instead of allowing mindless spending to overtake your available income and make you constantly feel broke, this step will enable you to prioritize spending on the things that make you most happy. For example, if concerts are your favorite thing, you allot a large share of your extra income to concert tickets and cut costs like crazy on everything else:
- Use coupons and buy store brands at the grocery store
- Wear timeless clothing styles rather than purchasing the latest styles every season
- Cancel any subscriptions you don’t use regularly
- Minimize dining out and getting takeout.
By cutting back on the things that don’t mean as much to you, you’ll have more money to spend on whatever makes you happy.
Categorize your expenses
Now that you have your goals and priorities, it’s easier to categorize your expenses. Divide everything you spend into three categories:
- Required expenses, such as rent, utilities, and groceries
- Plans, such as investments, savings, and debt payoff
- Most important wants, such as concerts, shoes, travel, or your child’s art classes
Allot the appropriate amount to the first and second categories to ensure your required expenses are covered, and you can stay on track to meet your goals. All remaining funds are available for your wants.
Rather than spending mindlessly out of those remaining funds, prioritize money for the type of spending that makes you most happy. If you know you’ll have the freedom to splurge on the things you love, it will be much easier to skip or scrimp on the things that don’t matter as much to you.
Automate the process
The best way to stick to a spending plan is to automate it. Use technology and automation to your advantage to help accomplish your financial goals.
For example, consider divvying up your paycheck and setting up your direct deposit to go into various accounts—a specific amount to cover required expenses, another allotment to go directly into savings or investment accounts, and the final amount to go into your everyday spending account.
Setting up your spending plan based on conscious, mindful decisions will make you less likely to splurge without thinking. And because your plan allows you to spend on the things that matter most to you, you won’t feel deprived as you stick to your plan.
For informational/educational purposes only. The information in this content is not advice on legal, tax,
investment, accounting, or other matters.