Conscious spending is a mindful money habit that encourages you to think critically about all of your purchases, making sure you really need (or really, really want) whatever it is you are thinking of buying, and making sure if you do buy something it is at the best possible value you can reasonably get. When it comes to how to spend money consciously, I always feel like we all need to just stop thinking that we have to reduce the cost of everything in life. There is a much better way to do it, by spending more money on the things you like:
Spending money consciously is about deciding what things you like most and how much money you want to spend on them. But it’s also about reducing the costs of other things in your life drastically. It is not about “just spending less money on everything”. It’s about deciding what is important to spend a lot of money on, instead of blindly throwing money at everything.
How to spend money consciously
We will now do an exercise to understand what you need your money for: Imagine a cake that you divide into pieces and the pieces represent the categories. These pieces can be for example rent, food, mobility, savings or investments.
This can be a difficult exercise, but it is one that pays off in the long run, because it teaches you how to make conscious decisions about spending your money.
There are different spending categories: Monthly fixed costs, long-term investment, savings goals, and money to use.
Monthly fixed costs
This category can be for example rent, food, debts and costs about 50-60% of monthly income.
With this money you pay rent, utilities, health insurance, debts, food, clothing, internet, etc.
This is the money that we deposit to be able to profit from it later, such as index funds. This category includes about 10% of the net salary.
Saving goals can be Christmas gifts (every year, short-term savings goals), travel (medium-term savings goals), wedding travel (long-term savings goals). Many people don’t think long-term and start saving much too late. But the sooner you start saving, the less you have to save every month and the more money you have at your disposal.
Money at your disposal
This section includes restaurants, bars, mobility, cinema, and vacations. Many people think you have to cut down on this section. But in my opinion, we aren’t here to save our whole money and live an uneventful life. I think we just have to set priorities, things that bring us the most joy, and focus on spending on those things. This section makes up about 20-35% of the net salary.