This week’s guest post is from Mindy Crary, MBA, CFP® practitioner and financial coach. She uses her fifteen years of financial planning experience to support her clients with the energetic, spiritual, and practical aspects of financial management. Visit Creative Money for more information about Mindy and her services. She holds a variety of no-cost teleclasses, the next one being Feng Shui Your Money on February 15th. Mindy is offering a 15 minute free consult to the Financially Smitten community. Contact her at here to schedule one. {You can check out Mindy’s Financially Smitten Big Reveal Interview here.}
Budgeting is a lot like dieting—it might yield some immediate support, but it actually prevents us from succeeding in the long-term. Why? Because budgeting prevents us from reaching the ultimate goal of spending consciously.
Budgets can be very motivating when you think you’re making changes that will increase cash flow immediately. The problem, however, is that real life intercedes and forces you to abandon the budget when you exceed the limit or forget to include a specific expense.
Instead, I advocate conscious spending. This is the belief that once you examine your consumer habits and understand where you derive the most enjoyment, you can actually better utilize every dollar. {Lora addressed this topic recently here.}
When I got serious about tracking expenses, I was shocked to discover that I spent over $150 monthly at Starbucks! Instead of just slashing that expense, I chose to be conscious about change. I was able to establish a new “normal” while never feeling deprived. There are four steps to conscious spending:
1. Gain clarity. You must track your cash out flow — a distinction that often gets lumped in with budgeting itself — but that gives you more awareness BEFORE you attempt to cut back. One way to achieve this awareness is to set up a free account on www.Mint.com and review the Trends tab once you have a couple of months of your financial data collected. {For more info about mint.com check out this post.}
2. Decide perceived value. Perceived value is your “gut” number. Most people have a built-in barometer that tells them if they are over spending in an expense category. It’s subjective for each individual. When I saw the facts of my coffee habit, I immediately realized that although I was spending $150, I was NOT receiving $150 of perceived value. There were many things I would enjoy more than $150 worth of coffee and pastry!
Some might say I got to the same end result of budgeting: cutting back on a “fun” expense. But if you had told me to just to cut back, the cutback would have been an arbitrary number, rather than an informed decision.
3. Distill the experience. I’ll never eliminate Starbucks; that was certain. So I needed to break down all aspects of the “experience” to figure out what was essential to my enjoyment. I realized that I didn’t care about the pastry, so that could go with no regrets. What ultimately became my new “normal” was a drip coffee on weekdays . . . and I was perfectly satisfied as long as I could still go hang out and work. Sitting in Starbucks was the most meaningful aspect of that spending experience.
4. Track the new normal. After a couple of months of experimenting and deciding what worked for me, I realized that I could allocate $40 toward coffee and be completely satisfied. Only at this point did I actually set up a single budget item in Mint, so that if I went over $40, I would be alerted, and could figure out what went wrong. Going over budget usually was a reminder to return to consciousness—much like how a meditation practice doesn’t help you achieve 100% stillness, but helps you learn return to the practice, so that over time, you can let go of your thoughts more easily.
The goal of conscious spending isn’t to limit ourselves, but instead to help us increase awareness about how we are behaving in everyday life. When we start to break down our experiences to achieve the most satisfaction from our spending, we add MORE to life, not detract from it. We really can have just about anything we want; the key is to be completely conscious about what those things are.
Now it’s your turn: What are some ideas or challenges you can share that will help others spend more consciously? Share your thoughts in the COMMENTS section below.
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