Conscious Spending Basics (a guide to achieving your Rich Life)
I want to introduce you to my Conscious Spending Plan (CSP)–a personal and flexible way to manage your money without the stress of budgeting or the guilt of spending on the things you love.
The Conscious Spending Plan lets you focus on what matters most—living your Rich Life—without stressing over every dollar.
Download My CSP
Most budgeting plans tell you what you can’t do. Don’t buy that coffee. Don’t eat out. Don’t enjoy the things you love. It’s no wonder traditional budgeting feels restrictive and unsustainable. That’s where the Conscious Spending Plan (CSP) comes in.
The CSP is about living your Rich Life, focusing on what matters most to you while ensuring your financial priorities are taken care of. It’s not about micromanaging every dollar—it’s about having a clear, intentional plan.
Download your copy of the Conscious Spending Plan below and follow along with your own CPS spreadsheet as we guide you through the steps to make it work for your life.
How to Use the CSP
The CSP simplifies money management by breaking your spending into four categories: fixed costs, investments, savings, and guilt-free spending. Unlike traditional budgets that rely on restrictions, the CSP focuses on prioritizing what truly matters and automating the rest for a successful budget.
Let’s walk through how to implement this system step by step.
Step 1: Place Your Spending In Four Categories
The heart of the CSP is dividing your spending into four intentional buckets:
1. Fixed costs (your essential monthly expenses)
These are your essential, non-negotiable expenses like rent or mortgage payments, utilities, insurance, and even the less obvious subscriptions or memberships. Ideally, your fixed costs should make up 50–60% of your monthly take-home pay.
For example, if your total fixed costs amount to $2,000, consider adding a 15% buffer ($300) to cover unexpected price increases or unplanned expenses. This ensures you’re never caught off guard.
Example of high fixed costs in a CSP.
A real-life example of high fixed costs comes from Forest and Kathleen, a couple who discovered that 91% of their take-home pay went toward fixed expenses.
[00:18:30] Ramit: Let’s look at your fixed costs. Kathleen, what’s this number here, fixed costs?
[00:18:35] Kathleen: 91%.
[00:18:36] Ramit: All right, what do you think of that number?
[00:18:39] Kathleen: Doesn’t leave much room for much else.
[00:18:43] Ramit: At 91%, what does it tell me?
[00:18:46] Forest: That we have no money.
[00:18:47] Ramit: Yeah, that’s correct. You have no money left. You’re effectively broke. If 91% is going towards fixed costs alone, I don’t even have to look down the rest of the CSP to know that you’re not saving. You’re not investing. You’re probably still overspending on guilt-free spending, but you don’t really have that much.
[00:19:05] And this right here, that one number, is the source of enormous stress to American households. Right there. So you did something that I really love. You created a little category at the bottom, what we have been spending, and I appreciate this. You actually broke it out for me. This is really helpful. So dining out and drinks, $2,200 a month. Shopping at Amazon, etc., $1,859 a month. So those total costs are $4,000 a month.
[00:19:40] What we actually have left is negative $5,200 a month or negative 62,000 over the course of a year. Guys, you’re broke. So how do you reconcile seeing these numbers, Kathleen, with saying, we’re doing okay?
Thankfully, by addressing this imbalance throughout the conversation and allocating funds accurately into the four CSP buckets, they were able to create breathing room for other priorities.
2. Investments (saving for “future you”)
Investing for “future you” should make up about 10% of your take-home pay into long-term retirement accounts like your 401(k) and Roth IRA. Start by maxing out any employer 401(k) match—this is free money that can double your contributions.
For instance, if you earn $5,000 monthly and your employer matches 5%, contributing $250 to your 401(k) adds up to $500 with the match. Once you’ve secured the match, explore other options like index funds, target-date funds, or individual stocks for long-term growth.
Example of a successful investment strategy
Rob and Adrienne, a couple who came on my podcast, showed the transformative power of investments in securing a fulfilling retirement.
Initially, they had built a solid portfolio but lacked a clear connection between their wealth and their vision for a Rich Life. After working together, we designed a strategy to help them align their money with their true aspirations—travel, convenience, and generosity toward their nieces and nephews.
Together, we created a plan that allowed them to spend $30,000 annually on travel while covering their monthly expenses of $4,900 and adding a $600 buffer for flexibility—totaling $5,500 a month, or an additional $7,200 per year. On top of that, they could contribute $30,000 annually into 529 plans, aiming to set aside $200,000 for their nieces’ and nephews’ education. This approach not only gave them clarity but also made their financial goals feel both achievable and meaningful.
To support this vision, we discussed the trade-offs involved. Rob would need to increase his work hours to 20 per week for the next three years, generating an additional $5,000 monthly as a household. While this required short-term effort, the long-term benefits were significant. Their plan provided greater financial flexibility for living generously, traveling freely, and ultimately leaving a legacy of over a million dollars—or more, depending on their choices.
In the end, their Rich Life plan balanced their values with practical steps, showing how a Conscious Spending Plan can integrate seamlessly with investments to ensure every dollar works toward both long-term goals and personal joy.
3. Savings (saving for the future)
Allocate 5–10% of your income to savings for both short-term goals and emergencies. Start with an emergency fund, aiming for 3–6 months of living expenses in a high-yield savings account.
Create separate savings buckets for specific goals, such as a house down payment, dream vacation, or even a fun fund for spontaneous adventures.
For more information about savings and the emergency fund, read my articles:
Revisiting Rob and Adrienne’s savings
Returning to Rob and Adrienne, their savings of $58,788, compared to their nearly $2 million in investments is a clear mismatch and doesn’t seem to align with the general guidelines of 5-10% of take-home pay for savings. This highlights how balancing savings with investments ensures you’re financially prepared for both the expected and unexpected.
4. Guilt-free spending (so you can live your life today)
This category—20–35% of your take-home pay—is what sets the CSP apart. It’s designed for you to enjoy the things you love without guilt, whether that’s dining out, shopping, hobbies, or entertainment.
Remember that this money is meant to be spent–there’s no guilt about buying that daily coffee, ordering takeout, or splurging on concert tickets as long as you’ve handled your other categories first.
Be careful, because guilt-free spending can get out of hand
April and Kevin’s experience shows how unstructured guilt-free spending can spiral out of control. With a combined income of $139,000, their discretionary spending–largely on clothing and dining out–exceeded their planned budget by over $1,000 a month.
We discuss their spending habits through the Conscious Spending Plan so they can begin to reevaluate their spending habits, aligning guilt-free spending with priorities like meaningful family vacations.
[00:59:06] Ramit: Okay, so you’re going to cut 600 a month off. Yeah. Okay. That sounds good to me. All right, I’m going to do it. Let’s just see what happens. Instead of 1,800, April, look up here at the fixed cost number. This is the number we’re really caring about, but instead of 1,800, we’re going to do 1,200. Oh my God. It goes down from 65% to 58% fixed costs. That’s a big deal. All right, well done. I think you actually can do 1,200 a month. I think that’s totally reasonable
[00:59:35] Although you currently have only $2,000 of savings in your mid 30s with two kids and 50 pets, so that’s a of risk. Again, if something goes wrong, it’s basically like you’re driving 95 miles an hour, and so far so good. But if you hit something, you’re in big trouble. When I look at your current guilt-free spending, the conscious spending plan template shows that you can only spend $1,200 a month, but you are actually spending about $2,500 a month. Is that correct?
[01:00:14] April: Yes.
[01:00:15] Ramit: All right, so you’re basically spending more than you make.
[01:00:20] April: Yes. And it should have stopped months ago.
[01:00:25] Kevin: The correlation you’re making are mind blowing. I had never realized any of it or even came close to think about it that way.
[01:00:38] Ramit: Do you see why when you gave her the copy of the book, there was no chance she was ever going to read it?
[01:00:43] Kevin: Yeah.
[01:00:44] Ramit: Do you see why when you show her a spreadsheet, she does not want to look at it at all?
[01:00:48] Kevin: Yeah.
By the end of the conversation, April and Kevin are more aware of just how much guilt-free spending they’d been allocating for themselves and wrangled it under the control of structure with the CSP.
Step 2: Set Up Your Automated System
To make conscious spending effortless, automating your finances is key. Start by creating separate accounts for each of your spending categories.
Most people find success with a setup like this: one checking account for fixed costs and separate savings accounts for investments, savings goals, and guilt-free spending. By organizing your money into distinct “buckets,” you’ll always know exactly where your dollars are going, reducing the risk of overspending in any one area.
Once your accounts are set up, schedule automatic transfers to distribute your income as soon as your paycheck hits. If you get paid on the 1st of the month, for example, arrange for transfers on the 2nd to move money into each designated account. This way, you won’t need to rely on willpower or memory to stay on track—your system does the heavy lifting for you.
If your employer allows it, take advantage of direct deposit splitting to streamline the process even further. With this approach, your paycheck is automatically divided between accounts—60% into your fixed costs account, 10% into investments, 10% into savings, and 20% into guilt-free spending.
Finally, automate your regular monthly payments to simplify your financial routine even more. Schedule fixed expenses like rent, utilities, and your phone bill to be paid automatically from their dedicated account. When all your recurring costs are covered without your intervention, you’re free to focus on fine-tuning your system.
If you’re feeling overwhelmed when it comes to mastering your paycheck routine and automating your expenses, I walk you through a simple 3-step system on how to do just that in my video below.
Step 3: Track Your Progress
Tracking your progress is essential, especially during the first few months of using a CSP. This step helps you identify what’s working and where adjustments are needed. Regular check-ins—weekly or monthly—allow you to troubleshoot issues before they spiral out of control.
Common challenges to regular progress tracking include:
- Fixed costs are too high. If your fixed costs exceed 50–60% of your take-home pay, you likely need to cut back. For example, if your housing costs are eating up a large portion of your budget, consider downsizing, refinancing, or even exploring shared living arrangements to free up more income. While these changes may feel difficult, they create breathing room in your budget for your long-term goals and guilt-free spending.
- Too much income is going to investments and savings. While building your future is important, allocating more than 20% of your income to these categories can leave you feeling deprived in the present. It’s okay to scale back slightly to ensure you’re striking a balance. A financial plan that leaves no room for joy today is unsustainable in the long run.
- Discretionary spending doesn’t reflect your Rich Life. If your guilt-free spending feels underwhelming or misaligned with your priorities, ask yourself whether you’re spending on things that genuinely bring joy or simply out of habit. Could you redirect money from less fulfilling areas—like cutting unused subscriptions or scaling back minor luxuries—to fund something more meaningful?
Step 4: Fine-Tune Your Percentages
Your CSP percentages don’t have to be rigid. While the standard recommendation is 50–60% for fixed costs, 10% for investments, 5–10% for savings, and 20–35% for guilt-free spending, your ideal breakdown may vary based on your unique circumstances.
If you live in a high-cost area like New York or San Francisco, your fixed costs might naturally climb to 65–70% of your take-home pay. That’s okay—as long as you adjust the other categories to maintain balance. You might, for example, reduce guilt-free spending or savings temporarily to accommodate higher living expenses.
Your life stage also plays a significant role in setting your percentages. Early in your career, you might prioritize investing heavily in retirement accounts to maximize compound growth. Later, as your financial situation stabilizes, you may shift focus to short-term savings goals like buying a home or taking extended vacations.
Be prepared to revisit and adjust your percentages whenever a major life change occurs. A raise, move, marriage, or new family member can all shift your financial priorities. The beauty of a CSP is its flexibility—it evolves with your life to ensure your money always works in service of your goals and values.
Why Conscious Spending Beats Traditional Budgeting
Traditional budgeting feels like a punishment. It focuses on what you can’t do, creating guilt over every purchase and making it nearly impossible to sustain. The CSP flips this script by emphasizing intentionality. It’s not about depriving yourself—it’s about spending on what truly matters while cutting back on what doesn’t.
The real problem isn’t buying coffee or dining out—it’s mindlessly spending on things you don’t care about while neglecting your core financial priorities. With the CSP, you eliminate this waste and take control of your money in a way that feels empowering, not restrictive.
Written by Ramit Sethi
Host of Netflix's "How to Get Rich", NYT Bestselling Author & host of the hit I Will Teach You To Be Rich Podcast. For over 20 years, Ramit has been sharing proven strategies to help people like you take control of their money and live a Rich Life.