Erica Boles remembers when she first fell in love with travel: "I was in college and went to Los Angeles [from West Virginia]. It was the first time I really had an adventure on my own," she says. Fast forward seven years and Boles is an accomplished professional in Raleigh, NC, who has created a spending plan that serves her passion for globe-trotting. Beyond her travel expenses, Boles also puts 5 percent of income toward retirement and another 10 percent in a savings account. In short, Boles pays for what is important to her and chooses to save on things that are not. In the parlance of personal finance, her habit is known as conscious spending.
Making your money serve your happinessWhile some might see expenses for travel as a splurge, conscious spenders like Boles take a different tack. "It's my outlet for stress relief," she says. "In the high-paced, on-the-go atmosphere I am presented with at work, travel provides me the outlet I need to decompress, set work aside and focus on my own well-being." Boles fuels her fire for travel through a series of financial trade-offs. When traveling, she says, "I am likely to spend more on an excursion than I am on lodging. Many times I will stay in a hostel so I have the means to go to an attraction." Although budget lodging can help keep costs low, Boles can travel once per month because she cuts costs in other areas. While Boles funnels 25 percent of her income toward travel costs, she also forgoes home cable and Internet, brown-bags her lunch and shares housing costs with roommates. (The latter alone shaves 38 percent off her annual rent cost.) "While I see the benefits in living alone, I see greater benefit in my ability to [use] that money in other ways," Boles says. Mindy Crary, a financial coach and certified financial planner practitioner in Seattle, WA, endorses this approach. "When you're really conscious about where your money goes, you're spending to make yourself happier," she says. "It transcends the idea of financial management and becomes more about quality of life management."
How do people get hooked into buying things that don't bring them utility or satisfaction, anyway? According to Crary, "They just don't think about it. We get into routines without really examining them. We get into this unconscious cycle of buying what we think we're supposed to buy." Like cable TV or daily lunches out, and those things can really add up over time.
Three steps to conscious spending"It usually takes about 90 days for someone to get really clear about where they spend their money," says Crary. Some often resist looking at the numbers and, when they do, it can take several months to accept that certain expenses are not as unusual as they think. After three months of analysis, people "start to acknowledge that there are things they need to account for in their cash flow," says Crary. A detailed look at the numbers can also uncover cost-cutting opportunities. Crary suggests a three-step process to develop a conscious spending plan.
- Gain clarity. "You have to gain awareness of your current spending before you attempt to modify it," says Crary. That means tracking "every cent that comes into or goes out of your household." Purchases should be reviewed and categorized weekly, so you can see where you spend your money. The process can be done manually or through a budgeting program like Mint. "Once you examine your consumer habits and understand where you derive the most enjoyment, you can better utilize every dollar," says Crary.
- Align your values with spending. "Most people have a built-in barometer that tells them if they are overspending in an expense category. It's subjective for each individual," says Crary. Boles, for example, spends lavishly on travel experiences but saves by bunking in youth hostels. This conscious choice dramatically lowers her travel category costs. The key, says Crary, is to "modify your behavior so that your money is in alignment with your values instead of working against them."
- Fine-tune awareness. "All expenses can be valid, and everyone deserves to spend money on things that make them happy," says Crary. The final step is to "become more in touch with how you feel around your spending and money, and use this awareness to improve the interplay [between] your money and your real priorities." Crary recommends a conscious spending journal to track money spent, along with an assessment of emotions felt before, during and after each purchase.