Ramit Sethi Says You Can Spend This Surprising Amount of Money ‘Guilt Free’

Your monthly budget can include spending money on the things you love.

Budgeting offers many benefits, including saving money and improving your money management skills. According to financial expert Ramit Sethi, your monthly budget should also include money spent on yourself without guilt or shame. Instead of using whatever funds are leftover after paying bills and other expenses like groceries, gas, and paying off debt, why not include guilt-free spending in your budget?

Sethi advises individuals to include guilt-free spending as a line item as part of a "Conscious Spending Plan." Keep reading to learn more about this unique way of budgeting and how much to set aside for guilt-free spending each month.

What is guilt-free spending?

Nobody likes spending money on expenses like mortgage or car payments, electric bills, or other utilities. Unfortunately, that's often part of owning a house or car and being an adult in general. Monthly budgets typically focus on bills, paying down debt, and saving for the future. Guilt-free spending is an additional line item in your budget to enjoy the things you love.

According to Sethi, your budget (which he refers to as a conscious spending plan) should include money you can spend on yourself without shame or guilt. What the money is spent on depends on the person. It could include things like:

• Trips to restaurants and bars
• Movies
• Spa treatments
• Shoes
• Clothing
• Travel
• Coffee
• Self-care

Since it's your money, you get to choose how you spend it.

What is a conscious spending plan?

As the name suggests, a conscious spending plan is a budgeting method that takes an intentional approach to how you spend and save your money. Conscious spending focuses on analyzing your spending habits and then concentrating your efforts on paying bills, saving for retirement, and setting aside money each month for yourself. It allows you to spend money on things you enjoy while aggressively cutting out things you don't.

Spending buckets

A conscious spending plan focuses on dividing your income into four categories or buckets:

• Fixed costs: 50% to 60%
• Investments: 10%
• Savings: 5% to 10%
• Guilt-free spending money: 20% to 35%

Sethi says these percentages are just a recommendation, although he says you shouldn't stray too far. Here's a closer look at each bucket in a conscious spending plan:

Fixed costs: Fixed costs include monthly bills, debt payoff, and other necessities. Up to 60% of budgeted money should go towards things like rent, car payments, utilities, cell phones, student loans, and paying off other debt. Specific expenses depend on your situation. Not everyone has debt to pay off, but you may have other fixed expenses to include. Analyze your spending to determine what expenses fall under this bucket.

Investments: According to Sethi, you should focus on saving roughly 10% of your income for long-term retirement savings. These funds can go into a 401(k), an IRA, or other investment vehicles. If offered, take advantage of an employer match on 401(k) investments.

Savings: Savings refers to short-term and mid-term savings goals. It all starts with building an emergency fund to cover life's unexpected expenses. Then, determine other life and financial goals you want to save for and start saving money each month until you have enough funds. Short-term savings goals might include holiday and birthday gifts, vacations, home renovations, and other needs. Mid-term savings could mean setting aside money each month for a new car or a down payment on a house.

Guilt-free spending: As mentioned, guilt-free spending covers all of the other expenses you enjoy. Guilt-free spending can be more calculated expenses, like a manicure and pedicure, or it could include impulse purchases such as a candy bar or latte.

Spend time analyzing your spending habits to develop a conscious spending plan that works for you. Make sure it addresses debt payoff if you owe anything, but don't forget to include guilt-free funds each month for you.