I feel so sorry for people who believe money is all about restriction and budgeting. 

If they want to melt their life away for years and years and maybe have enough money to enjoy in their rocking chair, great. 

But that’s my nightmare. And if you’re reading this, it might be yours too. 

Conscious spending will teach you to focus your spending and saving on things you LOVE, not whatever you happen to spend out of habit.

Don’t get overwhelmed by the idea that you need to create a massive finance system. You don’t! All you need is to just get a simple version ready today and work to improve it over time.

Live life outside the spreadsheet! — RAMIT

Step 1
Start where you are

Enter your current spending in the Conscious Spending Plan. 

No judgment. You just want to understand where you are right now.

As you work through the steps below, begin to update your plan with your target amounts. Look for areas where you want to make changes. Where can you cut on things you don’t care about? Where do you want to 10x your spending on things you love? 

And remember, the percentages in each category are just a guide. Your Conscious Spending Plan should be yours

Step 2
Understand the categories

A Conscious Spending Plan involves four major buckets where your money will go:

These are the four key ingredients in any spending plan:

Fixed costs

Rent, utilities, debt, etc.


of take-home pay


401(k), Roth IRA, etc.


Saving goals

Vacations, gifts, house down payment, emergency fund, etc.


Guilt-free spending money

Dining out, drinks, movies, clothes, shoes, etc.


The percentages for each category outlined above are my recommended guidelines.

Your spending doesn’t have to match these exactly, but I would be cautious about straying too far from these percentages. Now, let’s break down how to come up with your numbers for each category.

Step 3
Calculate your fixed costs

Fixed costs are the amounts you must pay, like your rent/mortgage, utilities, cell phone, and student loans.

A good rule of thumb is that fixed costs should be 50% to 60% of your take-home pay.

Before you can do anything else, you’ve got to figure out how much these add up to. You’d think it would be easy to figure this out, right? Ha! It turns out this is one of the toughest questions in personal finance. To find the answer, let’s walk through this step by step.

If you see any glaring omissions of your major spending categories, add them. Everyone’s life is different. For example, maybe you don’t have debt to pay off, but you do have monthly expenses for your pets. No problem, just add a line for pets.

One category I recommend is “stupid mistakes” or “unexpected expenses.” (When I first started, I saved $20/month for unexpected expenses. Then, within two months, I had to go to the doctor for $600 and I got a traffic ticket for more than $100. That changed things quickly, and I currently save $200/month for unexpected expenses. At the end of the year, if I haven’t spent my “stupid mistakes” money, I save half and I spend the other half.)

Things to notice:


The biggest mistake people make is OVER-COMPLICATING this.

They come up with 60 categories, then they have to maintain it and be ultra precise. Don’t do this! It becomes a headache. Use the 85% solution instead (go for good enough, not perfect). Over-estimate to be conservative.

Remember, the goal is a back-of-the-napkin plan here.

Let’s walk through this step by step using the Conscious Spending Plan tab:

Fill in the dollar amounts you know offhand.
Fill in the costs and categories you haven’t yet accounted for.

To do this, you’re going to have to dive a little deeper. Look at your past spending and fill in all the average monthly dollar amounts for each category. Make sure you’ve covered every category. Limit this to the past couple of months to keep things simple. The easiest way to get an idea of what you’ve spent where is to look at your credit card and banking statements. Sure, you may not capture every last expense doing it this way, but it’s 85% of the way there, which is good enough for now. It’s not necessary to be exact, down to the penny. A few cents here or there won’t add up to a meaningful amount by the end of the year, so don’t sweat the small stuff. When in doubt, round up.

Once you’ve gotten all your expenses filled in, add 15% for all of the other bills and necessary expenditures you haven’t counted yet.

Yes, really. For example, you probably didn’t capture car repair, which can cost $400 each time (that’s $33/month). Or dry cleaning or home goods. A flat 15% will likely cover you for things you haven’t figured in, and you can get more accurate as time goes on. (Note that the Guilt-Free Spending Workbook adds this 15% for you, automatically. It’s the final cell in the Fixed Costs category called “Other fixed costs.”)

Once you’ve got a fairly accurate number here, subtract it from your take-home pay.

Now you’ll know how much you’ll have left over to spend in the other categories — investing, saving, and guilt-free spending. Plus, you’ll have an idea of a few targeted expense areas that you can cut down on to give yourself more money to save and invest.

Step 4
How much should I put aside for retirement?

A good rule of thumb is to put aside 10% of your pay for the long term.

I’m talking about retirement savings here — especially via 401(k)s and IRAs.

(Note: You don’t need to be an investing wizard to effectively save for retirement. But if you are new to investing, 401(k)s, or IRAs, I strongly recommend you read the chapters on investing in my book. This lesson isn’t a full introduction or tutorial on how to invest or save for retirement. Our goal here is to plan how much of your money should be going toward retirement savings.)

I also use gross — or “pre tax” — because it’s simple. Some people invest pre-tax money in certain investments like a traditional 401(k), while others invest post-tax money in accounts like a Roth IRA. For simplicity, if you make $75,000, my back-of-the-napkin rule is to invest a minimum of 10%, or $7,500/year. Following my Ladder of Investing (on page 104 of I Will Teach You To Be Rich), you might choose to invest some of that $7,500 in a 401(k), a Roth IRA, etc. — that’s up to you. But now you know why I use “gross income” for simplicity.

Here’s an example to show you what I mean:

Joan makes $50,000. She knows that she should target investing at least 10%, or $5,000 per year. Using the Ladder of Investing (page 104 of my book), she decides to invest like this:

$1,000 to her 401(k) to get her full 2% match. This gives her an extra $1,000 of free employer-matched money every year. Now she has $4,000 left to invest ($5,000 minus $1,000 invested).

She invests the remaining $4,000 in her Roth IRA.

Now let’s look at a more complicated example.

Michael makes $50,000 a year but due to his location and fixed costs, he can’t afford to invest 10%. The best he can do right now is 7%. He decides to invest like this:

$3,000 to his 401(k). This makes the most of his employer-matched money. Now he has $500 left to invest ($3,500 minus the $3,000 invested).

He invests the remaining $500 in his Roth IRA. Michael commits to increasing the percentage he saves by 1% every year, for several years, to hit that 10% goal. 

And finally, this example of Nicole, a high earner.

Nicole earns $200,000 a year. Her goal is to invest 10% in retirement accounts, or $20,000 a year. She decides to invest like this:

Her employer offers a 5% 401(k) match. In Nicole’s case, that comes to $10,000 a year. So first, Nicole plans to put 5% in her 401(k) to make the most of that match.

She makes too much money to open a Roth IRA, so she returns and maxes out her 401(k) contribution with an additional $9,500.

This leaves her with $500 available to invest. This she decides to invest into a regular, taxable account.

Bottom line:
The more aggressively you save for retirement now, the more you’ll have later. Update your Conscious Spending Plan with your Retirement Goals.

Step 5
What should I save for?

This section of the Conscious Spending Plan is one of my favorites. This is where you can put plans in motion to achieve many of your Rich Life goals. This bucket includes short-term savings goals (between now and 5 years, like holiday gifts and vacation), mid-term savings goals (usually ~5 years, like a car), and larger, longer-term goals (usually 5+ years, like a down payment on a house). It also includes the important Emergency Fund. You get to decide what you want to save for. You can include as many goals here as you like, but I recommend focusing on just 2-3 at a time.

To determine how much you should be putting away each month, check out these examples to see savings categories in action.

Life used to be simple. The holidays meant presents for my parents and siblings. Then my family grew with nieces, nephews, and new in-laws. Suddenly I need to buy a lot more gifts every year. Don’t let things like gifts surprise you. You already know the common gifts you’ll buy: holiday and birthday presents. What about anniversaries? Or special gifts like graduations? Or even special occasions. For example, Cass and I recently flew out my niece and nephew to LA and took them to Disneyland. When we got there, I handed them each $50 and told them they could spend it on whatever they wanted.

For me, a Rich Life includes preparing for predictable expenses so they don’t surprise me. Planning ahead isn’t “weird,” it’s smart. You already know you’re going to buy Christmas gifts every December; plan for it in January! If you know you want to do something special for your family? Plan for it now.

To start, this can be as simple as adding up how much you spent on gifts last year. A ballpark number is fine, to the best of your memory. Include birthdays, holidays, and anniversaries. Add 10% (as a cushion) and divide by 12. Now you know how much you need to save every month so that you can buy gifts for your friends and family throughout the year, guilt-free!

The average wedding costs over $30,000 — and in my experience, once you factor all expenses in, it’s closer to $35,000. To be more precise, Will Oremus writes in Slate, “In 2012, when the average wedding cost was $27,427, the median was $18,086. In Manhattan, where the widely reported average is $76,687, the median is $55,104.” And that was 2012; prices have gone up since then. From a financial perspective, I always assume the worst, so I can plan conservatively. And as someone who planned a large wedding with my wife, I know how phantom expenses can easily push that number higher than you anticipate. So let’s use $30,000 as an average number for easy math.

Because we know the average ages when people get married, you can figure out exactly how much you need to be saving, assuming you want to pay for it without help or debt. If you’re 25 years old, you need to be saving more than $1,000/month for your wedding. If you’re 26, you should be saving more than $2,500/month. The sooner you start planning and saving for large expenses (like a wedding), the more power and flexibility you’ll have when the time comes to use the money.

If you’re thinking about buying a house in a few years, log on to zillow.com and check home prices in your area. Let’s just say the average house in your neighborhood costs $300,000 and you want to do a traditional 20% down payment. That’s $60,000. So if you want to buy a house in five years, you should be saving $1,000/month. Crazy, right? Nobody thinks like this, but it’s truly eye-opening when you plot out your future spending for the next few years. It can almost seem overwhelming, but there’s good news: First, the longer you have to save for these things, the less you have to save each month. If you instead decide to wait for ten years to buy a house, you’d only need to save $500/month for your down payment. But time can also work against you: If you started saving for an average wedding at age 20, you would have to save about $333/month. By age 26, however, you’d have to save $2,333/month. Second, we often get help: Our spouse or parents may be able to chip in — but you can’t count on someone else coming to rescue you. Third, theoretically you could use some of your investment money to pay for these savings goals. It’s not ideal, but you can do it. What if the house you want — even the down payment — is just way out of your plan? This can be heartbreaking if it happens. When people realize they can’t live the life they envisioned, they rarely step back, take stock of their position, and make a sensible plan. Instead, I’ve seen many people, believing they have “nothing to lose,” make increasingly risky decisions to catch up to where they believe they should be. This is particularly relevant for buying a house: When people realize they can’t afford the house they want in any reasonable amount of time, they start making increasingly risky decisions: 2% down, buying more than they can afford, etc. My advice: Stick to being conservative. If it takes a little longer, fine! Save, invest, be patient. You will be much better off in the long-run.

An emergency fund is simply another savings goal that is a way to protect against job loss, disability, or simple bad luck. Especially if you have a mortgage or you need to provide for your family, an emergency fund is a critical piece of being financially secure. To create one, just set up an extra savings goal and then funnel money to it in the same way you would your other goals.

Eventually, your emergency fund should contain 6-12 months of spending money (which includes everything: your mortgage, payments on loans, food, transportation, taxes, gifts, and anything else you would conceivably spend on). I use a 12-month emergency fund personally.

Note: If you don’t have a full 6- to 12-month emergency fund yet, I recommend diverting your “save for retirement” investments from the previous step into your emergency fund. Fill this up first, then apply it to your retirement.

Regardless of exactly what you’re saving for, a good rule of thumb is to save 5 to 10% of your take-home pay to meet your goals.

What do you want to save for? Get specific, then make space for it in your Conscious Spending Plan! (Added benefit, once you’ve saved it up, you can spend it guilt-free!)

Step 6
How much can I spend guilt-free every month?

And now we get to the best part — two very exciting numbers:

Your Worry-Free Number

Your Guilt-Free Number

These are related, but subtly different. Each helps you de-stress your money.

Let’s look at each:

First, your Worry-Free Number.

Pick a dollar amount below which you agree you won’t think twice about spending. I mean completely worry-free spending here.

When I started, I picked $5 as my Worry-Free Number. I picked that so I could say yes to snacks at the grocery store. This one change didn’t cost me much, but I felt much better, worried less, and enjoyed my life more.

Over time, your Worry-Free Number can grow. You can re-evaluate it whenever you like. But knowing your “I’m not going to worry below this” line is a huge stress-reliever.

Second, your Guilt-Free Number.

Look at your Conscious Spending Plan. After all that spending, investing, and saving, what’s left in the final bucket is your spending money — the “fun money” you can use for anything you want, guilt-free! This is your Guilt-Free Number.

Money here covers things like restaurants and bars, taxis, movies, mani/pedis, etc. Really, anything you want. This is yours to spend. And you don’t need to worry about it because you know you’ve already covered your bills and other fixed costs, your investments and retirement, and your savings. What’s left is guilt-free.

Depending on how you’ve structured your other buckets, a good rule of thumb here is to use 20% to 35% of your take-home income for guilt-free spending money.


Ready to stop feeling guilty about money, regardless of your income?

In episode 63 of my podcast, I dive into how you can remove shame from the equation – for good.

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If you want to stop stressing about money, you have to CHANGE your approach to money. What if instead of stressing about money, you ENJOYED it? What if your money GREW your Rich Life, automatically? What if you could see and track how your life was IMPROVING, month by month? And what if you finally found the community, the friends, and the teachers you’ve been looking for?