Conscious Spending: Use the 2 Bucket Approach

by Guest Contributor · 3 comments

No matter how much you make, you can probably find a way to spend it. But if financial freedom is your goal, it’s important to keep trying to achieve better financial results. Simply being more aware of your spending is sometimes enough, though not always effective.

The way I try to analyze my spending in order to be the most effective is to create two main categories (or buckets if you will). This allows me to quickly make decisions about my money, and it helps to keep things simple. No complicated budget needed.

Bucket 1: Baseline Expenses

In the first bucket you have your recurring monthly fixed (and semi-fixed) expenses (e.g. auto insurance, cable TV). These expenses are usually associated with some type of contract or agreement. They are the expenses that you think are the baseline of your budget. They are the bills you have to pay each month.

Your first order of business is to get a complete list of what is in this bucket. List them all out on a spreadsheet or piece of paper so you can see them. Then ask yourself this question: did I intend to have these expenses as a monthly recurring expense?

If your answer is no, then take action to remove it from the list. It sound like a dumb question to ask, but you’d be surprised how many people carry unused expenses from month to month because they simply don’t take the time to look and see what they are paying for.

I did this a while back with my home phone line. I decided that I no longer needed that expense because I was using my cell phone 99% of the time. Had I not taken the time to look at the intention of my expenses, I might still be spending that money.

Once you have done that, your next step is to ensure you are paying the optimal price. If you are going to spend money on these things each month, make sure you are getting the most for your money. Shop around. Get quotes. Call customer service and ask for a better price. Start with the bigger expenses and work your way down the list.

Bucket 2: Flexible Spending

In the other bucket you have your variable expenses (e.g. dining out, entertainment). Since these types of spending can quickly get out of control, set up some monthly spending goals. Look at last month’s expenses and aim for 80% of that in the coming month.

Just pick a couple of areas and hyper-focus your efforts there. Use one of the many online budgeting tools to help you keep track of your spending in these categories, and schedule a date in the future to do a review to see how you are improving. Don’t aim for perfection, just improvement.

The Art of Spending

Lastly, I’ll just add that there’s a less technical element to spending. The goal of a money management plan shouldn’t be to eliminate all spending and go live in a cave. The goal should be to spend consciously on the things that bring you the most efficient value. So an additional approach might be to ask yourself at each purchase whether you rather spend the cash on something else. If the answer is yes, then move on with the confidence that you’re making a smart money decision.

What are your techniques for conscious spending? Share them in the comment section below.

Check out PT’s 52 Ways to Make Extra Money, which is filled with lots of ideas for turning your free time into more money, which you can spend consciously or stash away in an online savings account.

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  • Bankruptcy Ben says:

    Sounds like an application of business financial managment to personal lives. I’m a fan. This sounds alot like fixed and variable expenses on a p&l. I try to use a cash flow budget for the year so I know when i’m going to have a bad month it also alows me to identify how much I need as balance to avoid a week in the negative.

  • Everyday Tips says:

    We are very similar in our approach. I have a spreadsheet with my fixed expenses. I also need to consider my landline, but for now, its still there. I then have another section for variable expenses. I do not live super-strict to my variable expenses guidelines. However, when I know a month is going to be tight, those variable expense categories get shut down. I never know what life is going to bring our family each month, so I do not constrict us to a certain amount for every category. However, if ‘camps’ are going to be higher than expected, then we cut back on any eating out. Its a pretty flexible plan, but it works for us.

  • Steve-Personal Success Factors says:

    I so appreciate this article. We have been so diligent in budgeting in the past, then got 2 kids and a busy life, and have run behind. I love the concept of the buckets, and we’ll be implementing them immediately. Thanks for breaking down a complicated subject and making it easy.

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