This Popular Money Advice Is 'One of the Worst Things You Can Do,' According to Ramit Sethi

Just because it's common advice doesn't mean it's a good idea.

When you're trying to get better at saving money, a popular recommendation is to cut your spending wherever you can. Spend less on groceries, going out with friends, streaming services, travel, and everything in between.

Expert Ramit Sethi is never afraid to go against the consensus with personal finance advice. He's notably not a fan of budgets or saving so much money that it negatively affects your life. And when it comes to cutting spending, Sethi says "one of the worst things you can do is try to cut back a little bit on everything." For those open to trying something different, Sethi also proposes a great alternative.

Why cutting back on everything can backfire

Before we get into what Sethi recommends, let's look at why he says cutting back a little bit on everything isn't a good idea. There are a couple of big potential problems with this approach.

The first is that you run the risk of overdoing it and cutting too much. This might not seem like a drawback. After all, you're saving more money. But as Sethi has explained many times, if you cut spending too much, you'll be miserable. Nobody's dream life involves never taking a vacation and constantly turning down coffee with friends because you'd rather save $5.

The other issue is that some expenses undoubtedly matter more to you. It doesn't make sense to try to cut back on all of them as if they're all equally important. If you're a foodie who loves checking out new restaurants, that should be the last area you'd cut back, and only if it's absolutely necessary. That's just going to lower your quality of life. You're better off spending less in areas that don't matter as much to you.

How to improve the way you spend money

Instead of a strict budget, Sethi advises following a spending plan where you put portions of your income toward expense categories. Here are his recommendations on the four spending categories to use and how much of your take-home pay to allocate for each one:

• Fixed costs (essentials such as rent, debt, groceries, etc.): 50% to 60%
• Investments (retirement plan and brokerage account contributions): 10%
• Savings goals (vacations, your emergency fund, etc.): 5% to 10%
• Guilt-free spending (anything you want!): 20% to 35%

Those are just the percentages he suggests, and you can adjust them if you want or need to. Some people have higher fixed costs and need to reduce the amount they spend in other categories accordingly. Or, if your fixed costs are low compared to your income, you could put more in your savings account, invest the extra money, or use it for more guilt-free spending.

Sethi also has a smart philosophy on how to spend money. He says "spend extravagantly on the things you love, and cut costs mercilessly on the things you don't." When you put your money toward whatever makes you the happiest and avoid wasting it on things that don't make an impact, you get the most bang for your buck.

Let's say travel is one of your favorite things in the world. You'd set aside a solid chunk of your income so you can travel more. And, if you're not much of a car person, that'd be an area where you cut back as much as possible. That could mean sticking to affordable cars over luxury vehicles or even going car-free.

Saving money anywhere you can may seem like a smart move. While it could work for some people, it doesn't make sense to give up things you love to save a few bucks. Make sure you're hitting your saving and investing goals, and if you are, don't be afraid to spend on things that make you happy.