When it comes to budgeting, many people just focus on the numbers. It becomes a simple formula of how much money comes in versus how much needs to go out. While this can be an effective way to create a budget, it often doesn’t evoke an emotional connection to your spending and becomes challenging to follow. An alternative approach is values-based budgeting. With this method, you start by identifying your values and priorities, and then create a budget that reflects that.
Disclaimer: This post is for informational purposes only. It should not be construed as financial advice.
What is a values-based budget?
A values-based budget is not just about numbers, but also about how you want to live your life. It is guided by a set of core values and priorities. You use money to create happiness in your life.
Here are some examples of how core values might guide your spending:
Core values = Family, Quality Time, Relationships
- You might prioritize spending time with family and put money towards activities or experiences that allow for that. These can be free experiences but may also be paid experiences.
- You may invest in regular date nights with your spouse to keep the spark alive.
- You might choose to spend less on material possessions and instead invest in things like travel that will create lasting memories with your loved ones.
Core values = Health, Wellness
- You might choose to spend more on nutritious meals that you create at home, and spend less on takeout or eating out.
- You could sign up for a gym membership or put money towards other health-related activities.
- You may invest in regular therapy for optimal mental health.
Core values = Ambition, Career Growth, Success
- You could invest in courses, books, or conferences that help you develop professionally.
- You might decide to spend money to move to a city with more job opportunities.
- You could put money towards a business idea you have, cutting down on entertainment for a while to help fund that goal.
Core values = Philanthropy, Kindness
- You might choose to donate money to causes that are important to you.
- You could volunteer your time to help others (rather than maybe spending extra time in a side hustle to make extra money).
- You may invest money in local issues that help create a better community.
As you can see, values-based budgeting is about more than just money in, money out. It reflects the way you want to live your life.
Having a clear set of priorities and goals makes the concept of budgeting less about deprivation and more about intentional spending. You are able take the money you have an intentionally decide what to do with it, rather than spending aimlessly and wondering where it all went. And the best part is that intentional spending will be in line with the things you value most.
When you are clear about your values, it also becomes easier to stick to your budget. You have a why behind every decision, which makes it that much more motivating.
Creating a values-based budget can help reduce stress around money because you are making decisions based on what is important to you rather than what society tells you should be important. It is a way to take control of your finances in a way that works for you.
As an aside, values-based budgeting can also be effective for businesses too. It ensures that resources are being allocated appropriately in line with the organization’s mission, and that the needs of customers and employees are being met. If you own a small business, try thinking about values-based budgeting the next time you sit down to work on your finances.
How to Create a Values-Based Budget
If you’re interested in trying this approach, here is a step-by-step guide to get started:
Step One: Define Your Values
The first step is to get clear on what values are most important to you. These will guide your spending decisions. Ask yourself:
- What do I value most?
- What kind of life do I want to live?
- How do I want to spend my time?
- What is most important to me?
- What have been some of the best experiences in my life? Are there any underlying themes here?
- When I’m at the end of my life, what do I hope I’ll have done? What would I like to look back on?
If you’re struggling, you can also check out a list of core values and see what words speak to you.
Make a list of your values and refer back to it often. This will help you stay on track as you make budgeting decisions.
Step Two: Take a Look At Your Past Spending
The next step is to take a look at your past spending and see where your money has been going. This can be done by looking at bank statements, credit card statements, or any other records you have of your spending.
Dig out everything from the last three months. It can be scary to dive into this if you haven’t been paying attention to your financial situation, but it’s the first step in getting control.
You can categorize spending in different buckets, like transportation, housing, groceries, eating out, entertainment, travel, etc.
As you look at your spending in each category, ask yourself:
- What values am I currently reflecting in my spending? Do these match the values I described above?
- Are there any areas where I’m overspending that I do not value and could easily cut out / cut back?
- What other changes can I make to ensure my spending is more aligned with my values?
Step Three: Create Your Budget
Now that you have a better understanding of your values and spending patterns, it’s time to create your budget.
This does need to start with the basics of balancing money in vs. money out. You shouldn’t justify spending more than you make in the name of values-based budgeting. A budget still needs to ensure that you are making enough money to cover all the necessities – and only after that do you align your additional spending with your values.
First, make a list of all your necessary expenses. This includes things like:
- Rent or mortgage payments
- Car expenses (i.e. paying for a car in cash or car payments) or public transportation expenses
- Utility bills
- Medical payments
- House/car maintenance (there will always be something that needs fixing!)
- Debt payoff
- Basic retirement contributions
Outline your costs for these items first and make sure your income supports them. If not, it may be time to consider downsizing homes, cutting back on the grocery store, implementing frugal living hacks, or finding new ways to make extra money.
Many people have an income that will support these basic needs, but the rest of their paycheck seems to disappear after that. This is where values-based spending is really helpful.
Take your income and subtract the total of all your necessary expenses. The amount that is left can now go towards your values-based spending. This includes discretionary categories that you’d like to spend money in, like:
- Eating out
- Gym memberships
- Streaming subscriptions
- Self care services (massage, manicures, etc)
- Charitable donations
- Education expenses (for you or your child)
- Additional savings and investments
You do not need to include all of these categories; they are just potential ideas. Instead, think about the values you identified in Step 1, and choose the categories that fit those values.
Once you have discretionary spending categories that are aligned with your life’s vision, allocate the remaining money you make towards each category. How you decide to do that is all up to you.
One thing to keep in mind: remember to also consider your future self, and what that person’s goals/values are likely to be. It may not make sense to spend all of your extra money now on travel if you want to retire early, for example. You need to balance the short-term wins and long-term goals.
Step Four: Re-Evaluate Regularly
Your values and budget will likely change over time – and that’s okay! As you accomplish certain goals, your priorities may change as well. You may find that you no longer feel the need to spend so much money in one category, and want to shift to another.
Revisit your budget at least every year to ensure that it still reflects your values. This is also a good time to consider if there are any changes you need to make, like increasing savings contributions or allocating more money towards a certain goal.
Budgeting does not have to be a restrictive process. Instead, use it as an opportunity to reflect on what you want out of life, and make spending choices accordingly. With a values-based budget, you can ensure that your money is always working towards the life you want to live.
Tips for sticking to your budget
Does this feel a little overwhelming? Not to fear! Here are a few tips that can help you stick to your budget:
- Track your spending (for a little while). This can be done through a budgeting app, by writing down your spending for a month, or simply being more mindful of where your money goes. This will ensure that you are actually spending in line with the values-based budget you set.
- Be realistic. As mentioned, you need to be able to cover basic necessities before you focus on additional values based spending. Once you are there, be realistic about just how much extra you have, and allocate it accordingly.
- Find an accountability partner. This could be a friend, family member, or financial planner. Having someone to talk to about your budget can help you stay on track and make better spending decisions. (We are often taught that money is taboo to chat about, but I really feel like that needs to get tossed out the window. When we talk, we can help each other.)
- Set up automatic payments. This can be done for spending like gas bills, water bills, rent, etc. When you can free up the mental stress of dealing with these things, it makes it easier to stick to your values-based budget. (As a note – if you are struggling paycheck to paycheck, you may not be able to do this until you’ve built up a little cushion in your checking account. You’ll get there!)
- Get a dose of inspiration. Feeling apathetic about your budget? Try reading some motivational budget quotes, reading a great book about growing wealth, or practicing some money mindset affirmations. It’ll be sure to put you back in the right mindset.
- Commit to your values-based budget! It may take some time to get used to, but eventually it will become second nature. You can feel good about the spending you are doing, because it’s in line with activities or expenses that bring you joy and happiness.
Values-based budgeting is a great way to take control of your finances and ensure that your spending aligns with your goals and priorities. If you’re interested in trying this approach, use the steps outlined above to get started. You may be surprised at how much more effective and satisfying this type of budgeting can be!
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