Values-based budgeting

Values-Based Budgeting: Build a Better Budget in 2021

Values-based budgeting can help you check the task “create a budget” off your to-do list. Finally!

Budgeting can be one of those tasks that you keep writing and re-writing from one to-do list to the next, guilt-shaming you each time.

How would it feel to get it done?

Creating a values-based budget gives you a much-needed emotional boost—the fuel you need to create and use a budget. It can also improve your existing budget if you already have one.

Want to find out how?

Let’s start with a definition.

What is Values-Based Budgeting?

Values-based budgeting is a method to align your money with how you want to live your life. It’s a way of honoring the energy and the time it took you to earn your money by spending it in line with your values.

Your values reflect how you want to live your life and who you want to be. A values-based budget is your money tool to live an intentional life.

If you create a budget using a template or a rule of thumb, that’s a good start. But until you personalize that budget to make it your own, you risk losing interest in it because that budget may not align with what YOU think is important.

A budget needs to be personal, reflecting your values. A budget based on someone else’s idea of what’s “correct” will eventually fail.

For example, the often quoted 50-30-20 rule guides you to spend 50% on your needs, 30% on your wants, and 20% on savings. It’s not a bad place to begin, and 20% is a healthy savings rate.

However, if financial independence is a top value, and you want to achieve it in less than 20 years, that 20% saving rate is probably too low.

With values-based budgeting, you design a budget based on your core values.

But wait, there’s more!

The Multiple, Amazing Benefits of Values-Based Budgeting

 Okay, I know, I can’t sell budgeting as exciting. Brushing your teeth isn’t either, but it’s essential for your health.  So, here are five financial health benefits you’ll get out of creating a value-based budget.

1. Values-Based Budgeting Promotes Mindful or Intentional Spending 

Working through your values and applying them to your spending takes time, but that process encourages you to be mindful. Mindful is defined as being aware.

That awareness means that you’re less likely to buy crap you don’t really care about, then get upset when you don’t have the money for the things you DO care about. Instead, when you spend your money with intention, you get the most fulfillment out of your money. You optimize your spending.

You can prevent knee-jerk, reactionary spending that results from a potentially restrictive budget where you haven’t thought through what’s most important to you.

2. Values-Based Budgeting Makes Your Budget an Ally, Not an Adversary

By focusing on what you want most and how to get it, you flip the idea of a budget from making sacrifices to getting what you want.

Instead of cutting expenses and then feeling deprived, you reframe budgeting as an exercise in priorities. You rank your expenses by what has the most meaning to you. This allows you to cut from your lower priority categories to have more money for higher priorities.

Because it focuses on what you want, you see your budget as a tool to help you achieve goals versus a rule book of what you can’t do.

 3. Values-Based Budgeting Helps You Cut Expenses Without Pain 

When you look at your spending through the lens of value, you can identify areas where you could reduce your spending or cut expenses outright without pain. Anything that isn’t essential and doesn’t reflect your values is a candidate.

Some examples could be membership fees for groups you don’t participate in anymore or streaming services you rarely watch. Look at any recurring expenses to make sure you are paying for something you still care about.

4. Values-Based Budgeting May Inspire You to Earn More Money 

Earning more money just for the sake of more doesn’t provide much motivation. But with your values in mind, you may find yourself inspired and looking into ways to increase your income.

You may want to earn more money for a purchase you value but don’t currently have the resources to buy. Or you may be inspired to save the additional earnings and build your financial future.

Either way, by focusing on your values first, you tap into the energy and motivation you need to figure out ways to earn more.

5. Values-Based Budgeting Reduces Financial Stress and Crushes Guilt 

A budget by itself relieves financial stress because the unknown can be stressful. With a budget, you know what you have to work with, and you can ensure that your most important values and needs are taken care of.

A values-based budget further reduces stress because it allows you to spend on items that others may see as frivolous. Guilt-free! Because if something is of value to you, it is not frivolous.

Don’t allow others to judge you. Actually, our harshest judges can be ourselves. But with a budget based on your values, you can get that internal critic to back off.

Risks of Values-Based Budgeting

 With all these benefits, what could go wrong?

Well, it could be easy to use your “values” as an excuse to overspend and go into debt. But we are still talking about a budget. The ultimate purpose is to make sure that you maintain a balance between what you earn and what you spend. That means no debt.

Ideally, you want to spend less than you earn, the only way to build your financial future!

If something is important to you, but you can’t afford it right away, save up for it. Use your values as fuel for saving money.

Another risk of linking values and money is if you focus on money as the only way to fulfill values. Don’t forget that there are many ways to meet values either without money or less money.

It may take a bit of creativity to find them, but they exist. Frugality is all about satisfying your needs or wants with less money.

With these risks in mind, let’s see how this works.

Three Steps to Your Very Own Values-Based Budget

“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.”
– Ayn Rand

To create a budget from scratch, I have an in-depth 10-step article. But here’s a three-step overview to get you started.

Before you can go through these steps, you first need to know where you are currently spending your money. Start with a minimum of three months’ worth of expenses and create a spreadsheet listing your main expense categories.

To get an accurate picture of your finances, you’ll want a full year because that captures all the one-off or irregular expenses, but don’t let that stop you. Start with whatever information you have and try the below exercise. You can always expand on it later.

Step One: Identify Your Core Values

Okay, this is obvious, by you need to start by writing out your core values. You want to get clear on what is most important to you before you begin to look at your numbers.

If you aren’t sure about your core values, check out this article on intentional living for help.

If you have a partner, include them as well. Or you could try this yourself first, then adjust the numbers later based on their feedback. Avoid any excuses to wait. Remember, this is a flexible plan, not something chiseled into stone.

Step Two: Understand Your Non-Negotiable Expenses

These are the essential expenses that are non-negotiable, especially in the short term. They are the basics you need to live in our modern society.

Start with expenses that support you physically, like shelter, food, and health insurance. Also include any work-related expenses that help you earn an income, like transportation to and from your job. And, of course, debt payments.

These are the expenses that absolutely need to be funded, regardless of your values, at least right now. Yes, you can apply your values to these expenses, but probably not in the short term.

For example, your housing may come with either a rental contract or a mortgage. Although you could reduce those in the future, for now, these are your non-negotiable expenses.

Maybe after this exercise, you realize you’re spending too much on housing, and you’d rather shift those dollars to travel. Excellent discovery, and you’ll want to take action to make that happen by downsizing to a smaller home, but this won’t happen right away.

For now, get an idea of the total dollar amount of your non-negotiable expenses.

Then, add savings and investing goals as a non-negotiable expense to benefit your financial future.

Now when you move on to the next step, you’ll know the basics are taken care of, and your savings and investment goals are funded.

Step Three: Rank and Sort Your Remaining Expenses

Examine your expenses category by category. Ask if spending money in that category leads you toward your values. Or is it neutral, leading to a “meh” reaction? Or does this expense lead you away from your values?

Anything that didn’t land in the essential bucket and that you don’t really care about is a fantastic item to cut out of your financial life. Then you can use that money to fund the things you DO care about.

Expenses that lead you away from your values should be minimized. For example, if a top value for you was fitness or health, you’d probably want to keep your alcohol budget low. Instead, you’d prioritize your gym membership fee, or you’d put money aside to buy home fitness equipment.

Another example is all those random art supplies you keep buying, and you feel guilty for spending the money. But if you go through this exercise and see that creativity is a top value, stop feeling guilty! You are spending in line with your values. As long as you can easily afford it (and your savings goals are met), enjoy your money.

You may find that you spend more money on one category than another, yet you value the second category more. This means that you should shift your spending to spend more on that second category and less on the first.

On a final note, always ask yourself, is money the best or only tool for this? Do I need to buy my dog a fancy toy, or would they be happier if I simply paid more attention to them?

Asking yourself these questions is how you create a values-based budget. And by aligning your budget with your values, you’ll end up with a budget that you are more likely to use.

Now Stop Reading And Start Creating

Instead of kicking the “create a budget” task down to an endless string of tomorrows, start today. Use what you’ve learned to create a values-based budget that inspires you.

Values-based budgeting adds sugar to the lemonade of a budget or spending plan.

By including values as part of your budget, you add the sweetness of purpose for a delightful, refreshing approach to your money.

Plus, think of how it will feel to finally get that task checked off your to-do list.

 

FEATURED IMAGE CREDIT: Photo by Sean Stratton on Unsplash