Values-based budgeting involves managing your money mindfully and allocating it toward the things that matter most to you. For some people, that might mean keeping sustainability in mind when designing their budget. For another, it might translate into earning and spending with the goal of securing their loved ones’ future.
Values-based budgeting can have you thinking at a deeper level than just what you need or want in the moment. It can help you manage your money effectively while reflecting your core beliefs and higher-order goals. Here’s a closer look at how this practice can bring balance and deeper meaning to your money management.
Key Points
• Values-based budgeting involves aligning one’s spending with core values to ensure financial decisions reflect personal beliefs and priorities.
• A key step is to identify core values before setting budget categories to guide spending decisions.
• Core values can include priorities such as sustainability, educational achievement, and sharing time with extended family, among others.
• Connecting financial management with long-term goals and values can enhance satisfaction.
• Reducing impulse spending can allow an individual to focus more on meaningful financial commitments.
Understanding Values-Based Budgeting
While there are many budgeting methods out there, they are all similar in the fact that they help you manage your income and expenses and reach your goals. Living within your means (or living within your budget) is one of the most important things you can do to help improve your financial future. With values-based budgeting, however, you are typically taking additional steps to align your money with your core beliefs.
Definition and Core Concepts
A values-based budget is one where your budget categories tie back to your core values. To create a values-based budget, you must first determine your core values — the things that are most important to you. For some, that might mean charitable giving plays a key role in their money management, or for another, it might involve prioritizing family “together time” across the generations.
Only then do you set up your budget categories and determine how much to spend where and how much of your paycheck to save.
Comparison to Traditional Budgeting Methods
There are many strategies for saving money, and values-based budgeting shares a lot of similarities with other traditional budgeting methods. The big difference is determining your unique and individual core values before starting the budgeting process. This can help guide your budgeting decisions and inform how much money you spend in various areas.
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Benefits of Values-Based Budgeting
Here are a few of the top benefits of values-based budgeting:
• Increased satisfaction — When your budget is tied to your core values, it can often lead to increased personal satisfaction.
• Better long-term planning — Values-based budgeting ties into the things that are most important to you. That helps make it not only a weekly or monthly thing, but something that ties into your long-term planning.
• Reduced impulse spending — You may be less likely to, say, go on a holiday spending spree and break your budget when you know that the categories tie back to the things that are most important to you.
Identifying Your Personal Values
The first step in values-based financial planning is identifying your personal values. While this process is likely to be different for everyone, here are a few questions that might help you clarify your personal values:
• What is your perfect life?
• Finish the sentence — “More than anything, before I die, I want to ___ ”
• If you could spend today doing whatever you desire, what would it be?
• What causes are important to you?
• If you could be paid in something other than money, what would it be?
• What are the things in your life that you would like to get rid of?
Try to not just answer these questions superficially — instead, try to drill down to find the “whys” behind each question. For instance, if the way you would like to spend every day revolves around hanging with your high-school BFFs, you might learn that spending time with old friends is a core value. If the way you’d like to be paid involves college tuition credits for your kids, that could reveal that higher education is a priority for your family.
This process can put you on the path to finding your personal values and goals.
Steps to Implement Values-Based Budgeting
When you’ve identified your core values, you can then move ahead and start practicing money management in a way that embraces those beliefs.
Assessing Current Spending Patterns
The first step to implementing values-based budgeting is to figure out what your current spending patterns are. One way to do this is to look through your checking account and credit card statements.
It’s important to understand where you are spending money before starting a new budget. You might find a few simple ways to save money, while other money-saving strategies may require deeper cuts and more dedication.
Aligning Expenses With Values
Once you’ve identified your current spending habits, you can start aligning your expenses with the values you identified previously. For each spending category, ask yourself whether spending in this category is consistent with your values.
For instance, if you’re budgeting for a kitchen remodel and sustainability is a core goal of yours, you might begin to see how you can uphold your values and save money by seeing what’s available on Facebook Marketplace or from a freecycle site.
Creating Your Values-Based Budget
As you make your budget and go through each of your spending categories, it’s now time to adjust your spending based on your values.
• In some cases, you might find that you are spending a high amount of money for something that is not that important to you. Perhaps it’s a case of FOMO (fear of missing out) spending, which amounts to “keeping up with the Joneses.” In those cases, you might reduce or eliminate spending in that category.
• You might also find that you have things that are very important to you where you aren’t spending much (or any) money. If that’s the case, you should increase your spending in that category to align with your long-term goals and values.
Challenges and Solutions
Here are a few of the common obstacles in values-based budgeting plus ideas for resolving them:
• Running out of money: If you have too many spending categories that align with your core values, you may run out of money. One of the risks of not saving money is that you may not have enough money in retirement to fulfill all your aspirations.
• Conflicting values: If you are budgeting with a spouse or partner, you may not always agree on values. In that case, you’ll need to compromise and work together to form a shared budget.
• Staying motivated: Finally, staying motivated to stick to your values-based budget may be just as hard as with traditional budgeting. Budgeting well does involve paying attention to how your income and expenses are tracking, which requires a time investment. However, you may find it easier to engage with this process if your budget is tied to your long-term goals.
Tools and Resources for Values-Based Budgeting
The tools for values-based budgeting are similar to those used for traditional budgeting. The exact tools that you use will depend on your own style and personality, and there is no one “right” tool that is best for everyone.
• You might start by seeing what tools your financial institution offers with your accounts, whether that’s a traditional or online bank. They often have a variety of helpful trackers and alerts available.
• You might use a budgeting and spending app, an online spreadsheet, or simple pencil and paper spreadsheet method to follow your income and expenditures.
• You may want to open savings accounts that allow you to save money toward different meaningful goals, whether that’s a new electric car or an intergenerational vacation.
Again, there isn’t a set tool that is best for everyone — instead, experiment with different tools to find one that you feel comfortable with.
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The Takeaway
Making and sticking to a budget is one of the most important things that you can do to improve your financial outlook. Values-based budgeting takes traditional budgeting to the next level by making sure that your budgeting decisions tie into your long-term goals and values. This can help you stick to your budget since you know that it’s leading you on a path that aligns with your beliefs.
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FAQ
How does values-based budgeting differ from traditional budgeting?
Values-based budgeting shares a lot of similarities with traditional budgeting. Where it differs is in determining how to allocate your money across various spending categories. In values-based budgeting, you try to make sure that your spending categories are in line with your core personal and financial values. It asks you to see your financial management through the lens of whether or not you are supporting your big-picture beliefs.
Can values-based budgeting help in achieving long-term financial goals?
Yes, values-based budgeting can help you to achieve your long-term financial goals. In fact, you might argue that it is a superior way to achieve your long-term goals. Making sure that your everyday spending is in line with your core values is the definition of values-based budgeting.
How do you identify your core values for this budgeting method?
Identifying your core values is one of the most important parts of values-based budgeting. After all, if you aren’t crystal clear on the things that are most important to you, you won’t be able to make sure that your spending lines up with those values. While the process will vary depending on each individual, you’ll want to ask yourself long-term questions like where you see yourself in 30 years or what things are most important to you. Try to not only answer these questions superficially and drill down to get the answers behind the answers.
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