Many of us know we should budget our money, but we avoid the topic all together because it sounds boring and we have better things to do with our time, right? We also feel restricted, like we can’t buy that $15 avocado toast we want and then feel guilty when we break down and get it.
The problem with traditional budgeting systems is it forces us to live our lives in one month increments, and track every single dollar. Now for some this method works beautifully, but for the rest of us we would rather get poked with a hot skewer than stress out about every dollar spent.
Values-based budgeting is a form of budgeting that categorizes spending based on your core values. This makes budgeting a lot more fun – and personal – and doesn’t make you feel like you are sacrificing all the time at the expense of a life well lived.
To get started, gather up your last three months of expenses. You can export data into excel from your credit card and bank account statements. Now comes the tricky part. Review your expenses and put them into one of three categories:
1. The Essentials. These are both the fixed and variable costs that are recurring each month and necessary for basic standard of living needs. This category includes mortgage/rent, utilities, groceries, transportation, cell phone, etc.
2. Values Spending. This is the area where you’ll want to spend the most time. Start with a list of your 3-5 personal values. What is important to you in order to live a rich, full life? These could be things like connection with your community, spending time with family/spouse, delicious food, new experiences, a beautiful home, etc. As you look through your list of expenses, think about whether that purchase aligns with your values. Does it evoke a positive emotional response tied to your core values, or is it just something that you did or bought?
3. Now, it’s time to cut! This category is made up of the expendable line items, those expenses that didn’t fit into the first 2 categories. Maybe you bought a new dress just because it was on sale, but now you realize you didn’t need another dress. Sometimes we engage in emotional spending- buying things because we’ve worked hard and deserve it, or even to avoid painful feelings in other areas of our life. We’ve all done it and there is no shame here, but spending time on this exercise can really help you take a step back and see where you might be mindlessly spending in a way that doesn’t align with what’s important to you. Once you’ve identified those expenses to cut out, now you can either reallocate those dollars toward things and experiences that align with your values or, take that extra money and put it toward a savings goal. This could be starting an emergency fund, saving for a child’s future college expenses, funding a future vacation, or paying off high interest debt.
Now that you know your fixed/recurring expenses from step 1, you can take the remainder from each paycheck and funnel it into a separate values-based checking account for the “fun” expenses. One checking account goes toward paying all of your bills and basic expenses, while the other can be utilized for whatever else gives you a thrill!
With this system, all you need to do is keep track of the balance in the “fun money” account each pay period, and know that you have that money available to you for guilt-free spending. For me, that’s experiences, saving for travel, and spending time with friends and family. But those things are what I value- focus on what matters most to YOU.
What do you think about a values-based spending plan? Think it could work for you? Let me know your thoughts!