Many people hate budgeting because it feels restrictive, and reviewing past spending reminds them of their financial mistakes.
Who wants to limit their entertainment spending or total up how much they spent last month at fast-food drive thrus?
But what if your budget actually reflected what’s important to you and made you feel good about your financial decisions?
That’s what values-based budgeting is all about. This budgeting method prioritizes what you value in how you allocate and spend your money.
How to Create a Values-Based Budget
Values-budgeting requires you to take some time out for introspection. Think about what really matters to you, and adjust your spending habits accordingly.
A fun way to think about it is this: If your employer paid you in something other than money, what would you want it to be? Plane tickets? Sought-after sneakers? The latest tech gadgets?
You can’t ignore paying for the necessities — like a roof over your head and food on the table — but this budgeting method asks you to make mindful choices about how you spend the rest.
Take a deep dive into your spending history. Reviewing bank statements from the last three months can help. Where is your money going? What surprises — or disappoints — you the most?
If your spending seems to be in line with your values — great! You’re already inadvertently practicing this money management method. But if you realize you’ve been spending a lot on clothes when you really wish you could travel more, it’s time for some budget adjustments.
Funnel the bulk of your disposable income (the money you have left over after the bills are paid and your needs are met) to stuff that you value. No judgment on what that is — it’s about what matters most to you. If you’re a sports fan, grab those season passes. Or make room in your budget to splurge on boutique fitness classes if you’re passionate about health and wellness.
Values-based budgeting isn’t an excuse to ignore saving for retirement or future goals. Automate your savings by paying yourself first — depositing cash in a separate account when you get paid.
A Values-Based Budgeting Example
Values-based budgeting isn’t a rigid plan that looks the same for each person. It’s very much open to your own interpretation.
Let’s say, for example, you desire career advancement, you’re a foodie and you have $200 in disposable income each month. Rather than letting that money get eaten up by random impulse buys and frivolous expenses, budgeting that extra money could look a little like this:
- $15 in membership dues to a professional organization
- $25 to attend a networking event
- $60 for an online course
- $100 to try out a couple new restaurants in town
You can even apply values-based budgeting to your fixed expenses. Living far from your downtown office and the local restaurant scene may save you money. However, you may be able to spend the same amount on housing, while living in a more expensive place in the heart of town, if you took on a roommate to split costs. And you’d be able to get to work early and grab meals from your favorite eateries — both of which reflect what you value.
Make the Most of Your Money
Bottom line: You spend too much time and energy earning an income to not put a little effort into figuring out the best ways to spend that money.
Analyze which of your current expenses don’t bring value to your life, and make an earnest effort to spend less in those categories. Don’t ignore essentials either. For example, having a phone may be a necessity but if you’re only really using it for talking, texting and occasionally checking social media, you probably don’t need the latest iPhone with an expensive data plan.
Wherever you can eek out savings, put that money toward spending that you value. Budgeting will no longer be about what you can’t do, but more about what you can do.
Nicole Dow is a senior writer at The Penny Hoarder.