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Our family was on vacation in Myrtle Beach when I first saw them.
There they were, sitting on the shelf at a Nike Factory Store in the local outlet mall. $100. By today’s standards, that is pretty cheap. As a 15-year-old kid, it was my life savings. My parents said that I would have to use my own money if I wanted them.
Well, I did, and it is still one of my favorite purchases of all time. I wore those sneakers to the ground. Once the air bubble popped and the sole started to fall off, I sold them to a kid down the street for $20. SIDE HUSTLE!
As a teen, there weren’t many items I needed to budget for, so I could spend all of my money on a pair of sneakers. As an adult, it’s not that simple.
Or is it?
Despite what you’ve been taught or have grown up seeing, you can spend your money on what you value. What you like. What you love.
It’s called values-based budgeting. And we’re going to show you how it works and how you can create a family budget that covers all of your bills, helps you save for the future, and keeps your money going towards the things you value most in life.
What is a values-based budget?
A values-based budget is a budget designed to focus on spending money in areas that you value most. On the flip side, It also focuses on cutting our spending in areas you don’t value.
All of us have certain things that we absolutely love. Things that bring us joy, whether a big or small expense.
Travel. Your kids. New experiences. A good cup of coffee. Self-care. Dining out. Technology. Music. Financial freedom. Entertainment.
Whatever it is, a values-based budget prioritizes spending in these “loved” categories while aiming to aggressively cut out spending in other areas. Ramit Sethi refers to this as “Conscious Spending.” In his book, I Will Teach You To Be Rich,” Sethi talks about it’s about “choosing the things you love enough to spend extravagantly on — and then cutting costs mercilessly on the things you don’t love.
An interesting exchange happens when you start to shift your money mindset from how much something costs to how much you value it. Your focus switches from short-term to long-term goals. That doesn’t mean that you don’t care about costs, getting a good deal, or saving money. Actually, it probably helps you have a healthier view of spending, so you don’t go to extremes.
Switching to a values-based budget can even improve your health. Knowing your money is going where you want it to instead of on frivolous purchases can help lead to less stress and anxiety about finances.
Can you really spend money on what you love and value?
First, the reality for many people is that times are tough right now in every sense of the word. The world seems to be going crazy. Anything and everything costs more than ever before. There’s a changing landscape with work and making a living in the world.
64% of Americans live paycheck-to-paycheck right now, including 48% of individuals who make $100K or more.
Moving to a values-based budget is possible, but you still need to take care of business with your finances. If you’re drawing in debt or behind on your bills, you can’t just switch your spending to ice cream and vacations. That’s not responsible. Fun, but not responsible.
Like anything else in life, adjusting your budget should be a subtle shift done in moderation. I tend to jump in with both feet going 1,000 miles per hour without thinking about if it’s sustainable. When I do that, what typically happens is I’m fired up about the changes for a month and then quickly lose interest or motivation (or both).
Switching to a values-based budget takes time, consistency, and commitment. It’s about surveying your money, where it goes, where you want it to go, and how to get there.
Related Reading: What Is The Anti-Budget?
How To Create A Values-based budget
Here are some steps you can take to transition to a values-based budget.
1. Determine what you value
Do you like lists? I like lists. Make a list of what you value. What brings you joy? Peace? What matters to you?
Don’t stop at making a simple list. That’s not enough.
You need to understand your core values and why they exist. What does this value do for my family and me? What does it create or enhance? Understand the stories behind your values, why they matter to you, and how they affect you and your family.
I mentioned self-care before. First, this should be a given in any budget. You are doing your family a disservice if you aren’t earmarking self-care into your budget (even if it’s just time-budgeting, not money). We all need to take care of ourselves physically, mentally, emotionally, and spiritually. We operate from a healthier space for ourselves and each other when taking care of ourselves.
If you’re married or have kids, think about every family member. What do they value? How does that fit in line with your monthly budget?
2. Determine what you don’t value
Sounds simple, right? It’s not. Obviously, none of us value medical bills, car payments, student loan debt, and other fixed expenses. But those are a given. You don’t have a choice to love them or not, unfortunately. But you can choose what you don’t value in other areas of your life.
I love sneakers. Few things bring me more joy than getting a new pair of sneakers. And I splurge, too. If I’ve had an excellent freelancing month or took on an extra project that isn’t accounted for in my typical income, I will reward myself with a new pair of sneakers.
What I don’t care about is keeping up with other trending fashion. As a dad in his 40’s, this obviously isn’t hard to do. I couldn’t pull off trendy if I wanted to. But that means that I don’t go on shopping sprees very often, and I don’t spend money on clothes that I don’t want.
3. Track your spending
The easiest way to find out where your money is going is to track it. Take a look back at your spending for the past three to six months, and you’ll see just where you’re money has gone.
Fair warning — It’s probably going to be UGLY.
For most people, spending habits don’t match up to what they value. It’s just a reality. You’d be surprised to see the purchases made over the past six months that you don’t even remember.
How do you track your spending? You can do this manually by going through your bank and credit card statements. You can get real fancy and create a spreadsheet or print out your statements and write on them as needed. Start to categorize your expenses into budgeting categories like:
- Recurring bills
- Variable expenses
- Food / Household expenses
- Impulse purchases
As you start, you’ll think of more categories to use.
Another simple way to track your spending is to use a budgeting app. Tons of budgeting apps allow you to automatically track your spending by linking your financial accounts. Many of them feature additional tools that provide insights and alerts into your spending to take out some of the guesswork. If you don’t like the idea of connecting your financial accounts to an app, some budgeting apps still allow you to enter your expenses manually. Go with whatever method works best for you.
4. Adjust your budget
Now that you’re in shock from all the money you’ve wasted this past year (Same here), it’s time to make changes. Start by allocating your money into budget categories that align with your values. If you want to eat out more or hit the town with friends, plan for it in your monthly budget. If you want to take a family vacation next summer, start setting aside money for it now (Sinking funds are a great way to save for family travel).
While planning out your values-based budget, don’t forget to set aside money for savings goals. Maybe you’re saving up for a down payment for a house. Or you want to help your kids pay for college. Whatever it is, it’s never too early to start setting aside money from your monthly budget to fund financial goals.
5. Cut out impulse purchases
It’s not as simple as saying stop making impulse purchases.
That’s like me telling my wife to “calm down” or “relax.” It might backfire. 100% it will backfire.
They are impulse purchases for a reason. You’re in a store checking out, and something catches your eye. You’re shopping online and see an ad for a new product that will change your life. Aren’t social media ads the worst? It’s like, If I think about an issue I’m having, within five minutes, Instagram or Facebook knows that I need a solution, and an ad pops up.
It’s not going to be easy, but as you adjust your budget to one based on what you value, you become more acutely aware of what you don’t value. It becomes easier to say no.
A simple trick is to tell yourself that you can make the purchase if you still want it tomorrow after a good night’s sleep. This will probably cut down on more than half of the frivolous purchases we make.
Related Reading: How To Build An Emergency Fund
6. Spend within your means
Regardless of what type of budget you use, the most important factor is not spending more money than you bring in. Spend within your means.
If your budget doesn’t afford room for the things you love, you either need to adjust your spending or find ways to make more money. As much as we love budgeting, we’ve found over the years that there’s only so much you can cut out of your budget. You can only save so much.
Sometimes the answer is to find ways to make more money. That could be switching jobs or careers, asking for a raise, earning extra money through a side hustle, or starting your own business.
7. Adapt and adjust
Here’s the reality about values-based budgeting:
What you value most will change.
We’re giving you permission now (not that you need it) to adjust your values as you change. Circumstances change. Life happens. We all experience monumental transitions in our lives, and it’s only natural that our values would change with those transitions.
So, as your life changes and you start to value different experiences, adjust your budget. Make the changes, continue to aggressively cut spending in other areas, and pursue your life and financial goals with your new values in place.
What do you value when it comes to spending money? Let us know in the comments.
Kevin Payne is the budgeting and family travel enthusiast behind FamilyMoneyAdventure.com. He’s also the host of the Family Money Adventure Show podcast, where he helps families learn to manage their money better so they can afford to do the things they love.
Kevin is a freelance writer specializing in personal finance and travel. He is a regular contributor to USA Today, Forbes Advisor, Bankrate, Fox Business, Credible, and CreditCards.com.