This post is written by Catherine Cowan. A personal finance and frugal living blogger. Her blog is a fantastic resource to help you find tips and tricks that work for your financial situation and budget. If you would like to know more about Catherine go check out her blog here
When most people hear the word budget, they don’t always have the best thoughts. I’m sure you’ve held several of these sentiments before:
- Budgets are too restrictive
- A budget means I can’t have fun
- Budgets are for control freaks, I am great at handling my money
- Budgets are boring because they feel rigid and impersonal
You get the picture.
But let’s get one thing straight. When done properly, budgets can be an invaluable tool that can help you achieve EVERYTHING you want in life. Yes, I said everything.
Here are why (proper) budgets are freaking amazing!
- Budgets tell your money where to go instead of wondering where it went
- A budget will help you prioritize your goals and align your values with your spending
- They help you build a life of financial security and freedom
Sounds great, right?
Yeah, it totally is.
Now I’m here to talk about one of my favorite budgeting methods. A method that aligns with minimalism, frugality, and personal finance, all in one easy method. It’s called the Value-Based Budget.
What is a value-based budget?
A value-based budget is all about intentional living. What this means is living a lifestyle that gives you exactly what you need AND want, while cutting out the rest.
This type of budget is a mindset shift. You have to take the time to understand what you want out of your current self, and make changes today to build the life you want for tomorrow.
One of the main reasons I love this budgeting method so much, is because it feels personal, and that’s because it is! Most budget templates heavily focus on numbers and dividing your expenses into different categories (and there is nothing wrong with that, if that works for you!).
But there are some people who need a little more characterization. This is where your value-based budget comes in.
You are more likely to follow your financial plan, if it is constructed in a way that highlights your goals and personality.
If this sounds right up your alley, then keep reading to find out how to make your budget work for you.
Step 1: Identify Your Values
Grab a pen and paper, and listen up.
This is THE most important step, hands down. So take it seriously.
I recommend going to a quiet place for this next part. You need to be in a relaxed state in order to truly identify and quantify your core values.
But remember, this is only as good as you make it. Identifying your core values requires a high degree of transparency with yourself. Do not try to answer these upcoming questions thinking of your ideal/fantasy self. That gets you nowhere.
Instead, think of your true self. Who are you really? Think and analyze your current patterns to see if your future self would do the same things or not.
Here’s what you can do.
- Clear your mind and create a blank slate
- You can try and do this through some breathing techniques, meditation, or prayer
- A calming playlist also helps too (Spotify is great to use for this)
- Ask yourself these intimate questions
- What makes you happy right now? These are your values.
- If you no longer had to rely on your job, what would you do?
- Are there any values/experiences you are suppressing because you’re afraid of something?
- Are you most happy when you are with friends/family or alone?
- What does your ideal life look like?
- Do you find joy in working, or would you prefer time to work on extracurriculars?
- From the responses to the above questions, list out all the values you’ve identified on a separate piece of paper
These core values are important! They identify what you stand for. What you believe in. What makes you happy.
Our values guide us to fulfillment. So make sure you’re honest about yours. If not, you may be creating circumstances that lead you wanting and unfulfilled.
Step 2: Group Your Values Into Categories
Now that you have identified your values. What’s next?
Take your newly written list and see if you can group these different values together based on their similarities.
Do some of these values align with travel and exploration? Group those together.
Do some of these values align with family, kids, and home buying? Group those together.
Do some of these values align with wining & dining, material items, or nice things? Group those together!
These categories are purely at your discretion. If the above suggestions do not work for you, make up your own! See what groups work best for your situation. Get creative and have fun.
Step 3: Prioritize Your Values
So you’ve listed out your values and grouped them into specific categories. Now it’s time to prioritize them.
What is the relative importance of each category? How do they compare or rank with respect to one another?
For example, I have several categories of importance:
- Eating/Dining Out
- Visiting family/friends
If were to rank these in terms of what I value most, it would go as follows:
- Visiting family/friends
- Eating/Dining Out
Based on these categories and their ranking, I will create a budget that is aligned with my goals, putting the available money that I have into these categories that bring me joy.
Note: ***Once you can identify the place that each category belongs in your life, you are ready to start making your budget.
Step 4: Create Your Budget
Remember, your budget tells your money to go instead of wondering where it went.
To create your budget you are going to need some accurate (and no, no estimating) numbers. Go through the past three months of bank statements and see what your bills have cost you.
Do as follows:
- Looking at your bank statements, write down all of your expenses that are NEEDS based (groceries, transportation, housing, clothes – known as your Four Walls)
- Write in any outstanding debt payments that you have (student loans, car, mortgage, credit card debt, etc.). What are their monthly payments?
- Add in all your current expenses that are WANTS based (things that are not imperative to your survival as a functioning member of society)
- Add up the total cost of points 1 – 3
- Assess the total cost of your expenses and evaluate your spending
- Are you spending too much each pay period? Or do you have enough money leftover?
- Are your spending patterns aligned with your values that you’ve written down? Or no?
- Are there any places where you’re spending money that does not actually bring you joy?
- Where are the discrepancies?
- See next step below
Step 5: Cut Out the Spending That Doesn’t Align with Your Goals
Now that you have an idea of your paycheck spending, it’s time to see what you can cut.
Cut out the purchases from your WANTS spending that do not align with your identified values from step 1. You can’t save up for your goals, if you do not have any money leftover. This means if your spending is out of whack, you gotta get it together.
If you value travel, but you spend way too much time ordering takeout, reduce the amount of takeout you eat!
If you value visiting your family, but you keep making online purchases on stuff you don’t need, set some boundaries so you no longer make those mistakes!
Cut out the spending that does not bring you joy (and no, sorry, not bills) and the purchases that are money pits. These items that you’re cutting out are completely in your control! You have the power to say no to these purchases and set yourself up for a successful future!
All of your values are attainable if you’re honest with yourself about what they truly are and let go of the things that you do out of convenience and impulsivity.
Step 6: Put the Extra Money Saved Towards Your Values
As I stated above, if these financial transactions do not serve you, they have no room in your budget.
With the activities that you cut out to be on a more intentional journey, put that savings towards the categories that you do value!
If you cut back on your food spending, because it isn’t something that is important to you, take the difference of what you would normally spend on this purchase, and put that towards your savings of other VALUED goals.
Do this for all purchases that you do not care for! Take the extra money saved by no longer purchasing these items and put it for the big goals you have!
This is the power of the value-based budget! Before you know it, you will have your aligned goals and have a fully funded savings account ready for use!
This is fantastic. This is the power of a budget. Specifically, a value-based budget.
I hope this article really helped you visualize what means most to you in life. Creating an intentional budget that advocates for you to spend money on the items/experiences that mean most to you is a game changer!
Budgets take time to get down. If you do not get it correct on your first few tries, be patient and try again!
Be intentional. Savvy. Be frugal.
You got this.