How to Set Up a Values-Based Budget

Ever sit down to start a budget, but not know where to start? Values-based budgeting, or the process of spending and saving based on how you want to live, can be a unique way to manage your budget. 

The first step is to clearly define your values. Most of us haven’t taken the time to record and prioritize what we hold dear. Financial guru David Bach says, “When your values are clear your financial decisions become easy.” I couldn’t agree more. Your values provide the foundation to your money goals. If you’re struggling with this step, watch David Bach and Marie Forleo have a candid discussion about this philosophy.

For example, I value security and exploration very highly. Security includes a sense of personal well-being as well as being protected against life’s negative unexpected twists. Exploration includes adventures, local hiking and kayaking and travel. What are your top five life values?

It’s a big question, so I suggest two things to help you determine yours.

Reflect and record: Take some time to reflect on the times where you were happiest and most satisfied. This may be individually, or in discussion with friends and loved ones that know you best. Ask, “What am I doing, what am I experiencing, when I feel wonderful?”

This reflection helped me realize that exploration is tremendously important to me. I’m happiest when I’m experiencing new things, going to new places and learning about different cultures.

Similarly, briefly explore what you’d like less of in your life or what you’d like to avoid. What are the situations you find stressful or difficult? This may be long stretches of time away from family or being in deep student loan debt.

Mine was debt: I had credit card debt and a large mortgage, and from this I realized that security is a critical value of mine. When I felt financially insecure because of debt, it caused deep stress and aggravation for me.

Reflecting on these two questions may result in a long list of potential values. If you’re looking for common terms for values, the Rokeach Value Survey includes more 30 common value labels.

The next step is to rank your values. Here, let your gut instinct lead the way. I did this with index cards with potential values written on them and laid them out on my kitchen table from most to least important. When I was stuck, I’d go with my gut. This helped me get to my top five personal values.

Once you’ve defined your values, reflect how your money supports (or works in conflict) with your most important values. For example, if you value family relationships, but aren’t spending enough time with your family because you live in another state, you could work to adjust your budget to save for more frequent trips home. For me, I wasn’t spending enough on debt repayment given my need for security; changing that behavior helped me feel more satisfied.

Set defined money goals that support your values. Instead of “spend more on debt repayment,” record a specific smart goal, such as: “Pay $100 extra toward my credit card each month in order to pay the balance off by January.” 

Define at least three financial goals in support of your values. I recommend identifying at least one goal with a short timeline (within the next six months). Record your financial goals, discuss them and celebrate the progress you make with the women in your life. When you achieve a goal, replace it with a new objective to continue your momentum.

Finally, share your values and goals. Opening up to your closest friends about your life goals and values is a fascinating and rewarding conversation. This discussion can allow us to bridge the cultural taboo of talking about money, and therefore, allow us to share more financial information, questions and ideas. Personally, we’ll be more fulfilled as we apply more of our hard-earned money toward the things that truly matter to each of us.

I speak from experience; I even started a blog to share my passion for personal finance! More importantly, I’ve more consistently aligned my money with my values. As a result, I’m a happier person. Defining my value of exploration helped me prioritize my travel budget; I now automatically save for at least one significant vacation each year. Since making this adjustment, I’ve visited amazing spaces around the world that have brought me so much joy. In support of exploration, I have also significantly increased donations to nonprofits that support conservation and preserve the beautiful spaces I enjoy exploring.