What is Values-Based Spending?
Values-based spending is a pretty simple concept – it means spending your money in a way that aligns with your overall values. Although it sounds very simple, can you list off your overall top 5 values that are important to you (and your family)?This may take some time and soul searching to pinpoint your overall values. Another way to think of it is – what would I miss the most if I didn’t have the time, energy and money to spend on something?
Identifying your Top Values
If you don’t already know your top 5 values, you could do one of two things:
First, write down a list of anything that comes to mind. This could be recent purchases you have bought, people you spend time with, activities you do regularly or things you do infrequently, places you like to go, things you like to eat or things you have scheduled into your calendar. No, try grouping them into similar “buckets.” For example, if you buy a smoothie every Sunday morning on your way home from the gym, you may create a bucket called “health” and group in your weekly tennis lesson. Once you have categorized all your items, and placed them in your buckets, rank them in order that you value them the most.
Secondly, you could take a look at your past 3 months’ (or more) expenses and write down all your items (exclude prices for now) and then bucket your spending that way. Think about any annual expenses you pay that may not have landed in the most recent 3 months e.g. annual memberships, trips. Then, do the same process as above by grouping those items into appropriate buckets and rank them in order that they resonate with you the most.
Examples of Values
If you are still struggling with this exercise, here is list of things that you may value (in no particular order). Do any resonate with you?
- Family/Friends
- Travel/Adventure
- Career/Education
- Pets
- Health
- Security
- Freedom (Financial/Time)
- Clothing/Fashion
- Home
- Environment
- Charity
How to Align Your Spending with Your Values
First thing you are going to want to do is to take inventory of your current spending. Let’s go back to the last 3 months of expenses. You will want to look at your credit card/banking statements line by line. Next, going through each line, categorize those expenses based on the 5 values you have identified. If one of the items does not align to a value, give it a category anyways. For example, if you purchased a new pair of jeans, identify it as “clothing” even though that may not be one of your top values. Now add up the total expenses in each of the designated categories and rank them by amount spent in each category. For example:
$500 – dining out
$400 – clothing
If your top value is not trying new restaurants and your second is not clothing etc. then your spending is misaligned with your values. Keep in mind there may be spending such as groceries and gas that are considered essential. However, if your gas bill is larger because you travel out of the city every weekend or your grocery bill is high because one of your values is eating healthy/organic, you will want to group these extras accordingly.
Now that you know what you are spending money on, where can you make changes to align better to your values? Let’s go back to my example where friends/family, health and travel are a few of my top priorities. In this case, my family lives in another province. Because of that, and my value for travel, I set aside at least $400/month to travel to see my family and/or to travel to places I’ve never been before. For my friends, I also set aside a certain amount of money in my budget for things like dining out with my friends once/week and purchasing small gifts for their birthdays. Lastly, for my health, I build my bi-weekly budget to include healthy foods for cooking and trips to the farmer’s market for fresh produce. In addition, I make room for a monthly fee for an online workout app as well as gas money for trips to the mountains to go hiking. In order to do all this, there are sacrifices that we all have to make. For me, I’m willing to live in a small condo well below my means so that I can put away money to travel the world and spend time with the people I love.
In summary, I always say that your money should be a tool to support you in living your best life. And that is exactly the purpose of values based spending. All things in your life, including your time, energy, budget and spending should align with the things you love. And remember – you can have the things that you love and want – you just can’t have ALL the things.
Hopefully this post was helpful. What small changes can you make in your spending to ensure that it aligns with your overall goals and values? Comment below!