How to create a values-based budget

Everyone has priorities when it comes to money. Whether it’s traveling, getting out of debt or even committing to a plant-based diet, odds are that you probably have a preference about where you want your money to go. Your purchases say a lot about what you find important in life—and so do your saving habits.

For Kara Stevens, a turning point came when she realized she was being too cautious with her spending.

“I had gotten to a point where I was financially secure, but I wasn’t enjoying life. I realized that security alone is not the point of living,” says Stevens, owner of a personal finance blog. “You have to enjoy your money in addition to growing and saving it.”

She needed to find a balance between achieving her financial goals and enjoying everyday life. Exploring her personal values about money helped her develop a budget and lifestyle that left her feeling both secure and satisfied.

Here, she shares observations about her own journey in learning how to spend money wisely, as well as tips for defining financial values. Andrew Schrage, co-founder of a personal finance blog, adds his insights on setting up a values-based budget. 

But first, let’s break down the concept of financial values.

Financial values are the beliefs and attitudes that drive your decisions about money. This includes your spending and saving decisions, Stevens says. 

Your money values may reflect whether you identify as a spender or a saver, she adds. They can also be more specific. For example, if you are vegan, you may plan your spending and investing habits around companies that don’t use or produce animal products. 

Other financial values can be a love of adventure or security, Stevens says. If you’re an adventure seeker, you may get more satisfaction spending money on flights, hotels and activities while on vacation than anything else. If you value security, you may prioritize paying down your student loan debt or opening a high interest rate savings account to build up your emergency fund.

But financial values don’t have to be an all-or-nothing proposition, Stevens says. “Just because you value adventure and travel doesn’t mean you can’t value security as well. It’s just the degree to which you may save or spend on a particular thing.” 

Now that you know the basics about financial values, it’s time to explore how to create a values-based budget.

Values-based budgeting is an opportunity for your purchases to make a statement about the things you find important in life. 

Stevens turned to values-based budgeting in her 20s after realizing she was putting too much of her money toward paying down debt. She wanted to find a better balance between financial security and enjoying the experiences that made her happy.

Perhaps you find yourself looking at your bank statement each month and wondering, “How did I spend that much without thinking?”

With a values-based budget, you can match your financial values to your financial reality and be more aware of how spending aligns with what you value.

Values-based budgeting allows you to put your financial values into practice, according to Schrage. This means building a specific financial plan around your spending and saving priorities. 

But that might feel easier said than done. How does values-based budgeting actually work? Here are three steps that will enable you to create a budgeting strategy that closely aligns with your values:

Stevens says that even if you have an idea of your financial values, talking with a family member or close friend can help you put them into words. A conversation with someone you trust may make it easier to identify what matters most to you.

As you consider your financial values, think about your “perfect life,” Schrage says. Ask yourself questions like, “Who would be there?” “What would I be doing?” “How would I feel?”

Once you’ve answered those questions, you can see whether your spending and saving habits are helping you achieve that goal. In other words, your financial values—those beliefs and attitudes that drive your spending and saving—start to become clear. As you’re defining your financial values, choose a select few to carry with you through the next steps of building a values-based budget. That way you don’t overwhelm yourself, Schrage says.

Take a look at your expenses and categorize them to match each of the financial values you’ve identified. You can add categories like utilities or clothing to your existing budget to see where your money goes. You can also create a spreadsheet to track expenses within each category, Schrage suggests.

“Some expenses won’t line up with any values, and that’s okay,” Schrage says. “Your values-based budget doesn’t need to be all-encompassing. The goal of values-based budgeting should be to help you become a more thoughtful manager of your money.”

Next, it’s time to put your plan into action. An easy way to start is to schedule a monthly budget check-in, Schrage says. Taking the time to run through a financial checkup is the best way to confirm if you’re making decisions according to your values.

During this check-in, look at your expenses over the past month. If you find expenses that don’t match your financial values, take some time to reconsider them. Look for alternative products or services that better align with what matters most to you.

“Often, this is as easy as canceling a recurring subscription you’d forgotten about or switching to a values-based brand,” Schrage says. “For example, switching to a more environmentally friendly line of cleaning products if environmentalism is one of your financial values.”

As your spending, investing and saving habits change, you can readjust your budget check-ins to be quarterly or biannually instead of monthly. Schrage and Stevens both suggest using apps to help you manage your money in between checkups. For example, you can manage your 360 Checking and 360 Performance Savings accounts with Capital One’s top-rated mobile app.

And remember, it’s okay (and in fact, only natural) if your values change over time. There’s no pressure to stick with one of your values if you feel like it no longer reflects your priorities. Just make sure to update your budget as new priorities develop.

“I remember in my 20s, I was all about traveling and living in random places,” Stevens says. “I have a kid now. I have a husband. So, backpacking may not do it for me now. We all have various values and priorities, and you can monitor your budget by seeing if what you’re purchasing still matches your values.”

It’s about recategorizing how you spend and changing your relationship with money. If people can learn to spend more intentionally, they become happier about their financial decisions, according to Stevens.

“If we make space for both values-based spending and values-based saving, you’ll find that people will actually save more intentionally and spend with more meaning,” she says. 

Remember:

• Your financial values can serve as a guide when deciding where to spend, where to save and what goals to prioritize.
• A values-based budget helps you connect your everyday spending habits with the things that matter most to you.
• Reviewing your savings, debt and investments regularly can help you stay on track and make changes as your goals and priorities evolve.