Making your budget serve your values

By Jennifer Rose Hale

When you decide to examine your budget, one of the tensions you'll face is knowing when to save and when to spend. Like dieting, budgeting can often seem like a "subtraction action" -- a way of depriving yourself as much as possible to meet a goal.

But here's the problem with focusing only on depriving yourself: You still have to eat! Just as dieting rarely nets the long-term success of healthy eating habits and regular exercise, focusing only on saving won't provide the balanced approach necessary to meet your financial goals.

The best way to succeed is to make sure that both your saving and spending -- like your eating -- is done intelligently. And the best way to do that is to align your money choices with what truly matters to you.

1. Identify your values

The word "values" has become loaded in recent years, as it's often bounced around the political sphere in various contexts. It often carries a religious connotation, which may cause some to think that determining values is an unnecessary exercise for those who hold a strong faith.

But even if your core values were set long ago, thinking carefully about the most important things in your life can still be a valuable exercise when it comes to evaluating your spending.

Here are a few values that could end up on your list:

  • Ensuring strong relationships with friends and family
  • Experiencing different parts of the world and seeing new things
  • Being an effective, productive member of your work team
  • Having sensible plans for the future, including your retirement

Identifying overall values can be tricky. But if you struggle with this task, you'll find that many books on self-improvement, such as the classic "7 Habits of Highly Effective People," can offer useful insights into determining what matters to you.

2. Determine which values affect your budget

Once you have your list of values, determine which ones impact your finances. If self-reliance is key, what does that mean? A fully funded emergency fund? A house paid off by the time you retire?

If your priority is relationships with friends and family, what saving and spending habits influence that? Perhaps you may budget for entertaining loved ones at home more often. Or, if your family lives in another state, you may see fit to spend more on travel.

You also may find that some budget cuts are easy once you see your list. If you enjoy being creative in the kitchen, that eating-out line item may be a little easier to prune (though you may want to budget more for cookbooks).

3. Do the math

Get as specific as you can about budgeting to support your values. If you're going to travel twice a year (to see family, explore the world or both), what kind of costs are you facing? If education is a high priority for your kids, you may want to identify the best way to save for college and figure out how much it will cost to get there.

Once you have some numbers to work with, consider establishing targeted savings accounts to meet your goals.

4. Take action

This may be the hardest part … or the easiest. Once you've figured out what you care about and how it relates to your money, it's time to take action. A few possibilities:

  • Changing your restaurant habits and saving money by entertaining at home
  • Learning how to assess and buy a used car instead of taking on another loan payment or lease
  • Increasing the automatic contributions to your retirement fund or a high interest money market account
  • Comparing savings account interest rates for your emergency fund

And lastly, review your budget periodically to make sure it's still serving your values efficiently. You may find you missed something important in your initial values assessment, such as living a healthy lifestyle with lots of physical activity (it always comes back to diet and exercise, doesn't it?)

If you do find something missing -- or you develop a new priority -- tweak your values list and your financial plan accordingly and use that tune-up to bring your budget closer in line with your dreams.

While smart spending and saving is a challenge, knowing what is important to you is critical to having peace of mind on where your money is going -- and where it's staying.