This week we want to share with you a money management strategy called value-based spending.
What the heck is that? It might sound as boring as a budget, but we promise it’s not!
You know that feeling when you look at the clock and suddenly it’s 6pm and you’re wondering where the heck did the day go, because you still have so much you want to do?! You were obviously doing something all day, maybe watching TV, getting lost in your phone, or taking 50,000 pictures of your cats.
But now it feels like a big waste, and if we’re not intentional, our spending can be the same way.
To avoid a depleted bank account, maxed out credit cards, or restricting options for ourselves, we can be more intentional with our spending by looking at our current habits to see how we can create more value.
So what is value-based spending?
We’ll outline this process in detail below, but here’s an overview.
It’s a simple process to get clear on your values and priorities and align your spending with them.
It highlights where your spending doesn’t actually align with your values so you can then decide where to reallocate that money to support, rather than take away from, your priorities.
We like to think this approach allows you to put your money where your heart is and be an even bigger YES to what’s important to you and what lights you up.
How will you know if this approach will benefit you? Whether or not you’re already on top of your spending, you’ll find this helpful if:
- You find you don’t have the money to pay for the things or experiences you want
- You want to see where you might be spending needlessly
- You want to start saving for an upcoming expense (vacation, opening an investment account, putting a kid in college, buying/remodeling a house, starting a business, etc)
- You mostly live paycheck to paycheck
- You want to retire early
- You want to donate more to your favorite charity
- You want to invest more in yourself and what gives you joy and pleasure!
- You want to achieve financial freedom!
Let’s talk about how it works.
We’ll outline each step in detail. Then we’ll share an example from our own experience going through this process.
Our Simple 4-Step Approach to Value-Based Spending
List your top 5 values or priorities. This will be different for everyone but some examples are spending time with family, health, being outdoors, personal growth, building a savings, traveling, etc. This first step is very important because it’s the foundation for this whole process! Do not rush it! If you’re struggling, give yourself a few days to come up with a list that feels right for you.
Pull up your credit card and bank account transactions over the past month. We recommend printing it out or exporting it in a spreadsheet format so you can make notes.
TIP: If a month seems too daunting, start with a more manageable chunk size for you, such as one or two weeks.
Go through each transaction one-by-one and:
- Note which (if any) value it aligns with. For example, a day at a museum may align with family time. A gym membership aligns with health. Keep in mind you’ll likely have expenses that are “necessities” that may not directly align with anything, such as a mortgage or car payment.
- If the expense does not align with any value, then consider whether there’s a less expensive alternative or a way you’d like to reallocate that money that IS aligned. For example, you pay for a music subscription but rarely listen to it. That money could go towards fitness classes to align with your value of health.
TIP: You can still do this with expenses that ARE aligned. Ask yourself how fulfilled you were by that experience. There might be something better. For example, you value friendship. That big dinner out with a group of friends was fun, but you might enjoy having them over for a potluck dinner at your house even more. This can also be less expensive – for everyone! It’s also a great way to lower your food bill if you don’t enjoy cooking that much. Share the responsibility!
Once you’ve gone through this process for each transaction, commit to 1 or 2 actions to take. For example, you may cancel that gym membership you never use and move that money into a savings account. This essentially reallocates the money so you aren’t tempted to spend it elsewhere. You may also commit to planning a potluck dinner next weekend.
And that’s it!
Now that you know what to do, here’s an example of Jess going through it this past weekend, and what she learned.
The action steps Jess is committing to:
- I cancelled my video game subscription and brainstormed different activities to do in the evening that would be more fulfilling: having a friend over for dinner, going for a walk, reading a book, going to a meditation class. I’m starting to schedule these activities into my week so the need to play video games is no longer there.
- I’ve scheduled time every Sunday for the next several weeks to plan meals so I am less drawn to restaurants and prepared foods. I’m already doing it this week and loving the delicious options waiting for me in my fridge!
Now it’s your turn!
Here’s to your smart spending and saving!
P.S. To be successful with this process, you must commit to and follow through on your action steps. If you’re feeling stuck, overwhelmed about getting started, or need some accountability to make the changes you want to see, consider inviting a friend to go through the process with you! Share this article with them, and together you can feel proud of yourselves for doing something loving for both you and your bank accounts!