The values-based budget

Budgeting is important. You’ve heard that a million times from a thousand people. If we all agree that having a budget is a good idea, why do more than 60% of people NOT have a budget?

The answer is simple. Most people never bother creating a budget because conventional budget templates feel like a chore no different than doing the laundry. Why do budgets feel like a chore? Because most budgets are a prescriptive template on how to spend your money.

• 50% on your “needs”
• 30% on your “wants”
• 20% on “saving”

Budget templates suffer from a fundamental flaw; they are templates. Your life, on the other hand, is not a template. You are a unique person with specific desires and values.

Having some nerd like me tell you that you shouldn’t spend more than 30% of your income on housing is meaningless.

What if living in a big house is a big priority for you that brings you happiness? Wouldn’t it make sense for you to spend more than the average person on housing and spend less in other areas of your budget?

Of course, it would.

There is a reason we call it “personal finance”, how you manage your money should be determined on your personal experience and values.

There is a reason we call it “personal finance”, how you manage your money should be determined on your personal experience and values.

That is why I have come up with a new way of budgeting that is designed to align your finances with the things that bring you joy so that you can live a happier more fulfilled life.

Introducing the Values-Based Budget

Most people live in quiet misery, largely due to the state of their finances.

• There is a very simple reason money is making us miserable. We don’t spend it on things that make us happy or provide value to our lives.
• Luckily there is a very simple solution to this problem. start spending more money on things that provide value to our lives and less money on things that don’t.

A budget is simply a written statement of your financial priorities. The problem with your budget is that it’s based on someone else’s priorities.

Here is how to create a values-based budget that prioritizes the things that you value in life.

First, be specific about your financial goals. Here are three questions you should think about.

1. What age would you like to retire?
2. In how many years would you like to be debt-free?
3. How many months worth of living expenses would you like to have on hand in case of emergency?

Once you have an answer to these questions, you need to make these your top priorities. If you want to retire by 65 you need to budget enough money towards retirement savings every month to make that happen.

Second, track where your money is currently going. Specifically looking at how much of your money you are spending on things you truly value and how much you are spending on “stuff” that does not help you achieve your financial goals or live a fulfilling life.

Finally, create a budget that ensures you reach your financial goals, minimizes the amount you spend on “Stuff” and allows you to spend more money on the things you value most in life.

Building a values-based budget

Step 1: Categorize your spending

Every penny you spend falls into one of three categories.

1. “The big 3”
2. Values
3. Stuff

The average person spends between 50%-60% of their money on housing, transportation, and food. Together these expenses make up “the big 3”.

Values are the things that at the end of your life you wish you had done or had more of. Nobody knows what those things are but you.

Stuff refers to the things we spend money on, that does not make us happier or more fulfilled. Anything that doesn’t fall under “big 3” or “values” should be classified as stuff.

Step 2 Figure out where your money is going

• Start going through your credit card and bank statements, hold onto every receipt and start tracking where your money is going.
• List out all your monthly expenses and next to each expense write down whether it should be categorized as “the big 3”, values or stuff.

Start cutting back on stuff. In an ideal world, we would spend 0% of our money on things that don’t make our lives better.

If “Stuff ” makes up more than 10% of your budget, it’s time to get cutting back. Money is a limited resource. Every penny we spend on stuff is one penny less we have to spend on the things we value.

Context matters

Sometimes a purchase could be considered a “value” or as “stuff” depending on the context. This is a very subtle but important point that I will quickly illustrate with an example.

One of the trending discussions in the personal finance world is “latte shaming”; Making people feel bad about buying expensive coffee.

A latte is a perfect example of an expense that could either be allocated to “things” or to “what you value most in life”.

If you spend $6 on a latte on your way to work because you didn’t have time to brew your own, did that latte provide you real value? Will, you remember that you even bought it a month from now?

Probably not.

In this circumstance, the $6 latte should be categorized as “stuff”.

Now let’s imagine you met up with a group of friends on the weekend and you spent 2-hours catching up while sipping on a $6 latte. Is $6 a worthwhile expense to get 2 hours of quality time with people you care about? If you value time with close friends, it absolutely is.

Do you see the difference? spending $6 on a latte you drank by yourself on the bus is much different than a $6 latte enjoyed while telling stories and laughing with close friends.

Here is a tip when tracking your spending; keep a copy of all your receipts and write down the context of that expense and make a note to yourself of whether this should be classified as “values” or “Stuff”.

A value-based budget in 3 steps

Step 1: calculate your monthly take-home pay. This will be the amount of money you have to work with.

Step 2: figure out how much money you need to contribute each month to reach your goals of being debt-free in the timeframe you want, being able to retire at the age you want and having a fully-funded emergency fund.

Step 3: Subtract the number in step 2 from the number in step 1. This is how much money you have to work with after you’ve prioritized your financial goals.

Step 4: Allocate whatever is left between “the big 3”, “values” and “stuff”. Money is likely tight by this point so this is going to force you to cut back on “Stuff” and make some really hard choices about how you spend your money on “the big 3”.

If you find you can’t “get the numbers to work” there are some things you can do to rework the numbers in your favor.

• Pick up a side-hustle or a second job to increase your monthly take-home pay.
• Turn some of your “Big 3” expenses into income. You can reduce your housing costs by implementing a house-hack or renting a room out on Airbnb. It’s also possible to reduce your transportation costs by renting your car out on Turo when you aren’t using it.

It won’t be easy but with some sacrifice and intentional budgeting, you can lock in your financial goals and spend more of your money on the things you value most in life.

About the Author

Ben Le Fort

Ben Le Fort is a personal finance writer and creator of the online publication “Making of a Millionaire.” He has been passionate about personal finance ever since graduating University with $50,000+ in debt.

In the eight years following graduation, he paid off all of the debt and built a seven-figure net worth. Ben holds a Bachelor’s degree in economics from Acadia University and a Master’s degree in Economics & Finance from The University of Guelph.

Ben lives in Waterloo, Ontario, with his wife, son, and cat named Trixie.