This is an ongoing series where you ask and I answer! If you have a money question, please fill out this form.
Here we go!
Thanks Michelle for asking today’s question:
Hi Sarah, I know you like to encourage people to use money wisely and you do something called values-based spending. can you elaborate on what it is and how I can do something like that?
Values-based spending is actually a pretty simple concept but people tend to make it more difficult than it is because there aren’t really any hard rules to it. It’s just more guidelines that you set for yourself.
In a nutshell, values-based spending is really determining what you find important in life. So you’re basically using your core values and beliefs as a guideline to figure out what to spend your money on. And that also goes for saving money as well.
It’s something I know will help people use money wisely because you’re not necessarily using spreadsheets or apps and you’re not categorizing a certain amount of money that you think you should in things like housing or transportation. So it’s a lot more loose but it can also help make your spending a lot less stressed.
So if you’re interested in doing something like this I have some easy steps for you to get started.
Define Your Values
Yes, this is pretty obvious, but it needs to be done. It’s not as difficult as people make it out to be.
Some people tend to say that they know what my values are. I’m going to call B.S. on that because everybody knows what their values are. They just don’t take the time to really assess what it is.
So go ahead and start writing down what it is you really value. A good way to do that is to take a look at what you do everyday or what really lights you up.
If you want something to get you started, go ahead and grab my quick start guide:
Take the time to brainstorm what it is that you value. Think about purchases you made that have made you happy. Even think about ones that made you really upset because that’s going against a value of yours, so that’s just as important to assess.
Now when you’re getting started you know 10-15 is really good. If you have more than that I encourage you to narrow them down to 10.
Get Concrete With Your Values
Once you figure out what your values are, you want to pair them with purchases that you have made in the past that really align with those values. Or you can sort out purchases you want to make that might align with those values.
I know it sounds really vague, so to help you can make it more specific come up with some different scenarios for purchases. For example, I really value adventure. For me, that would mean setting aside money to buy plane tickets to go on a holiday or even buying a guidebook for my local area so I can explore that area.
Something I recently did was I actually spent quite a bit of money on gardening supplies. Sounds really strange, but I love learning how to plant new things and watch YouTube videos all the time. So I bought pots and different kinds of seeds. I just love watching the seedlings grow. To me that is an amazing sense of adventure and discovery and that was money well spent.
So start writing down some scenarios where you would spend your money on your values or the things that you spent on that really line up with your values. Learn to use money wisely is really digging deep into what you want and how it can ultimately help you lead a productive life.
Set Up Your Accounts
Now you want to have two different accounts for this part. You’re going to take one and it’s specifically for your savings goals. Say you can save 20 percent of your paycheck make sure that that’s deposited in your savings account.
Then you take the rest and that will be for spending. This should obviously be enough to cover fixed expenses and then some. Make sure you have overdraft protection or something that prevents your bank account from going into overdraft, so you don’t end up paying unnecessary bank fines.
Now you’re going to test the waters with small amounts of spending. Don’t go crazy on buying a house or buying a luxury vacation because it’s really going to stress you out. Always start small with whatever new habit you are implementing.
So next time you go out to buy something, just really ask yourself if that purchase aligns with what you value. For me, it would be my sense of adventure. If you’re really struggling, go back to those scenarios or example purchases you’ve written down. I like to use something called a gut check where I ask if this purchase feels right to me and I’m honest with the answers.
Note: there’s a really great app that prevents you from making impulse purchases if you’re struggling with values based spending. It’s called ProActive and actually declines your purchases if you don’t have the money. Check out my review on it.
If it does line up with your values, then purchase. If you’re sitting on the fence, it’s probably a no. It does seem really really hard at the beginning because it sounds like you have free reign to spend your money.
Guess what? It is! That’s what values based spending is all about. It’s about giving you the power to do what you want with your money. That’s how you use money wisely. It’s not like you didn’t have that in the first place but when you’re using a traditional budget sometimes it really feels like you’re not in control of your money.
You ultimately you’re responsible for your life and you’re ultimately responsible for your money.
Your turn: What is your most important value? How will you use your money wisely?
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