How to spend money wisely: Create a values-based budget in 3 steps

When it comes to money, everyone has priorities. 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 make a statement about the things you find important in life—and so do your saving habits.

For Kara Stevens, the “aha moment” came when she realized she was too frugal for her own good.

“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. For Stevens, exploring her personal values about money helped her develop a budget and lifestyle that left her feeling both secure and satisfied.

Here, she’ll share 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 own insights around setting up a budget based on your values. But first, let’s break down the concept of financial values.

What are financial values?

Financial values are the beliefs and attitudes—conscious and subconscious—that drive your decisions about money, including your spending and saving decisions, Stevens says. So, how do your values inform your spending decisions?

For one, your money values may reflect whether you identify as a spender or a saver, Stevens 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 through other types of spending. If you value security, you may feel fulfilled by paying down your student loan debt or opening a high-interest savings account to supercharge 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. You’ll soon be able to answer: How can you set up a budget based on your values? 

What is values-based budgeting?

Values-based budgeting is a way to make your voice heard through your wallet. In other words, it’s 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 spending too much money paying down her debts and missing out on the things she actually wanted to do. 

Maybe you’re in a situation like Stevens was, where you’re not feeling fulfilled because you’re depriving yourself of experiences and possessions that would bring you happiness. Or 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 learn how to spend money wisely. 

How to start setting up a budget based on your values

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

But that might feel easier said than done. You might wonder, how does values-based budgeting actually work? Here are three steps that will enable you to implement a budgeting strategy that will more closely align your values with your money: 

1. Figure out your financial values

Although you may already know what these are, it can be helpful to talk with a family member or close friend if you have trouble articulating your financial values on paper, Stevens says. 

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?” You might find that creating a financial vision board can help you in this process.

Once you’ve answered those questions, you can see whether or not your spending and saving habits are aligning with that perfect life you’ve imagined. 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 recommends.

Another good option for exploring your personal values about money is to take this money personality quiz.

2. Take a look at your bank statement or monthly budget 

This next step is essential to setting up a budget based on your values. Take a look at your expenses and categorize them to correspond to each of the financial values you’ve identified. You can set up categories, such as utilities or clothes, within your existing budget, or you can create a spreadsheet to keep track of your expenses within each category, Schrage suggests. If you don’t have a budget, get started today with these budgeting basics.

“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.”

3. Track your spending to see your values in action 

After you’ve done your best to categorize your expenses according to your financial values, it’s time to put your plan into action. An easy way to start can be by scheduling 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 and cross-reference them with your financial values. If you identify an expense or expenses that don’t align with one of your financial values, consider whether there is an alternative product or service you can use going forward that would better reflect them.

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

How often should I update my values-based budget? 

As your spending, investing, and saving habits become more in tune with your financial values, 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. 

And remember, it’s okay and in fact only natural if your values change over time. When setting up a budget based on your values, 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 with your new values as they evolve.

“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.”

Gain purpose with values-based budgeting

Values-based budgeting is about more than recategorizing how you spend. It’s about changing your relationship with money, Stevens says. If people can learn to spend their money more intentionally, they can gain happiness in more of their financial decisions, she says.

“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.” 

Creating a values-based budget can give you greater clarity over your daily spending decisions. Take that idea one step further by reviewing your savings, debt, and investments on a quarterly basis.  

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