You need a budget and you know you need a budget but none of the budgets that you’ve
looked into so far have been your cup of tea.
You may have tried them, but for one reason or another none of them seemed to work out
for you.
Maybe they focused too much on cutting costs in ways that just didn’t help to keep you
motivated, maybe they didn’t work with your financial situation, or maybe they just failed
to help you learn one of the most important rules of budgeting: That budgets aren’t
so much there to teach you about cutting spending as they are there to teach you what’s worth
spending money on and the answer to that question is different for each and every one of us.
And today’s budget looks to address that point more directly.
So if you’ve tried a bunch of different budgeting methods and haven’t managed to
find one that really spoke to you personally then you may be a great candidate for today’s
budget.
Today I’m going to be talking about the values based budget.
I’m going to be going over what exactly a values based budget is, how it is different
from some of the other budgeting methods I’ve covering on this channel, we’re going to
be talking about how to set this budget up, as well as discussing some of its pros and
cons and how this budget could potentially fail.
Hey everyone Daniel here and welcome to Next Level Life a channel where you can learn about
investing, debt, retirement, and many other financial topics besides, because, let’s
face it, the school's aren't going to teach it for us.
So if any of those topics sound interesting to you or if you want to learn how to better
handle your money and have more financial freedom be sure to hit that subscribe button
and the bell next to my name to be notified every time I upload a video.
And if you want to further support the growth of this channel you can check out some of
the links I’ve left down in the description below which includes a 30-day free trial of
Audible and 2 free audiobooks of your choice as well as a list of some books on money I’d
recommend checking out with your free trial, or you can smash that like button if you haven’t
already, share this video with a friend, and leave a comment below letting me know what
topics you’d like me to cover in future videos.
So what exactly is a values based budget?
A values based budget is simply a budget that is primarily focused on directing the majority
of you’re spending towards things that you actually care about, cutting as much fat as
possible from all other areas of the budget.
It differs from other budgeting methods in several key ways.
One way that a values based budget is different is that while the setup might look remarkably
similar to a zero-sum budget, this budget isn’t necessarily all about giving every
dollar a job every month, on paper, before the month begins.
It is, again, about finding out what you most value spending money on and then looking at
the rest of your budget and financial picture as a whole and finding ways to free up as
much cash flow as possible to put towards those items you most enjoy.
But, obviously, in order to do that you first must know where your money is going, to begin
with.
A second way that a values based budget differs from other budgeting methods is that it is
highly personalized.
You aren’t putting certain percentages of your money toward various categories and trying
to hold those percentages as best you can for the rest of your life, because what you
value spending money on is likely to change over time, and therefore, so will your budget.
And a third way that a values based budget differs from other budgeting methods is that
the primary focus isn’t actually the money.
That’s not to say that other budgeting methods are solely about money because as you go deeper
down the rabbit hole they usually aren’t, but the first question asked of you when using
most budgets is a direct and strictly a money-only question.
For the zero-sum budget, the question is how much money do you make because we need to
know that in order to give each of those dollars a job somewhere on the page.
For the percentage based budgets like the 50/30/20 budget, it’s usually the income
question followed by a question about how you are going to keep your monthly necessities
under 50% of that amount.
So we’ve got a strict money only question in regards to income followed by a sometimes
less than enjoyable brainstorming session about how to cut costs (although I do understand
some people do find this part enjoyable).
For the reverse budget, the first question is how much money do you need to save every
month in order to meet your future obligations and goals financially.
Unless you make some pretty good money this question is often followed by another one
of those cost-cutting brainstorming sessions.
And on and on and it goes with other budgeting methods.
But for the values based budget the first question isn’t quite as strictly focused
on the money.
The question is what brings you the most joy to spend money on (or save money on as the
case may be for some)?
The next question is usually how can we put even more of our money toward these things?
And admittedly, yes, this question, unless you’re making a good amount of money compared
to what you’re currently spending, usually leads to that same cost-cutting brainstorming
session, but with one very important difference in my opinion… you know, from the outset
that you’re going through this brainstorming session for something that’s worth it to
you.
And I think that makes a huge difference.
The pros and cons to this budgeting method are similar to other methods that I’ve covered
on this channel.
Due to its setup being remarkably similar to that of the zero-sum budget it does take
a decent chunk of time longer to get going, at least at first, in comparison to some of
the quicker and simpler budgets which could be considered a con for some.
However, because of the level of detail that this budget possesses, there is less of a
likelihood that you’ll experience any surprises down the road that you aren’t capable of
handling, and I would consider that a plus.
Another pro that this budget brings to the table is that it is very adaptable, in the
sense that you can take many ideas from other budgeting methods that you liked, even if
the method as a whole didn’t work out for you when you tried it, and use it in this
budget.
For example, say that John recently tried to use the reverse budget, but it didn’t
work out for him long term because, despite the fact that he enjoyed knowing that he was
saving enough for his future, the costs he was cutting to do it just wore him down over
time.
If that were the case, John could take the idea of paying himself first and making sure
that his future would be safe and settled regardless of what he did with the rest of
his money after meeting that savings goal and integrate that into his new values based
budget.
It would work perfectly after all, as security would clearly be something that John values,
what he didn’t manage to do was figure out what he didn’t value that he was already
spending money on so that he could cut that out of his budget without wearing himself
down over time.
Now the potential con that I’m sure many of you are seeing with this is what if John
didn’t make enough money to meet his savings goals, even after cutting all the costs (and
debts if he has them) that he could?
Well if that’s really the case, and you’d be surprised at how rare that really is, then
he would have a few options.
He could either, find ways to do the things that he does value in a less expensive way.
He could find ways to generate additional income.
Or, and I would say that this should be a last choice scenario, he could prioritize
his spending in such a way that he is able to fill as much of his time doing what he
enjoys on as little money as possible.
As an example of how this works, say that John really enjoys being physically active,
instead of paying for high-priced tickets to recreational sites that usually only take
you a few hours to go through he could sign up for a gym membership that he could go to
every single day making the price per day and per activity much lower in comparison,
or he could take a bike or walking tour around his local parks or even parks around the state
or country.
Gas may be a lot more expensive than it used to be but you can still go pretty far in modern
cars for the same amount of money or less than it would cost you to get that ticket
for your nearest amusement park and it would likely fill up more of John’s days in a
way that he’d enjoy too!
A third pro that I see to this budget is the obvious positive effect that using your money
only on the things that you value most can have for your happiness, your relationships,
and your health (often both mentally and physically).
The last potential con that I want to mention today is that this budget, similar to the
automatic budget, does have the potential to not adequately prepare yourself for your
future if you don’t plan ahead for it.
Since the values based budget, when done right, is, in my opinion, one of the most enjoyable
budgets I’ve ever tried out, it can sometimes be easy to forget about the future when the
present is going well.
So while you don’t have to go overboard with the future security stuff, it’s definitely
important to take into account with this budget, otherwise this budget could potentially run
out of steam when you’re older and stop working for you.
I like to think of it like this: any money that I invest should give me a return of more
money over time in one form or another.
And that makes it much easier for me to enjoy more of my present, not just because my future
is better taken care of, but simply because my income is higher in the present than it
would’ve been otherwise.
So now that we know what this budget is, how it differs from other budgeting methods, the
pros and cons associated with it and how it could fail… how do we actually set it up?
I know I said that you set it up in a remarkably similar way to the zero-sum budget and that’s
true, however, there is one addition to this budget that isn’t included in a zero-sum
budget template.
Values based budgeting requires you to develop more self-awareness so that you can better
understand what you value spending money on and why you value spending money on it.
So in addition to having all your line items for the usual expenses like mortgage, utilities,
food, gas, and insurance and so on I also like to take some notes on my thoughts and
feeling when spending or saving money either next to the budget if you’re using something
like Excel or maybe in a notebook or your phone if you’re during your budget on paper
or with an app.
This notes should include your positive and negative reactions to spending and saving
money as well as why you think you felt that way.
Over time this will help you understand what you value spending money on and why and both
answers are very important to know about yourself long term.
I also like to include any stress I experience throughout the day and what I’m doing or
thinking about when I feel it, that’s been very revealing for me personally, and not
just when it comes to money, but keeping those notes has also helped me remove stress from
other areas of my life and in general life a happy and better life.
So while it’s not technically part of the budget, strictly speaking, I have found it
helpful.
So that’s the value based budget, what did you think about it?
Let me know in the comments section below.
But that'll do it for me today once again if you enjoyed this video be sure to smash
that like button if you haven’t already, subscribe, and hit that Bell next to my name
so that you'll be notified of all my future uploads.
I generally upload every single Monday, and if you have a friend that would be interested
in this kind of content be sure to share it with them and let's really get this information
out there and start our own Financial revolution.