I don’t really budget in the traditional sense.
What I mean by that is I don’t start each month and make a budget, I don’t create spending categories and then give myself a numerical number as a budget or target for each category.
And also – I don’t subscribe to the mantra budgets are sexy either.
Instead, I operate flexibly, and budget by values.
The personal finance world is full of budgeting advice and a myriad of approaches. I’m not going to tell you what to do, but I will share what works for me. This approach allows me to be both happy and fulfilled, and not spend too much.
Tracking your spending
Despite my dislike of traditional budgets, I am an enthusiastic advocate for tracking your spending. That is knowing where every penny you spend goes and tracking this religiously. I have done this for years, and it’s fun to look at the data occasionally.
There are many ways to do this – from the old-fashioned paper and pen, an app or reconciling receipts at the end of the month. Choose one that works for you and stick to it. Moreover, there is no shame if you initially have a large ‘other’ or cash withdrawals category.
The complexity of Line Level Budgets
Now back to budgets themselves. Line level budgets are where you have your expenses listed into categories and have a number each month that you call your budget or target number. After the month has finished, you then review the month and fill out what you spent in each category, as the actuals. Then you can compare the budget vs actuals for each category.
While line level budgeting can work well for some people, for me it is too time-consuming and too much effort. Moreover, as part of the review process, you have a lot of data points to look at and review. At the end of the day, I’m not that bothered if I spent more on drinks this month and less on travel than I budgeted. That level of detail just does not matter to me at this stage in my life.
The simplicity of High-Level Budgets
As an alternative, I use the high-level budget. I have a number I like to spend each year. Then each month I check my progress on a rolling 12-month basis. If it’s low I’ll not give it a second thought and move on to spending my time on something more fun.
If it’s a bit high I’ll look at my tracked spending and see what I’ve spent. And I’ll then do an internal monologue and check if I value what I have spent the money on. If the spending aligns with my values the overspend does not bother me. But if the overspend is on items I do not value, I make a mental note to spend less on that in future. And that is the extent of my budgeting.
I believe we all have intrinsic and unique personal values and beliefs. Sometimes these are forefront in our mind and we can readily state them. Other times they are more hidden and we need coaching to truly understand them.
My core values
So what are my core values, and their relationship to my money and finance?
- Enjoy the journey to financial independence
- Maintain my current high level of happiness and readily spend money on this
- Spend time with people who energise me
- Support feminist organisations
- Train my body for health and to see what athletic performance I am capable of
- Manage my money responsibly
- Actively advocate for those who are less fortunate
- Enjoy the outdoors and see more of it
- Explore the world and gain more perspective
- Do no harm in the pursuit of saving money
What are your core values and does your spending align?
So how would you describe your values? What truly matters to you – both in a day to day context and in the longer term.
Do you have any idea of what you would put in this list? I bet for most of you it will be radically different from my list.
Next is the interesting part – reviewing your spending alongside your values. If you value socialising with friends, a high eating and drinking out budget aligns perfectly. If you value relaxing at home an expensive house is a good match.
On the other hand, if you don’t value the time spent at home, why do you spend a lot on an expensive house? If you don’t value the benefits from exotic holidays, can you justify spending a lot on them?
Budgeting by Values
My preferred approach to budgeting is to budget by values.
That is aligning your individual spending to your individual values.
And being happy with the number if spending meets your values.
You can be spendy or you can be frugal
If all your values involved spending money, you can be spendy. But if this is a conscious decision to spend money on purchases that truly matter to you – I support you on this. Just because I want to save loads and retire early, it doesn’t mean everyone else automatically wants to do the same.
NB: Obviously it goes without saying that unless under extreme circumstances, you should always spend less than you have coming in.
On the other hand if you are the sort of person who doesn’t value material items or experiences, your values will guide you to a frugal budget. And for people who fall into this category, financial independence or early retirement is likely to be a possibility.
Your budget should change as your life changes
I’m a firm believer that budgets should be flexible. You should feel in control of your budget, and be willing to change it as required. For example, you are going to want to change things if you are expecting a new addition to the family.
Taking that a little further, I’d also advocate changing your budget for other less significant life events. If you find a new hobby that brings you immense happiness, maybe you need to increase your budget.
Likewise, as you find you get less benefit from spendy activities, bringing your budget down can give you more happiness than continuing to spend the money.
Over to you
- What are your thoughts?
- How do you budget?
- Does your budget align with your values?