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If you’re trying to save money, you’ve probably tried your hand at the classic 50/30/20 budget. The issue with this sort of budget, though, is when it locks you into fixed spending ratios that may not make sense for your lifestyle. Someone focused on aggressive debt payoff would likely need to allocate far more than 20% towards debt servicing, for example. Percentage budgets are also less accommodating of life changes—getting married, having kids, and getting raises at work can all disrupt a rigid budgeting approach.

But with values-based budgeting, you can make a budget that makes sense to you and your needs. You allocate your money according to what’s most important to you, rather than following a rigid percentage-based system. Whether it’s a vacation, a fancy new kitchen gadget, or your retirement, you can specify how much of your salary goes toward this each month and build around it—all while sticking to your spending and saving goals.

Why values-based budgeting works

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When it comes to personal budgeting, most advice centers around saving specific percentages of your income, such as 50% on necessities, 30% on wants, and 20% on savings and debt. While this type of rigid budgeting plan provides a formulaic approach, it often doesn’t align with an individual’s unique goals and values. That’s why values-based budgeting is a more effective system for many people.

With values-based budgeting, you prioritize your expenses according to what matters most to you. If travel is a top priority, you may allocate a larger portion of your income to a vacation fund. Once you have kids, you might devote more toward a college savings account. This flexibility allows your budget to adapt as your personal values and financial objectives shift over time. Here’s how to get started:

  • Identify your values and goals. Make a list of the things that matter most to you financially. This may include saving for retirement, taking dream vacations, buying a home, or building an emergency fund. Define specific goals within each value category and determine how much money you’ll need to fulfill them.

  • Categorize your expenses. Go through your monthly expenses and categorize each line item based on how it aligns with your values. For example, categorize your rent or mortgage payment under “housing,” gas for your car under “transportation,” and so on. This will give you a clear picture of where your money is currently going.

  • Allocate funds based on values. Now comes the fun part: deciding how much of your income to allocate to each value category. Aim to put at least 10-20% towards needs, 30-40% towards wants, and 25% or more towards savings and debt payments. Adjust percentages as needed to align with your goals.

  • Tweak as needed. Check in on your budget periodically to see if you need to make changes to align spending with your current goals and values. Celebrate your wins when you hit goals in priority categories.

The flexibility makes it easy to adjust over time as your goals evolve. Plus, this approach increases mindfulness about your spending as you consider each expense in relation to what’s most important to you. Asking “Does this align with my values?” before each purchase can curb impulse spending tendencies. Percentage budgets don’t encourage the same reflection on how discretionary purchases relate back to financial priorities. With values-based budgeting, you can create a plan tailored to your unique financial aspirations.

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