Values-based budgeting

What It Means

ValuesPersonal valuesThe principles and qualities a person holds most important, such as honesty, family or creativity, which guide their choices and how they judge events. See more-based budgetingBudgetA plan for a set period, usually a month, that lists the money you expect to receive and how you'll spend or save it. See more builds a budget around the few things that matter most to you, then shapes your flexible spending so more of it goes there. Guides from Experian and U.S. Bank describe starting with your top three to five priorities, checkingChecking accountA bank or credit union account for everyday money going in and out, used by debit card, checks, transfers and direct deposit. See more them against your recent transactions, and adjusting your spending categoriesBudget categoryA group of similar costs, such as housing, groceries or transportation, that a budget plans and tracks together with its own amount. See more until the two line up. Rent, bills and other necessities still get paid; the method decides where the discretionary money goes first.

How It Sounds at Home

• "We'd rather travel than eat out, so the restaurant money goes to trips."
• "Giving comes off the top for us."
• "Let's see how much of this month went to things we actually care about."

The Breakdown

How to work it out

1. List your top three to five priorities, the step Experian and U.S. Bank both start with.
2. Pull last month's transactions and total your flexible spending by area.
3. Share that matches = spending on your priority areas ÷ all flexible spending × 100.
4. Next month, move money from the biggest area you didn't pick toward one you did.

Worked example. The Parks say travel and giving matter most to them. Last month's flexible spending, with made-up numbers:

$160 ÷ $700 × 100 = about 23%. Eating out is the biggest line, and neither of them picked it.

What the result means. A low share shows the gap between what you say matters and where the money goes. So the Parks cut eating out by $100 and send it to a trip fund, so travel becomes $220 and the share rises to about 37% without spending a dollar more overall.

Good to Know

Experian and U.S. Bank suggest this method for people who feel disconnected from traditional budgets or find strict category limits hard to live with. It works on the flexible part of your money, so rent, utilities, insurance and minimum debt payments still come out first. The Consumer Financial Protection Bureau's Your Money, Your Goals toolkit includes a spending tracker, which gives you the month of real numbers this method starts from.

Related Terms and Categories

• Personal values

  The principles and qualities a person holds most important, such as honesty, family or creativity, which guide their choices and how they judge events.

• Discretionary spending

  Money spent on things you want rather than need, like eating out, entertainment and travel. In government, the spending Congress sets each year.

• Needs vs wants

  The split between costs you must pay to live, work and protect what you have (needs) and extras that would be nice to have (wants).

• Zero-based budget

  A budget that assigns every dollar of income to spending, saving or debt, so income minus everything assigned equals zero.

• Financial goals

  Specific targets for your money, such as an emergency fund, paying off a card or a down payment, each with an amount and a date.

Household money and budgeting