Aligning Finances with Core Values: A Path to True Freedom
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Understanding Core Values in Personal Finance
A friend recently expressed her shock at how much money she spent dining out last month. When I inquired if this was unusual for her, she admitted it wasn't; she was simply taken aback by how much of her salary went toward meals out. She felt let down because she wanted to pay off her mortgage sooner. Earning $200K annually, she had the financial capacity to do so, yet she had never created a budget, believing it unnecessary due to her income level.
What Are Your Core Values?
I asked her if she was clear about her fundamental values. She thought she was. But was she managing her finances in a way that reflected those values? Most individuals do not manage their finances with a clear sense of purpose. Instead, we work, receive our paychecks, and spend without much thought. Some might set aside money for retirement, but how frequently do we ensure our financial decisions align with our core beliefs? In my friend's situation, while she expressed a desire to be debt-free, her spending habits revealed a tendency to prioritize dining out with friends over her financial goals.
Competing Financial Priorities
Life often presents us with conflicting financial priorities. Should you pay down your mortgage or contribute more to retirement savings? Is it wise to incur debt for a family vacation? Should you take a second job for your children's violin lessons instead of spending quality time with them? These dilemmas can create stress, often stemming from a misalignment between our stated values and our actual spending habits.
To manage your finances in a way that reflects your core beliefs, start by identifying what those values are. A helpful step is to complete a Values Assessment. Determine your top five core values.
Analyzing Your Spending
Examine your credit card statements closely. Fill out a cash flow worksheet. Analyze your spending over the past six months—what portions of your income are allocated to various categories such as:
- Debt repayment (loans, credit cards)
- Luxury items (high-end clothing, the latest gadgets)
- Health and fitness (gym memberships, supplements)
- Hobbies and interests (subscriptions, events)
- Social activities (dining and nightlife)
- Travel and vacations (weekend getaways, international trips)
- Personal development (books, courses, coaching)
- Savings and investments (stocks, property)
- Charitable contributions (donations, sponsorships)
- Housing (rent/mortgage)
- Basic necessities (groceries)
- Miscellaneous (impulse purchases)
Critical Questions for Reflection
- What are your top three spending areas?
- Are you surprised by these findings?
- Do you notice any patterns in your spending?
- Do you often feel financially constrained?
- Which areas would you prefer to redirect your funds toward?
- What influences your spending decisions?
Understanding what drives your spending can help clarify whether it is motivated by basic needs, leisure, success, or giving.
Aligning Finances with Values
Once you have assessed your cash flow against your values assessment, determine if your financial management aligns with your core beliefs. If there is misalignment, you may feel pulled in various directions by conflicting priorities.
Having identified your top five core values, create a budget that reflects these principles. For instance, if being debt-free is a priority, consider ways to reduce discretionary spending and allocate that money toward debt repayment.
Bringing It All Together
Money influences many facets of your life, so it's essential to be deliberate with your finances. Allocate your resources toward achieving your financial objectives that resonate with your values.
Ultimately, the amount of money you earn is irrelevant if it is not directed toward what truly matters to you or your financial aspirations. Adopting a "values-driven" approach to financial management is the key to achieving peace with your finances and realizing your life goals. This is the essence of genuine financial freedom.
The Importance of Values in Budgeting
In this insightful video, discover why prioritizing your values over budgets can transform your personal finance approach and lead to more fulfilling financial choices.
Crafting a Values-Based Budget
This video serves as a guide to creating a budget that reflects your values, ensuring that your financial planning aligns with your life goals and aspirations.