How to Make A Budget Using the Values Based Budget | Values Budget Explained

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
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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
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with them and let’s really get this information out there and start our own Financial revolution.

16 thoughts on “How to Make A Budget Using the Values Based Budget | Values Budget Explained

  • MEH… forget budgeting, just TRACK your spending. Add it up throughout the month then have ONE TOTAL NUMBER for each month. Keep track of the final number each month and you'll know your average monthly/yearly spending. SIMPLE. (over time you naturally compete with yourself to lower your monthly spending)

  • I just realized that I spend a lot of money on things, from amazon, that would give me just as much value if I bought them at a thrift store for less.
    Thanks for the video, I'll have to try this out. I've been running a really tight budget to minimize my debt as I finish my engineering degree. This is especially important, since I want to come back and do a masters and even PhD, so I need to save up quickly so I can get back sooner rather than later. Debt won't help with that.
    I've found that I spend a lot more money on things from amazon than I enjoy, and would have had a more valuable time if I used that money to go socialize, get good at socializing.

  • I know this question is completely out of context.

    But what software are you using to make these videos?

    And thanx for this great work I loved it, following you for a while your stuff is quality.

  • I’m not sure if it has a name, but when I started budgeting, I designed it out where 50% went to savings, 30% went to ‘Need’ expenses, and 20% went to ‘Want’ expenses. It was incredibly important for me to reflect on all the items we buy each month and ask myself if this is a true NEED or a true WANT? I just had to be very honest with myself and then budget each Checking Account accordingly. It’s been extremely helpful having 2 different checking accounts for separation. One account is simply linked to autopay every single bill, and I have a linked credit card for groceries and gas that Autopay the statement balance monthly. The 2nd Account is for fast food, restaurants, shopping, entertainment, nights out, etc and I have a 2nd Credit Card I Use for all that spend and have it Autopay to my 2nd Checking Account Monthly. It’s also become a subconscious thing because every time I go to buy something, I think about what card to use and whether this item is a need or a want. Then 50% of all income goes into our 3rd account which is with a separate bank with no checking account/debit card and is only used for linking to our investment accounts and holding our emergency cash in high interest savings accounts. This strategy has been working incredibly well for my girlfriend and I, it’s helped us to pay off over $13,800 in high interest credit card debt, build a very fat emergency fund, build plenty of checking account buffer, and saving for a duplex/index funding. The next level is now going through the 30% and 20% spending and figuring out how to cut costs additionally to ramp that 50% savings rate up even higher. In all actuality, our goal is to hit 75% by end of this year. Then in 2020, there’s nothing left to do but be patient and build real estate and index fund wealth for the foreseeable future. For us, every dollar we save, in our minds, we think of it as “buying our freedom”, so the more money we can add to that goal, the happier we will be.

  • This video helped me to clarify my budgeting style! I follow a Values based zero sum budget hybrid lol. Other budgeting methods with set percentages recommended to different categories always discouraged me because I couldn't make those numbers work in my high cost of living area. I personally value home ownership and investing for retirement. This is reflected in high amounts of my income being designated to these two areas. Now I don't feel so bad that I can't make spending 25-30 percent of my income on housing work for me. This video is a good reminder that personal finance is personal ❤️👍😀

  • Hello Daniel, good evening. I'd like to share the budgeting method I use, which I don't think you covered yet.

    I have a fixed spending allowance per month. Anything beyond that (bonuses, extra hours, earnings from the stock market, et cetera), goes to investing.

    If I ever overspend (usually in tax month), I have to be more frugal in the following months.

    For the last three years, my "allowance" is just half of my usual monthly payment, but I'm working towards lowering my costs.

  • Hello Daniel, thank you for sharing those useful information! My name is Leonard, would you tell what program you use to make your videos, I am not comfortable in front of a camera, even using my own voice is difficult for me… I am thinking of starting a YouTube channel as a side hustle… I could use your help, thanks for your time :)!

  • How would home equity factor into your calculations for preparing for FI? I've seen people say to include it and others say don't… But wouldn't the fact you either don't have to pay rent or if you plan to rent out the property and rent a cheaper one for yourself factor in heavily to your expenses after FI?

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