The Purposeful Budget

Is your money working for your values?

By Laura Scharr Bykowsky CFP® Posted July, 2010

Most Americans spend their take home pay with little awareness. In contrast, the wealth builders establish a purposeful budget. What is it? It is a spending plan that aligns with your most important values, goals, and visions for your life.

Until you realize and prioritize what is important to you, and allocate your funds accordingly, you will never be at peace with the role of money in your life.

In my practice as a fee-only financial planning professional, I work with people of all ages and in all stages of their financial lives. My primary goal is to help people build wealth so they can enjoy a fulfilling life. A common trait I have noticed consistently with successful wealth builders is that they tend to be very “intentional” about how they spend their money.

Back in the days of our grandparents and great grandparents, saving for a large purchase was almost a pastime for the entire family. A need was identified such as a new appliance or a family trip. Then the family all agreed on achieving the goal together and they diligently saved and sought out sources of income to pay for it.

The kids emptied their piggy banks, mom was more frugal with her grocery purchases, and dad worked extra hours. The family took delight in the cash that accumulated each week. Once the goal was achieved, there was a great sense of satisfaction and accomplishment.

Contrast that with today’s consumer. With the advent of the credit card, Americans are now programmed to believe they can have what they want when they want it. No longer do they delay gratification.

This instant gratification, along with its temporary happiness, results in reduced awareness and mindfulness of spending. Quite frankly, the average American family has no clue how they are spending their money each year. Their net income after taxes and employer retirement contributions is often spent in full with little understanding of where it all went.

This is a behavioral trap that can be avoided by creating a purposeful budget. Women, in particular, react favorably to this approach as it is developed with end goals in mind. It allows them to discuss trade-offs with family members, particularly their children. So what steps can you take to put together a more purposeful budget?

1. Visualize your future. How will you spend your time? Write down a list of what you will be doing and how you will be living. When will you retire? What kind of hobbies or volunteer work will you participate in? Will you embark on a second career? Will you travel or move your primary residence to another location?

2. Identify the values that are most important to you. Make this list as comprehensive as possible. Some examples might be to increase charitable giving, raise kids who value money and hard work, or maintain social connections with people you care about.

3. Compile a list of core goals that align with those visions and values. Be sure to include goals that encompass all the areas of your life–career, family and children, relationships, social, charity, spiritual, hobbies and entertainment, physical appearance and health.

4. Track your spending for at least three months. Remember to include bills and expenses that occur less frequently like insurance and annual dues.

5. Review your spending. How are your funds being spent? Does your spending make sense with respect to your goals? Do your expenses fit with your values? This is where you might face the dilemma of conflicting goals.

For example, one of your value-based goals may be to raise financially responsible kids. If so, you’ll want to avoid buying them everything they ask for, as it can create a sense of entitlement.

If you want to retire early, but have most of your cash tied up in your principal residence, you may have to consider downsizing to create some liquidity for retirement investing.

If you want to retire comfortably but feel an obligation to fully fund your children’s education, you may need to adjust family expectations of how much support you can afford to provide.

These dilemmas will force your family to have dinner table conversations about compromises and expectations. If you have children at home, it will also teach them that money management involves prioritization of goals and trade-offs, instead of having it all, and increasing your debt burden.

Getting all family members to understand the household budget will ultimately help you establish order with your finances.

6. Finally, draw up a new spending plan and allocate funds in accordance with your goals. Pay special attention to your discretionary spending.

Once you have control of and insight into your budget you will be able to make progress towards future security, happiness and peace of mind. By taking the time to be purposeful about your spending, you make your money work for you, not the other way around.

Other articles by Laura Scharr-Bykowsky:  Are you hiding from your finances?, Desperate Housewives

Laura Scharr-Bykowsky, CFP®, MBA is president of Ascend Financial Planning, LLC. She is a South Carolina Registered Investment Advisor, NAPFA member, and member of The Garret Planning Network, Inc., an international group of professional fee-only financial advisors and planners offering hourly, as-needed financial planning and advice to anyone regardless of income. The members are dedicated to providing competent, objective financial advice. To contact Laura or Ascend Financial Planning, LLC, visit the website at www.ascendfinancialplanning.com


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