Finding satisfaction with a values-based budget

The New Frugality

According to an article by Kelly Evans in today's Wall Street Journal, the ongoing economic crunch may have a lasting impact on consumer spending. The article cites a survey by Discover, the credit card company, showing that 35% of consumers surveyed in March intend to reduce their debt levels in the coming six months. Another survey claims that Americans intend to boost their savings to 14% of their total earnings once the recession is over with two-thirds saying they plan to buy less and one-half saying they plan to buy less expensive things.

The financial advisor in me applauds the sentiment. We all know people who spent the last decade chasing bigger homes and faster lifestyles financed with every higher piles of IOU's. Cheap money and easy credit enabled otherwise rational people to take on insane amounts of personal debt. Let's hope painful lessons translate into lessons learned.

If you have struggled with keeping your consumption habit under control, I offer the following suggestions. Some of these will take real effort and an investment of time. You may even find it helpful to work through these items with a spouse or trusted friend. Bear in mind that these aren't quick fixes, but with consistent effort they will become satisfying habits of a new frugality.

Four steps to greater satisfaction

1. Take an inventory of what matters most to you. If you are old enough to read this post, you have enough life experience to know what brings you happiness, satisfaction and a feeling of worth. Think it through and write down the thoughts that come to mind. I find that writing in my journal is a good way to organize my thinking on important matters.

2. Formally track your spending patterns. A great tool to do this is Quicken by Intuit or Microsoft Money. Both computer programs are great at tracking expenditures. If you do most of your buying on credit cards or debit cards, you may be able to download spending data from your bank onto your computer. For most of the rest of us, there will be no substitute for taking the old-fashioned check register and manually inputing the data into the program. Like I said, it may take an investment of time, but it will pay huge dividends.

3. Sort through your expenditures and classify them into three categories:

  • Money spent on necessities - these are expenditures for housing, food, clothing, etc. that are unavoidable.
  • Money spent on things that bring you happiness- these are expenditures that directly support the things that matter most to you. For example, if you value education--if it is something that brings you happiness, satisfaction and a feeling of worth--then money you spend on education would be included here.
  • Money spent on frivolities - these expenditures do not support the essentials in your life or the things that matter most to you. These expenditures can be reduced without reducing your level of satisfaction in life. If you are in debt, this is money that you can use to accelerate your debt repayment. If you need additional savings to prepare for the future, this is a  potential source for those additional savings. The important thing to understand, is that this free money to you. Because these expenditures do not bring you satisfaction, there is no opportunity cost to using the money elsewhere.

As you work through this classification process, remember that some expenditures straddle more than one category. For example, adequate shelter is clearly a necessity of life. However, a large, perfectly appointed home is not a necessity. The amount you spend above the level of necessity should be classified as money spent on "things that bring you happiness" or on "frivolities" depending on your personal values and orientation.

Another important point is that you need to make these determinations for yourself. Unless you really believe in the classifications you make, the next step will not result in a meaningful improvement in your life and this entire exercise will be wasted.

4. Establish a values-based budget. Based on the information you generate in steps 1 through 3, map out a specific spending strategy that budgets how much of your money you want to spend on necessities and on the things that really matter. Intentionally try to steer your spending away from frivolities. As you focus your expenditures on the aspects of life that you identified in step 1--the things that bring you the greatest satisfaction--you will feel empowered in your spending and your satisfaction in life will grow.


While the process I have described was developed in the context of financial decisions, the principles are universal. They apply to how you spend your time, emotional energy, and every other scarce resource you possess. The key to success is learning to live with intent, to spend your resources on those things that are essential or matter most and avoid getting caught up in frivolities. If you are honest with yourself in this process and begin following these simple steps, you will find your reward in a life lived with a greater degree of purpose and a fuller measure of satisfaction.