Your Budget Reflects Your Values

As Congress struggles with deciding what to spend money on next year, there's a saying going around that "your budget reflects your values." And I think that is largely true. Over the next few months, on a national level, we'll find out what things we value based on what we agree to pay and how we agree to pay it.

But in your own home, your budget also reflects your values. And if you've never taken the time to look at where you're spending your money, you may learn a few things. I have been tracking our household budget very closely over the last few years, and once I applied the "my budget reflects my values" philosophy, I started to change some things.

• For instance, if you asked me whether the type of car I drove was important, I would have said no, not really. But when I looked at how much I was spending on our vehicles, it was more than what I said I valued, plus we had an extra vehicle we were hanging on to. So I got rid of the extra vehicle, and then traded in my car for a less expensive version. Now I don't spend much on cars.
• We had also gotten into the habit of eating out more, and when I added up those bills each month, it was surprising. That was money that easily could have gone into more savings, which we value. So now we spend more time at home during the week making nicer meals for a lot less than we were spending on going out. We still go out, but to places we value more than just heading out for dinner because we didn't plan ahead.
• I also had some miscellaneous insurance policies sitting around that didn't really fit where we were financially anymore. I don't like waisting money on insurance I don't need, but that was exactly what I was doing with a few of these policies. So I got myself organized, reviewed everything, dumped a few, and implemented only what we needed for where we were with our financial life today. Then I took the savings and applied it against our mortgage because I value carrying as little debt as possible.

First, you have to think about what you value. And these values can be specific things, activities or lifestyle issues. And if you're married, then you're going to have to go through this process with your spouse. If it's just your values, then you probably won't get very far with your plans. But if you both agree to a core set of lifestyle, activity and financial values, then it becomes easier to work through a budget and allocate money to the stuff you value and reduce the money going to the stuff you don't value.

Then the harder part is tracking your spending. You can't really get a sense of what's going on unless you can figure out where you're spending all of your money. And you've probably got to do this for at least six to 12 months. Otherwise, you won't have a good sense of your spending cycle.

For instance, during some months you go on a vacation and other months you don't. If you only track expenses for three months and you didn't go on a vacation during that period, you might not think you're spending much on vacations. When in reality, you may be spending a lot more than you think, and a lot more than the "value" you might place on a fancy vacation.

You can track your spending manually or electronically. Most banks have budgeting features with their online banking programs, or you can just create your own spreadsheet or keep a legal pad with all your expenses. Whatever works for you is the method you should use.

Bottom line. Budgeting becomes easier when you define your values and then align your spending with the things that mean the most to you and your family.

Learn More: Want to learn about a simple way to manage your personal finances and prepare for retirement, investigate my new book Your Money Ratios: 8 Simple Tools For Financial Security, available in bookstores and at amazon.com The Wall Street Journal called the book "one of the best finance books to cross our desks this year." WSJ 12/19/09.