Do you ever find yourself thinking things like:
- I saw the Smiths are building a new house—maybe we should do that, too?
- I really like the new 2022 model of my car, but I’ve only had mine for 3 years—should I trade it in for the new one?
- I know we’re a little over our spending this month, but this item I want is “on sale,” so it makes more sense just to buy it now, right?
It’s easy to get caught up in spending money unintentionally. While each of these things sounds significant on the surface, do they really serve you how you need them to?
When making financial decisions, even day-to-day ones, it is important to tie them to your personal values.
If you think about your money as a tool to achieve your goals rather than the goal itself, you’re well on your way to mastering the idea of “purpose-driven money.”
- Having clear values will help you define your purpose
- Habits are how we actively live our values
- Creating good financial habits is key to values-aligned spending
- Values-aligned spending can help save you from lifestyle inflation
What’s Purpose Driven Money?
When we think about accumulating wealth, for some, that is where the goal ends. At AVID Planning, we know that the goal isn’t the wealth itself but rather what your wealth allows you to do.
Approaching your finances from this lens helps you create what we call a “Purpose-Driven Money System.”
This system considers your goals and values first and helps you create a meaningful financial plan around them.
The deeper you move into purpose-based money principles, the more you realize just how connected everything is, from the big stuff like saving for retirement to the smaller stuff like weekly grocery shopping.
“Purpose Inspires. Values Guide. Habits Define.”
That quote comes from author Adam Fridman who is an expert in the area of being “purpose-driven.” He breaks down how our purpose, values, and habits are visible in everyday life:
“Purpose is about why we do what we do.
Values are how we achieve purpose.
Habits are what we do every day that reflects our purpose and values.
Habits are purpose and values made visible.” - Fridman.
Now, Fridman knows that we all understand the importance of having a clearly defined purpose and values. But have you ever thought about how your habits play a part?
We can think about our habits as examples of how we live out our purpose and values. You can “talk the talk'' in terms of having a clearly defined purpose and values, but how will you “walk the walk”?
Cultivating Financial Habits That Showcase Your Values
To meet your personal and financial goals, you must maintain good financial habits. Why is this? Picture you’re building a home, and every consistent good financial habit is a brick. Each brick makes the foundation of the house stronger. The good financial habits you make today lay a strong foundation for your growth in the future.
Habits That Help Move The Needle
Unfortunately, there aren’t universal financial habits that will work for each individual, and that’s simply because our goals are different. But, here are a few examples of “good” financial habits to strive for.
- Build and maintain an emergency fund. This fund acts as a safety net when life happens—job loss, significant expenses, medical needs, etc. Aim to accumulate about 3-6 months of living expenses (this could change based on your needs) in an accessible place, like a high-yield savings or money market account.
- Pay off debt. Hot take: paying down debt is a method of saving and investing in your future! Getting rid of debt increases your net worth and frees up funds for other ventures.
- Invest for the future (even if you don’t know what that looks like yet). Invest in the things you’re excited about, like a wedding fund, downpayment on a future home, work sabbatical, etc.
- Save for retirement. The future is coming, whether you’re ready or not. Investing early gives you flexibility and options when work is no longer your #1 priority. Earmarking funds for retirement help you take advantage of compounding investments while potentially saving a little on your tax bill.
- Know where to give and take. With money, there will always be tradeoffs. But the good news is that you can set those parameters. If you value spending time with your significant other over a latte at your local coffee shop, that’s something you should prioritize. But, it’s important to consider what you might need to give up, like an extra night of take-out. While the stakes are relatively low for your iced coffee habit, cultivating this practice of understanding your unique tradeoffs will come in handy when a new $80,000 car or other "big" purchase is at play.
- And, of course, work with a financial advisor! We can bring context to your money and help all the puzzle pieces fit together.
By maintaining these types of financial habits, you help your money grow.
And that growth isn’t just to pad your balance sheet. When approached from a values-based lens, money can give you freedom, growth, and the opportunity to achieve your goals.
Habits That Could Stand In Your Way
As you’re accumulating wealth, a particular “bad” habit to watch out for is something called lifestyle inflation.
Lifestyle inflation refers to spending increases whenever your income goes up, like after a big promotion. But spending more simply because you earn more can make it difficult to get out of debt, save for retirement, and ultimately hold you back from your financial goals.
Because this type of status-spending likely isn’t aligned with your values.
For example, you could start thinking about what you think a “Director” should drive, where other people in your age group are spending their money, how you want your family to look to others (cue social media), etc.
By being conscious of your spending habits and aligning them with your values, you can help avoid lifestyle inflation.
Some other habits to watch out for are:
- Not sticking to a cash flow plan
- Making late payments on loans, credit cards, or other forms of debt (compound interest can quickly work against you)
- Not grasping what’s important to you and what you’re looking for out of life. Without these goals in place, your plan may lack direction and focus.
- Not asking for or getting help from a financial advisor.
We don’t share these things to scare you. We all make sporadic, sometimes unplanned financial mistakes. And that’s okay, as long as we learn from them!
As a busy, working professional, it can be easy to not carve out the time needed to think about your core values and what gives you purpose. So, if this sounds like you, and you want to take time and create a “Purpose-Driven Money System,” we’re here to help.
One of the best ways to avoid a short-term money mindset is to reconnect your spending habits with your core values.
The Power of Values-Based Spending
Values-based spending at the core is focused on spending your money where it counts.
For example, adding a pool in your backyard may or may not be a meaningful expenditure for your family. For one family, it might be something that goes unused and eventually becomes a nuisance. For another, it will be a source of joy for children, grandchildren, and family that you host for Sunday dinner.
Think of things that bring you joy! It could be donating to charity, putting educational funds into a 529 plan, or investing your retirement funds to help them grow.
These things will make you feel good and progress you towards your long-term goals. It’s a win-win!
In addition, when you know something aligns with your values, it makes you feel confident in doing it. There’s no “do-ers remorse” or “buyers remorse” when doing the things that bring you joy and help you live a fulfilling life.
Mind Your Own Bobber
If you’re unfamiliar, the fishing saying “keeping an eye on your own bobber” means simply not paying attention to what other people are doing.
Peer pressure, unfortunately, doesn’t go away as you get older. It just manifests itself in different ways! Rather than “double dog daring” your friend to climb the biggest tree in your backyard, you might see your neighbor's new pool and think you need one too.
Don’t worry about what your neighbor or friend is doing; instead, focus on things that bring meaning to your life.
We know that this idea of finding your purpose and living it out can be intimidating, especially with all the responsibilities you have on your plate. That’s why we’re here to help you.
We help our clients create a financial plan that meets their financial and personal goals. Please set up a call, or stop by our office in St. Petersburg, FL, so we can help you make a purposeful plan for your money.