When looking at your budget, after you hit your savings target, directing as much of your money towards things you want should be the goal. Think of this as the “general area” of your financial course.
When I say, “things you want,” I’m thinking of expenses like:
- Dinners out with friends
- Family vacations
- The extra money you spend on the luxury car vs. a base model
Here’s the problem. On the golf course, the general area consists of good things, like the fairway, and not-so-good things, like bunkers and rough. How can you determine which dollars are hitting the fairway, and which are landing in the bunker?
The alignment model will keep your cash flow on the fairway.
We all have our own unique set of financial circumstances, which include our goals and values. These should be aligned with the spending, saving, and investing actions we take.
This concept of aligning spending with values isn’t something new. Some call it “values-based spending.” As a Behavioral Financial AdvisorTM certificate holder, I like to practice something called the alignment model.
My own top five values are stability, challenges, health, leadership, and independence. These are the targets I hope to achieve with the goals I set and the actions I take.
Here’s what the alignment model looks like in practice:
To achieve my value of health, I set goals and take actions to stay physically active, eat a healthy diet, and see my doctors regularly.
My goal of eating a healthy diet actually drives me to spend more at the grocery store on fresh produce and higher quality proteins and starches, but that’s ok.
Aligning your spending with values isn’t always about reducing the amount of money you spend. It’s about directing more of the money you earn towards things that support what is most important to you. My values don’t include spending money on expensive golf balls or luxury cars, but yours might.
By aligning spending with values, goals, and actions, you can ensure that more of the money allocated to values-based spending will find the fairway and steer yourself away from expenses that put you in the rough.