How to Set Money Goals That Align with Your Values

Each of us has a unique set of values that we hold dear, even if we haven’t defined them. For example, I value security and exploration very highly; in the past few years, I’ve gotten better at consistently aligning my money with these values. As a result, I’m a happier person. Exploration includes mountaineering adventures, local hiking and kayaking, as well as traveling to new cities and continents. Therefore, I prioritize funding my travel budget; it is one of the six expenses I’ll never cut back on. I also prioritize donating to nonprofits that support conservation and preserve the beautiful spaces I enjoy exploring.

I recommend that each person (or couple, if you’re partnered) first take the time to define what they value. Financial guru David Bach says, “When your values are clear your financial decisions become easy.” I couldn’t agree more. Defining and recording your values may seem like an unnecessary step, but they serve as the foundation to your money goals. If you’re struggling with this step, watch David Bach and Marie Forleo have a candid discussion about this philosophy.

However, without goals, your values can go unfulfilled. The next step is to define goals to align your finances with your values. Otherwise, it can be terribly easy to spend on material goods that provide momentary joy, but don’t have a long-term impact on your life.

There’s a type of goal you should create, referred to as a SMART goal. These are Specific, Measurable, Achievable, Relevant, and Time-bound objectives that will define your plan and allow you to measure your progress.

My partner and I consistently use SMART goals in our financial planning. In 2006, we were in credit card debt. I had over $10,000, and Mr. Financier had over $2,000. We created a goal to eliminate that $12,000 debt completely in one year, with two $500 payments each month, diverting any “found” money to debt, and reducing three household expenses. We paid the debt off earlier than planned; having a SMART goal helped us stay the course and remain accountable.

I recommend you focus on no more than three SMART goals at any given time. Ideally, these goals have different time horizons, with one that you can accomplish in six months or less. For example – today, I have a goal to save for an upcoming trip (in the next three months) and another long-term goal to achieve financial freedom before the year 2027.

By recording and defining your values and creating SMART goals to align your finances accordingly, you’re taking a critical step to strengthen your future. What values do you hold dear? How are your money goals supporting those values? I’d love to hear from you.

xoxo, Ms. Financier

I also wrote about values-based budgeting in the She Spends newsletter. She Spends is a weekly newsletter and website created to close the wage gap, investment gap and board seat gap among women. I admire their goals and love their content.

Six Expenses I’ll Never Cut Back On

The difference between cheap and frugal lies in priorities. Someone that is cheap enjoys spending as little as possible. They prioritize cost reduction in all expenses, in every area of their life. 

Someone that is frugal reduces expenses selectively. They prioritize specific experiences or things that deliver value and are okay with spending more in those areas. Those that are frugal do focus on reducing or eliminating expenses associated with things that aren’t a priority.

I've shared three ways I live frugally - but there's another side to that, as I don't view myself as cheap. In this post, I’ll share six areas where I splurge. This topic is important because many personal finance enthusiasts inadvertently create a culture of shame, judgment, and embarrassment around spending more than the minimum on any item. I’ve fallen into that trap myself; it isn’t motivating to others. We all have different values; part of becoming financially free is aligning your spending with your unique goals. For many of us, that doesn’t include deprive ourselves of all of life’s luxuries.

Shoes. I have a weakness for fabulous shoes, which are often (but not always) expensive. I prefer shoes to either clothes or handbags and get an irrational frisson of happiness when I’m wearing a pair that I love. As I write this, I'm wearing a pair of studded Marc Jacobs mouse flats. These little rodents make my day. The right pair of shoes bolsters my confidence, lifts my mood, and takes my primarily monochromatic wardrobe to the next level.

When my grandmother passed away, she had accumulated over 100 pairs of shoes. Clearly, I inherited her passion for footwear. My shoe collection includes inexpensive, unique heels that I snapped up at no-name shops alongside fabulous Manolos, Louboutins, and Choos. It’s a Carrie Bradshaw cliché - a woman who loves shoes. But I do!

Wine. In the past several years, I’ve become an amateur wine enthusiast. My splurge on wine doesn’t include endless cases of Chateau Mouton Rothschild, but I do have a 200-bottle wine fridge that I keep stocked with delicious discoveries. Wine allows me to explore the world with each bottle and I get quite a lot of enjoyment from the different tastes, characteristics, and regions represented in my collection.

I use CellarTracker to keep track of my wine; what I’ve bought, tasted, or have on my wish list. It also keeps track of how much I spend on the bottles I log. I could save more money if I drank less wine, visited fewer wineries, or switched completely to Bota Box (which I enjoy and often have in my pantry, it's a great price-to-value.)

Benjamin Franklin was quoted as saying, “Wine makes daily living easier, less hurried, with fewer tensions and more tolerance.” I couldn’t agree more.

Sunscreen. My daily sunscreen is an indulgent beauty splurge. While I buy drugstore brand makeup, the Kiehl’s sunscreen I prefer is over $20 an ounce. It protects my skin and feels amazing. Similarly, I splurge on two other skincare items, my nightly moisturizer from Dermalogica and a lovely Origins moisturizer ironically called Starting Over. These products might have less expensive alternatives, but I haven’t yet identified them.

I had terrible skin in my late teens and used to spend a ridiculous amount on high-end skin care and makeup in my early 20s. Once I figured out the right way to protect and manage my skin, I happily continued to buy the pricier items made a difference in my complexion.

Travel. Exploring is something I value tremendously and will always budget for. I aim to spend more on traveling as I age; my current retirement budget includes a line item that is three times what we spend today.

My partner and I both enjoy a wide range of travel experiences; we have as much fun climbing a mountain in the Pacific Northwest or camping in West Virginia’s gorgeous Monongahela National Forest as we do on a luxurious Parisian getaway. Even in lean times, I’ve been fortunate to continue to invest in travel experiences that both broaden my perspective and recharge my batteries.

Home. This is my biggest splurge; Mr. Financier and I live in a home that is quite generously sized for two people. I’ve shared the ridiculous terms of my first mortgage and I’ve occasionally considered selling, downsizing, and investing the balance.

However, my partner and I have created a home that provides us with plenty of space to enjoy a variety of different experiences without leaving our property. We have a library where I can curl up and read, a theater room to enjoy our favorite movies, a dining room that we use regularly, a basement bar to serve wine and mixed drinks, and an outdoor space that allows us to explore nature.

We’re lucky to have these experiences at our fingertips and while a tinier space in a lower-cost location would make financial sense, I’m quite certain we wouldn’t be as happy. Mr. Financier and I enjoy socializing, but both of us are introverts, so having a space that is truly ours to retreat to is our biggest luxury.

Giving. This is an area I aim to increase over time. Ever since I started working, I’ve been contributing regular, automatic donations to a few of my favorite nonprofits. With each raise or bonus I earn, I always set aside a portion for these groups. Many that I support are related to nature and conservation, as well as supporting and enabling women. One of the most exciting things about increasing my household income has been the ability to donate even more meaningful sums to the causes I care about.

My giving strategy is to engage more deeply with fewer causes; this can be difficult because there are so many amazing groups doing powerful work. However, I enjoy getting to know the leaders of the nonprofits I support, understand their short- and long-term objectives, and connect them to valuable resources. I aim to spend even more time (and money) with these organizations once I reach financial freedom.

Those are six expenses I’ll never cut back on, which means I need to work longer and grow my income consistently in order to fund them. I’m curious to hear if there are expenses that you’ll never cut back on? What are the things you happily spend more than the bare minimum on?

xoxo, Ms. Financier

Three Ways I Live Frugally

Being frugal gets a bad rap. It is often confused with its less forgiving cousin, being cheap. I love the distinction between the two in this article by Stefanie O’Connell: “Being cheap is about spending less; being frugal is about prioritizing your spending so that you can have more of the things you really care about.”

I experienced this in a recent conversation with my girlfriends; I mentioned something I didn’t purchase because I’m too frugal. My friend replied, “With those shoes!? You are NOT frugal!” But, frugality isn’t about always buying the least expensive item. Here are three ways that I live frugally:

Identify low-value budget categories to reduce (or eliminate). As I became more mindful about my spending, I identified several expenses that cost more than I was willing to pay. Your categories may differ; here is where I decided to reduce (or eliminate) spend. These changes freed saved me $540 monthly, creating another $6,480 annually to invest in financial freedom.

  • Cable Television: My television bill was over $100 and provided plenty of channels; In order to save money and give myself more free time, I cut the cord. I now watch far fewer shows, most of them on Netflix.

  • Dining Out: Restaurant meals had ballooned to nearly $400 of my monthly budget. I decided to break the habit of eating out regularly and instead treated restaurant outings like an event. Planning meals and creating easy options for breakfast and lunch contributed to my savings.

  • Housekeeper: My weekly housekeeping service was convenient but costly. My partner and I decided that we could roll up our sleeves and keep our own house tidy, investing a little extra time each week and saving significantly. I will occasionally splurge for their services, but not on a scheduled basis.

  • Expensive Cell Phones: Switching from a traditional cell provider to Republic Wireless allowed us to keep great connectivity, without confusing contracts and expensive plans. There’s a misperception that pay-as-you-go plans are less reliable; in fact, many run on the exact same networks as the big guys. Like all cell services, your coverage may vary, but I’ve been a very happy customer for years.

Optimize entertainment expenses. For anyone near a large city, the wide availability of shows, events, speakers, and entertainment can be a huge benefit. I really value these experiences and in DC area we are fortunate to have amazing entertainment venues alongside Smithsonian Institution museums that are completely free (though they welcome donations). Every now and then, I’ll splurge on tickets to an amazing Kennedy Center performance, but I’ve found that free and low-cost events fill my entertainment need without breaking my budget.

I’ve nearly eliminated some entertainment costs; I am a huge reader and intentionally use the services at my local library to reduce my spending on books and magazines. My library also offers great programming and workshops. I’ve taken free classes on everything from gardening to personal finance.

Local wineries in the metro DC area are also of increasingly high quality. Wine Enthusiast covered some of the leaders in Virginia’s wine scene and visiting local wineries is one of my favorite lower-cost outings. Many wineries allow you to bring your own picnic lunch, and after a few dollars enjoying a tasting, I select my favorite bottle and enjoy it with a homemade charcuterie platter.

Finally, I live frugally by learning new skills. There are two areas where this has helped me save money. First, I learned to cook! I actively rejected learning to cook for years because I had an irrational fear that it would make me too domestic. This all changed in 2015 when I got fed up with boring dinners and tried Blue Apron after a colleague’s encouragement.

My first recipes included Chicken Rollatini alla Cacciatore with Radiatore Pasta and Chicken Mole with Sweet Potatoes, Avocado, and Queso Fresco. These recipes intimidated me and initially took me forever to prepare. However, they were incredibly delicious and I kept customizing my deliveries and enjoying the satisfaction that comes with creating an amazing meal. Over time, I improved my confidence in the kitchen, became more skilled, and invested in a few key kitchen gadgets that made cooking a lot easier.

Learning to cook allows me to enjoy amazing meals at home, which means if I get a hankering for an amazing meal, I can often make it myself. My partner is a great chef but doesn’t enjoy eating out as much as I do, so it works out well that he can pitch in as sous chef (and do the dishes).

Additionally, my partner and I have developed our do-it-yourself skills. I grew up in a house where my parents tried to outsource as little as possible - so I was used to things like painting, wallpapering, landscaping, and installing tile. Mr. Financier often says the most valuable class he took in high school was a home improvement course, which culminated in each student building their own bathroom project, which included plumbing, electrical, and drywall.

When we moved into a house that we simply couldn’t afford (but bought anyway), being able to DIY saved us a tremendous amount. With so many fabulous resources available, we regularly build the knowledge and confidence to try ambitious projects. You can find a step-by-step tutorial for nearly anything. One of my favorites is House-Improvements, a YouTube channel and website run by an experienced contractor, Shannon, who is an excellent teacher.

When a home improvement project or repair doesn’t require the cost of labor, you can immediately pocket the difference, which can result in huge savings over time. You also get the priceless feeling that results from your own handiwork, something I feel anytime I look at the myriad of projects that Mr. Financier and I have completed around our home!

Those are three ways I live frugally, by reducing or eliminating low-value expenses, optimizing my entertainment spend, and learning new skills. I’m curious if you call yourself frugal...or if that’s a label you reject? If you are frugal, what tips would you share?

xoxo, Ms. Financer

How Do You Budget? Scarcity Budgeting Works Best for Me.

Wealth is created in the space between your income and expenses. If you’re interested in growing wealth, I suggest you grow your income and manage your expenses. If you’re like me, you enjoy increasing income more than reducing costs. But, if you don’t keep an eye on your expenses it is very easy to over-spend. 

I believe the most efficient way to manage your expenses is to find a budgeting method that works for you. If you’re partnered, you need to determine how to blend your approach with your partner’s - but we’ll explore that in a future post. 

The budgeting approach that works best for me is something I call scarcity budgeting. At a high level, the idea is to set up your finances such that you do not have excess money in your checking account. By creating scarcity, you don’t have the ability to comfortably over-spend or let your money sneak away from you.

Here are the four steps to scarcity budgeting:

1. Track your expenses to understand what you’re currently spending. Then, based on your actual expenses, decide what you want to reduce, change, or keep the same. For example, you might be appalled that you’re spending $1,250 monthly on food, drink, and eating out. Or, you may be disappointed that you aren’t investing enough for your future or donating enough to the charitable causes that matter most to you.

2. Automate your finances. I do this by having separate accounts for things that aren’t daily expenses. Travel, fun money to splurge on shoes or gifts, and boring necessities like car maintenance are funneled into different savings accounts. Each payday, a certain amount of money automatically transfers out of my account and into these savings accounts. Same for charitable contributions, regular bills, and investing; money is sent to those organizations on a defined schedule.

3. Spend only what’s left. After my money is whisked away, I’m only left with enough to buy gas, groceries, household items, and restaurant meals in accordance with my budget. I keep an eye on my checking account and don’t give in to putting things on credit cards to “tide me over” until my next payday.

4. Save or invest any excess. This is the fun part of scarcity budgeting! (Yes, I’m serious). If my checking account grows too large (because I haven’t been spending that much on regular expenses), I save or invest. This “found money” contributes to my other financial goals and gives me an unexpected financial boost. 

That’s my approach to scarcity budgeting in four steps. For me, this budgeting approach has worked wonders. Because I do not have excess money in my checking at any given time, I am not tempted to spend. Importantly, I rarely use credit cards because I have struggled with credit card debt in the past.

Do you use scarcity budgeting? Is there another approach to budgeting that you prefer? Or, are you one of the financial unicorns who doesn’t budget yet still manages to build wealth? Let me know!

xoxo, Ms. Financier

How To Create Your Retirement Budget

I get incredibly excited about the idea of creating a retirement budget. It is a chance to imagine my life at a point when I no longer have to work and can fill my time as I choose. I think about my retirement budget as a “financial freedom budget;" I aim to stop working a traditional job (or before) I reach the age of 45. Those that know about my goal of financial freedom ask about my budget. In this post, I’ll share how I think about my future spending.

I created my first financial freedom budget in 2013 when I started exploring the FIRE community (Financially Independent, Retired Early). Before that, I'd always thought, “Retirement is so far away, I can’t imagine what my budget will look like.” I had never considered how I’d be living when I stopped working; it was always “off in the future” and so “far away.” I could figure it out later, right?

My thinking changed once I was bitten by the bug to achieve financial independence. I became inspired to figure out exactly how much Mr. Financier and I would need to save to become financially free. A key part of that is how much we’d be spending, so modeling our future budget became critically important. 

At first, thinking about the expenses we’d incur for the rest of our lives was overwhelming. There are so many variables and assumptions. So, I began in the most obvious place - with our current household budget. I reviewed our annual expenses from 2012 and began making adjustments from there. The first adjustment was easy; I immediately deleted my two largest monthly expenditures. These were our mortgage (which we plan to pay off before we stop working) and our retirement savings. That change immediately reduced our monthly expenses by 59%.

Are you surprised that we were spending nearly 60% of our income on retirement and our mortgage?  Two things to keep in mind: First, we refinanced our generously-sized home (and associated generously-sized mortgage) into a 15-year loan that we pay extra on each month. Second, in 2011 and 2012 we had already optimized our budget to remove extra expenses in order to invest more our income.

Note that many mortgage payments include property taxes and homeowners insurance payments; these won’t disappear once your loan is paid off. If you plan to pay off your mortgage before retirement, include your taxes and insurance payments in your retirement budget.

Next, we reviewed our entire budget and made adjustments to reflect what we expected to spend once in the future. Like any budget, ours is a best guess and a living document that we keep coming back to and modifying over time. Here is a summary of the major changes we made.

Home Maintenance Saving: We added a dedicated line item equivalent to 1% of our home’s value to save each month for repairs, since we would not have salary and bonuses to help pay for any big expenses out of upcoming cash flows.

Health Insurance and Healthcare: We increased costs for health and dental insurance for us both, estimated based on visiting online sites and getting quotes (pretending we were 55.) We assumed we’d be paying more for healthcare as we age and increased spending in that category.

Auto Insurance: This line item decreased, as we’d sell one of our two cars in retirement (no more dual commuting) and we’d also be driving fewer miles annually, without the daily trip to work.

Travel: I love exploring, so this line item went up significantly. I increased our travel expenses three-fold. Right now, Mr. Financier and I are very time constrained and don’t travel as much as we’d like given our careers. I look forward to “slow travel” when we’re financially free - weeks or months in one location, living more like a local.

Clothes & Dry Cleaning: This went WAY down, as we wouldn’t need to be in our professional work gear every day. I still plan to buy shoes, but perhaps not quite as many new pairs each year!

Food, Wine, Dining: We increased these slightly; business travel subsidizes some of our fine dining today and we do plan to enjoy going out weekly in our financially free days. I’m also a wine enthusiast, and I’d like to explore it even more in the future.

Hobbies: We increased our hobby expenses, though not by much as we have pretty inexpensive hobbies (reading, running, hiking, camping, and yoga). I did add in additional costs for classes and seminars; there are so many amazing programs in the D.C. area and I regularly can’t participate because of my work schedule.

With these adjustments, Mr. Financier and ended up with a total monthly requirement that is far lower than our expenses today. When I did the math, I was stunned that we could have the lifestyle reflected in this retirement budget, for so much less than we were living on.

What about inflation? Many prefer to include inflation in their modeling. I do all of my calculations in today’s dollars.  Yes, inflation is real, but we never intend to move our entire portfolio out of the market, so we expect that keeping our money in the market will combat inflation - just like it does for us today.

Is my retirement budget perfect? Like any model, I know it isn’t. However, it is a starting point that allows me to explore how much income I’ll likely need to replace when I stop working full time. Many that approach financial freedom begin to live on their post-retirement budget a few years before they stop working. I like this idea as a way to reality-check and pressure-test the budget.

Have you built a budget that reflects your expenses post-career? If so, how did you do it? What feedback or suggestions do you have for me?

xoxo, Ms. Financier