Navigating Wealth with Purpose: A Guide to Values-Based Finances and Goal Setting
Before embarking on an outdoor adventure, you need to plan meticulously. This involves considering your destination, weather conditions, planned activities, and the trip's duration.
Similarly, financial planning requires careful consideration of short and long-term goals. You must assess your financial situation, set specific goals, and plan accordingly.
The correlation between preparing for an outdoor adventure and values-based finances and goal setting lies in careful planning, prioritization, and alignment of resources with your values.
Let’s break it down.
Understanding Values-Based Finances
Values-based finances refer to a financial approach that integrates an individual’s or family’s core values, beliefs, and priorities into their financial decision-making process.
Instead of focusing solely on conventional financial metrics like income and expenses, values-based finances involve aligning financial goals and actions with what matters most to the individual or family on a deeper, personal level.
Identifying Core Values
The first step in values-based finances is identifying and understanding one’s core values. These can encompass many aspects, including family, community, personal growth, environmental sustainability, social responsibility, and more.
If you’re unsure where to start, check out this resource from Harvard Business Review.
The Benefits of Living Your Personal Values
Your values can profoundly impact your financial well-being, influencing various aspects of your life. Living through your values can contribute to your overall life fulfillment through:
Reduced stress and anxiety
Increased satisfaction and happiness
Improved physical health
Enhanced relationships
Long-term fulfillment
Increased motivation and focus
Resilience in adversity
Positive lifestyle changes
Generosity and social impact,
And more.
Aligning personal values with financial decisions goes beyond monetary success; it extends to holistic well-being. Living through your values creates a sense of purpose and fulfillment that positively influences your emotional, physiological, and long-term well-being. It’s a powerful financial management approach that enhances life's quality.
Setting Meaningful Financial Goals
Approaching the decision to climb a mountain or embrace values-based finances can be intimidating, much like any significant adventure. With that in mind, let’s approach it like we’re gearing up to forge a fresh path.
Packing for a hiking trip involves prioritizing essential items. You can't carry everything since you have to carry things yourself. So, you must decide what’s crucial for safety, comfort, and enjoyment.
The same goes for values-based finances. You prioritize spending on things that align with your values and goals—for example, cutting back on non-essential expenses to allocate more resources to what truly matters—or bringing a headlamp on your alpine climb, which will surely start and end in the dark.
Importance of Goal Setting in Financial Planning
Goal setting provides a clear direction and purpose for your financial efforts. Whether buying a home, funding education, saving for retirement, or any other financial objective, it gives an identity to your goals.
Studies suggest that people who create and follow budgets tend to have better financial outcomes compared to those who don’t. Harvard conducted a study in 1979 that asked students if they had set clear, written goals for their future and made plans to accomplish them. They found that 3% of the students surveyed had written down goals and plans. Ten years later, they checked in with those same students and found they had a higher net worth than the other 97% combined students. This indicates that people with clear, strong goals are far more likely to succeed than those who don’t.
In addition, goals act as motivators, giving you a reason to save, invest, and make informed financial decisions. Having specific goals provides focus and helps you stay disciplined in your financial habits.
When setting goals, you’ll find two types: short and long-term. Short-term goals include building an emergency fund or paying off high-interest debt. In comparison, long-term goals are things like saving for retirement.
There’s a technique you can use when setting goals that make it easier to visualize and accomplish them: SMART criteria. This stands for specific, measurable, achievable, relevant, and time-bound. Let’s take a look at a couple of examples.
Research shows that people who follow a set scheduled action in commitment to a goal are 76% more likely to succeed in their goals. In addition, tracking progress towards goals increases your success rate by 40%.
Don’t let the idea of setting short and long-term goals intimidate you. This is something that a trusted financial advisor can help you with. If you have a specific goal, run it by your financial advisor to see its feasibility and create a plan to help you achieve it.
Creating a Values-Based Budget
Let’s get back to our mountain trek. We know now that we must prioritize what we bring on our adventure because we have limited space to pack. Every item we bring with us needs to serve a purpose.
Similarly to the space in your backpack, financial resources are finite. This means you must allocate your money to various aspects of your life, like savings, investments, and expenses, and ensure each serves a specific purpose aligned with your values and goals.
To do this, you must assess your current spending habits and expenses. Categorize your expenditures to see where your money is going and identify areas where your spending aligns or conflicts with your values.
From here, prioritize spending categories based on their alignment with your values. This could include reducing spending on non-essential items to allocate a more significant portion of your budget to areas that directly contribute to your values and goals.
Balancing Present Enjoyment and Future Planning
It’s essential to balance present enjoyment and future financial planning. While allocating resources towards saving and future goals is important, don’t forget about current experiences and enjoyment. Striking this balance is the key to a sustainable and fulfilling financial life.
Allocate your financial resources mindfully, considering both your needs and your wants. Be intentional about where your money is going to ensure that each expenditure contributes to your well-being and aligns with your values.
Investing With Purpose
You can also align your investments with your values. Based on your values (environmental sustainability, social justice, ethical business practice, etc.), you can explore different investment options that align with those ideals.
For example, it utilizes sustainable or ethical investment techniques focusing on investment vehicles or companies prioritizing environmental, social, and governance factors. This could include funds focused on renewable energy, fair labor practices, supporting diversity and inclusion, etc.
Balancing Risk and Values
While aligning with your values is essential, it’s also crucial to diversify your investment portfolio. Diversification helps spread risk across different asset classes, reducing the potential impact of poor performance in any investment area.
Balancing risk and values requires careful consideration. Some values-based investments may carry additional risks, while others may align with more traditional investment strategies. Work with your financial advisor to evaluate the risk-return profile of each investment to ensure it aligns with your overall financial goals.
Overcoming Challenges and Monitoring Progress
From broken shoelaces, a lost map, an injury, etc., any adventure is bound to have unexpected challenges that require flexibility and adaptability in your plans.
Finances are no different! Economic conditions and personal circumstances may change and necessitate adjustments to your financial plans and goals. Values-based finances require regular reflection to align with evolving values, economic conditions, life changes, etc.
Robust financial goals allow room to flex to ensure that your financial plan remains relevant throughout all phases of your life. Monitor your progress by:
Conducting regular financial reviews
Identifying potential challenges early
Maintaining motivation
Adjusting goals as needed
Celebrating milestones
Monitoring your progress and celebrating your achievements are integral to effective values-based finances. They provide the tools to monitor your progress, make informed decisions, stay motivated, and adapt to changing circumstances.
Including Mindfulness and Intentionality
What’s the best part about preparing for an adventure? Living it! Be mindful of your surroundings and experiences, and be intentional about your choices.
Being present and intentional with your financial decisions fosters a sense of control and satisfaction, which can lead to a more positive financial experience. In addition, mindful spending cultivates gratitude and a positive relationship with your money. Being aware of your resources and intentionally directing them toward your values fosters a sense of appreciation for what you have and can accomplish.
Take this even further by engaging with individuals who share similar values and financial goals to allow for the exchange of ideas, experiences, and advice, creating a supportive environment for you and your values-based goals.
If you’re ready to start planning for your values-based finance adventure, please contact us today. We look forward to exploring your values and goals and helping you plot the course toward financial and personal success.
Always consult a financial, tax, or legal professional familiar with your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any rates of return are historical or hypothetical in nature and are not a guarantee of future returns, which may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions and security positions, when sold, may be worth less or more than their original cost.