It's the first month of a new year, which means you probably have some big goals you want to accomplish.
You’ve resolved to eat healthier, boost your earnings power—and finally plan that dream vacation as a reward for all your hard work.
Now to figure out how to manipulate your budget to be able to afford these things!
While it may seem that striving to accomplish such big to-dos would be at odds with the idea of a budget, experts insist it’s actually quite the opposite.
“Your values should really drive your budget,” says financial psychology expert Kathleen Gurney, Ph.D., author of “Your Money Personality.” “Because if they don’t, you’ll never feel like you’re making the best use of your money.”
So what exactly does a values-led financial plan look like?
To answer that question, we're highlighting six values that commonly top people's lists — be it wanting to invest in family or allocating resources to experiencing the world through travel — and ways anyone can factor them into a fulfilling spending plan.
If You Want to Spend on Your Family ...
For many of us, nothing feels better than bringing joy to those we love. So what better way to use your money than to invest in the enrichment of your children?
Maybe you want them to experience the summer camp that shaped your own childhood, or the semester abroad that'll expose them to new cultures.
“Specifically for younger kids, a lot of expenses come in the summer, in terms of activities,” says Brian Frederick, CFP®, with Stillwater Financial Partners in Scottsdale, Arizona. “The other big time is back-to-school [when kids need books, computers and new clothes].”
When it comes to making sure you can afford these expenses, success comes down to proper advance planning. So at the beginning of the calendar year, map out when deposits are due for expected expenses, like camp or school trips, and open a high-yield online bank account earmarked for such savings. “Sock away a little each paycheck — say $50 to $100 — so you don’t have to scramble later,” Frederick says.
Bonus tip: Instead of feeling like your kids need to do it all, opt for the most satisfying activities with positive impact.
“If a traveling soccer team is costing you $10,000, and your kid isn’t loving it, reconsider that expense,” says Katherine Collins, founder of socially responsible investing firm Honeybee Capital. “Sometimes we get caught up in what other families are doing, or whatever feels like the right thing to do, without considering whether it’s best for us personally.”
So ask yourself throughout the year: Do my expenses support my desire to bring joy to my family through meaningful experiences? If not, strike them from your budget — and replace it with something that does.
It’s much cheaper to stay healthy than it is to cure a chronic condition.
If You Want to Spend on Health and Wellness …
If you’re dealing with a medical issue, health costs will naturally top your list of expenses this year. But even people who approach their health more proactively are likely to factor in health-related spending this year. After all, as Frederick says, “it’s much cheaper to stay healthy than it is to cure a chronic condition.”
So what are the best ways to invest in preventive health? For many, it’s paying for gym memberships and eating high-quality, nutritious foods at home. The catch: These things can be pretty pricey.
Fortunately, you can scout discounts and promotions at gyms and fitness studios this time of year, when New Year’s resolution-ers are signing up in droves. Frederick says you can also save by looking into whether your insurance offers reimbursements for healthy behaviors, such as visiting the gym a certain number of times each year.
And although healthy eating has gotten a bad rap for being an expensive endeavor, Collins insists it doesn’t have to be. Nor is it necessary, she says, to buy every item you eat from a high-priced, organic supermarket.
“Maybe you grow some of your own carrots this summer,” Collins says, adding that a packet of organic carrot seeds costs just $2 — and can yield up to 20 pounds of produce.
Or break up your grocery list into two sections: What you want to buy organic, and what you can pick up in the regular produce section of the supermarket. Certain foods with thick skins — avocado, pineapple and mango, for example — are less likely to have significant pesticide residue, so you can skip going organic with them.
Another healthy-food money saver: investing in a local CSA. Collins says the standard model gives subscribers a weekly box of in-season produce at a double-digit discount — by encouraging local consumption, you cut down on the high shipping costs required to move food across the country.
If you're looking to lower your burden on traditional medical expenses, consider allocating pre-tax dollars to a flex spending account (FSA) or, if you have a high-deductible insurance plan, a health savings account (HSA).
Both are designed to cover qualified medical expenses that aren't picked up by your insurance, such as glasses and certain copays. Just remember: If you have an FSA, you're at risk to lose funds you haven't spent at the end of the year.
If You Want to Give to Charity …
If your personal core values involve helping others and making a difference, prioritizing charitable giving is a great way to align your spending with what’s most important to you.
If you don’t have a specific cause in mind, Collins says the best place to start looking is your own community. “What organizations do you appreciate? Maybe they’ve helped you directly, or you’ve just seen them doing good work,” she says.
Once you’ve identified the organization(s) you'd like to support, devise your giving strategy — whether it's diverting a portion of each paycheck to a non-monthly savings account to spend sporadically, tithing weekly, or simply pinpointing a stock to gift whenever you rebalance your portfolio.
Frederick also recommends looking into specific tax benefits offered by your state. For example, Arizona gives tax breaks for donations made to charities that support the state’s most needy residents. “That would be a way that you could magnify gifts on a limited budget,” he says.
Along the same lines, donating your time and talents can be just as valuable as cash. You can sign up to pack boxes in your favorite charity’s warehouse, or offer your services — like web design, bookkeeping, or social media skills — free of charge.
“These different layers of charitable giving can be a lot more rewarding than just writing a check,” Collins says.
It’s known as socially responsible investing, and it's been picking up steam: Over $6.5 trillion in assets under management were dedicated to SRI in 2013.
If You Want to Do Good for the Planet …
Looking to incorporate environmental causes into your financial plan? Well, you're in luck because you don't necessarily have to spend more in order to deliver on this value.
Case in point: If you're already saving for retirement, why not invest in companies making a positive change in the world? It’s actually a trend known as socially responsible investing (SRI), and it's been picking up some serious steam: Over $6.5 trillion in assets under management were dedicated to SRI in 2013 — a 76% increase over 2012.
So how do you go about allocating SRI into your own portfolio? Whether it’s your 401(k) or your brokerage account, Collins says most major platforms have user-friendly search functions that allow you to filter for socially responsible options. Most even enable you to search for more specific interests, like renewable energy funds.
“If you’re going all solar on your home and driving a Prius, you might not want to have half your retirement plan invested in traditional petroleum companies,” Collins says. “There’s just a little bit of a disconnect there.”
Speaking of "going solar" at home, Frederick also recommends doing some energy-efficient upgrades to your home, like installing low-flow fixtures and programmable thermostats — especially if you've factored a reno into your budget for the year.
If you're interested in bigger-ticket environmental upgrades, you can look into whether your plans are eligible for personal tax credits. For example, eligible taxpayers tackling certain projects, like installing a solar energy system or a geothermal heat pump, can claim a 30% rebate by taking advantage of the Residential Renewable Energy Tax Credit.
In addition to enjoying the new addition to your home, you may even get a financial bonus in the form of lower utility bills. “Plus, you get a third return, which is the appreciation in the asset value of your house,” Collins says.
If You Want to Spend on Education …
“It’s been shown time and time again that higher education can be one of the most important catalysts, both economically and personally, in terms of development,” Collins says.
In fact, between 2012 and 2013, nearly a quarter of jobs required or preferred a master’s degree — giving this value serious potential for long-term ROI.
But before you start adding spare change to the "higher education" jar, Frederick says there's some homework you should do. “Coordinate your education plans with what your employee benefits are,” he suggests, adding that some companies offer reimbursement perks. “And look for programs that will accommodate what you get back from your employer.”
For example, is your company one that requires a master’s before you’re eligible for a big promotion? Then make sure the program you enroll in is a good fit.
Start budgeting for this value by funneling windfall cash throughout the year — like tax refunds or bonus checks — into a “career improvement” savings account, says Frederick.
When you're ready, you can tap the money for tuition, or even a professional résumé makeover to highlight new skills you’ve acquired through your studies.
And be on the lookout for special benefits offered specifically to adult students that will help decrease your financial burden. The American Opportunity Tax Credit, for example, could cover up to $2,500 for tuition, fees and course materials.
On the other hand, maybe your desire to spend on education this year isn't for yourself but your kids. One smart strategy is to start contributing to a 529 plan that grows over time. (And, for the record, you can open one of these accounts for yourself too.)
The first step is to calculate how much your child will need for college, based on factors like age and what percentage of funds you’d like to have saved before freshman year. Once you have a savings target, you can forge ahead full-steam — or start small and ratchet up your contributions incrementally.
“There are a lot of ways now to incorporate service and connection to the community wherever you’re traveling. It’s charity, it’s education, it’s family — it’s all of the above.”
Even if you don’t have much wiggle room in your budget right now — or you're still working on prioritizing your own retirement contributions before your child's college fund — you still have options.
Collins suggests scaling back on other kid-related expenses and funneling that money toward education. So instead of buying three birthday presents, get just one. “The other present could be a gift to their college fund,” Collins says. “Your kid’s not going to remember the thing they got for their second birthday, but they are going to benefit from what you saved for them early on.”
If You Want to Travel …
When plotting out your values-led financial plan for the year, you may notice a fair amount of overlap. Travel, in particular, is one value that can satisfy multiple "wants" at once.
“There are a lot of ways now to incorporate service and connection to the local community wherever you’re traveling,” Collins says. “It’s charity, it’s education, it’s family — it’s all of the above.”
If all of these dimensions are equally important to you, Collins recommends a volunteer trip through a reputable company like Habitat for Humanity’s Global Village initiative, Me to We or Earthwatch Institute. And remember to double-check if certain aspects of your charity trip — like transportation and meal costs — can be deducted to help lower your tax bill.
But whether that kind of trip appeals to you — or you’d rather stick to leisure-only getaways this year — Frederick advises contributing to a travel fund throughout the year to avoid putting any of your vacation expenses on credit.
If there’s not much excess cash to divert to this account, brainstorm creative ways to up your contributions. Pick up a fun weekend gig, seek freelancing opportunities, or scale back on other splurges — like your standing Friday-night babysitter or season tickets to the sports arena.
And if you have a big vacation in mind — like two blissful weeks in Hawaii — you can take advantage of other savings opportunities to make that dream a reality.
For instance, seek an affordable apartment rental instead of shelling out for a fancy hotel. Scout discounted activity rates for kids. And research whether it's possible to fly into a cheaper, alternative city airport and rent a car to drive to your final destination.
Bottom line: If travel — or any other value — is important to you, Frederick says, you'll find a way to make it a priority to save.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.