What’s your approach to money? If it’s only about the numbers, you might be missing out.
Values-based financial planning is an approach to money that prioritises your values, beliefs or long-term vision for your life above wealth accumulation. Instead of only focusing on the figures, it’s about meaning, it’s about maximising life satisfaction rather than returns.
But how does it work, do you have to be rich to do it and could you end up better off?
Values-based financial planning
At its core, values-based financial planning is about “knowing how much is enough, versus just having more,” says Cian O’Callaghan director of private clients at Metis Ireland. He advises clients to think of money as a tool in their lives, not a goal in itself.
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“If someone doesn’t have a financial plan, the goal can become to earn as much money as they can, and retire as early as they can – but that doesn’t answer the question, ‘What is the money for’?” says Callaghan. “The idea of retiring early, for example, can be, ‘I don’t want to do this job any more’ – but that’s not answering the question, what is it that you do want to do?”
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So before blindly going after that next big promotion or better paid job, individuals could ask themselves the simple question, ‘What do I value most?’ he says.
Values are important to financial planning and life-plan satisfaction, says Ralph Benson of MoneyCube.
“There are millions of people out there who are about making as much money as possible, as quickly as possible – and then when they retire, they think, well what was that for? I barely know my family. So I think your values do become important,” says Benson.
Working all hours for years to save or invest for the future can feel like a Pyrrhic victory.
“Getting the best investment return possible – that might be lovely, and you can end up with a lot of money – but are you getting the best return on your life?,” says Callaghan.
Hitting the biggest number isn’t the main goal, or the only metric of success for those using values-based financial planning. It’s about being satisfied that you are getting a good overall return on life, and not just your money.
Explore your values
The first step to values-based financial planning is to clarify your values, or think about what is most important to you. Possible values could be time with loved ones, security, freedom, contributing to your community or sustainability. People don’t go to a financial planner expecting a therapy session, says Benson. Their reason for coming is often functional, such as redoing the mortgage or making a will, but a good financial advisor can prompt some thinking.
“Particularly when someone comes with a partner or spouse, you can get some interesting conversations going about the household,” he says.
A financial advisor can end up prompting a useful discussion that a couple might otherwise not have.
“There aren’t many couples I know that say we are going to discuss this on Saturday night – instead of opening a bottle of wine, we are going to sit around with our spreadsheets.”
A values-based approach is about exploring what they want to achieve, he says.
“Is it about maximising the amount of money in the bank? It’s about asking, if you came back here in five years time, what would things look like? Money is useless unless you put it to work doing something else. It gives you options,” says Benson.
We’ve all seen the Lottery ads where the winner gets to quit work and live at the beach. But you don’t have to be a millionaire to prioritise your values.
“We always ask people, if money wasn’t an issue, would you be doing anything differently?” says Callaghan. “Of course people need a job to pay the bills. But if you get to the root of what they value most, you can sometimes show them how money may not be as much of a barrier as they think.”
If spending more time with loved ones is a priority for you, it could mean cutting back on other things you decide are less important to you. There will be trade-offs.
Values-based financial planning can sound a bit worthy, as though it entails prioritising only “good” things over making money – but your values don’t have to be all “Pollyanna”. If you value security more than working in a field you love, this could be a value that shapes your life.
Someone could decide to knuckle down for some core earning years before transitioning to something more interesting to them, making a more self-directed career choice in their early 50s, for example, says Benson.
“When I’m having a values-based financial planning conversation, it’s about looking at where are you trying to orientate your life – and how your money is actually going to make that happen,” he adds.
Values are different from dreams, goals and aspirations, says Callaghan.
Good vibes?
Values-based financial planning isn’t just about the vibes. There has to be some number crunching happening too. Once you’ve clarified your values, hopes or aspirations for your life, the next step is to cost them out to understand how they fit with your finances.
If you are planning to have a child, or more children, for example, a value might be to spend time with them while they are young. This could entail one parent taking extended parental leave or two parents alternating periods of it during school summer holidays over successive years.
Knowing the cost of dropping a salary and pension payments over three months, for example, can help you weigh up how you could pursue this value.
Is this something your family can afford; can you make up the shortfall by cutting spending in other areas; and can you make peace with this dent in earnings and pension?
“If you’re talking to people in their 30s, you might ask them, rather than planning to retire earlier, would you be happy to work longer if you could get five years off now when your kids are young?” says Callaghan.
Similarly, if you are lucky to be in a position to buy a home, it is worth exploring how borrowing more now might straiten your options in future.
Though you have your heart set on buying a four-bed home, opting for a three-bed instead could give you the financial headroom to change to a more fulfilling career in future, or to travel more.
“Values-based financial planning allows you to have a discussion about trade-offs,” says Callaghan. “And there is no right or wrong answer around what someone wants. Only the individual can determine what value they put on something,” says Callaghan.
Generation game
An approach to money management that starts with “What matters most to you?” can seem indulgent and foolish in some cultures, or to those who grew up in an era of scarcity, high unemployment or emigration.
“There are some people in their 70s and you just can’t get them to spend their money, they just won’t do it. They are going to die with a fortune,” says Callaghan.
Their financial planning discussions can centre on estate planning and how they can help out the next generation, he says. “They will do that, but tell them to go on more holidays and it’s very hard to get that message through.”
The next generation aren’t necessarily adopting the values of their parents when it comes to money.
So-called millennials and Gen Z can take a much more values-based approach to financial planning than their predecessors, says Callaghan. They can be much more questioning of how they are spending their time.
“There is a clear shift with them,” says Callaghan. “They are saying, ‘I don’t want to do this job forever.’ They are more conscious that every hour they spend at work is an hour away from what they love to do, or who they love to spend time with. They want to make sure they are getting paid well for that, and I think that’s a significant change with younger generations,” he says.
While they get a bad rap for spending on the apocryphal coffees and avocado toast, they are on to something, says Callaghan. “They don’t live to work, they work to live. They are thoughtful about their time.”
Unlike some other approaches to money, the goal of values-based financial planning isn’t to maximise income for its own sake, or to hit a big number. Instead of always trying to earn, save or invest the maximum amount at all costs, values-based financial planning starts with the question, “What do I want my money to support?” This can provide a good decision-making framework when deciding on other choices too – such as, is taking that big promotion actually necessary? The most important question it can help you answer is, “What’s the money for?”
Is values-based planning a luxury?
Taking a values-based approach to your finances can seem impossible if you are living from one pay cheque to the next, of course – but if you have enough to cover your needs, the philosophy can be helpful. If it seems as if everyone is driving a new car and doing a kitchen extension, being clear about your own personal north star and following it can insulate you from feeling you need to keep up with the Joneses. Your earnings and spending are aligned to your own values rather than anyone else’s. Being values-driven when it comes to money can mean more life satisfaction.
“For people who are caught up with money – and we are in an era where the people who are idolised are the global super rich – money is keeping the score,” says Ralph Benson. “Others will try to figure out what their own personal values are instead of absorbing them from the environment. They understand what’s important to them long term, and that money is just there as a means to an end.”
