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A trending topic in the world of personal finance today is that of “value based spending”.  Personal finance experts and bloggers everywhere tout the benefits of value based spending.  So, what is value based spending?  And more importantly, how can value based spending help you achieve your financial goals?

I myself first learned about value based spending from my friend Shannon, who blogs over at The Heavy Purse.  Shannon, a Certified Financial Planner, author and personal finance blogger, is a pioneer in the art of teaching others about value based spending and how it can be used to help people achieve their financial goals, and I am forever grateful to her for showing our family how to manage money using value based spending techniques.

How Can Value Based Spending Help You?

Simply put, value based spending involves the art of determining what a person or family can spend their money on that will be of most value to their goals and dreams, and learning how to not waste money on things that have little or no value to them.   What is “right” or “wrong” when it comes to value based spending is highly individual for each person or family and there is no hard and fast right or wrong answer as to what one spends their money on.  Since each person values different things in life, each person’s definition of what a value based purchase is will be different.

For instance, one person may think pets and the expense that comes with them is a waste of money.  Another person may put significant value on pets, and consider their pet an absolute must in terms of value based spending.

The goal in determining which of your expenses are “value based” and which are not simply comes by a process of elimination as you determine what expenditures hold the most value for you.  For instance, if you have a goal to become debt free within five years, that goal will likely need to be achieved with some spending cuts.  So then, it’s up to the individual to compare each monthly expenditure and decide: is this purchase a value based spending purchase to me?  Or “What is more important to me: my daily latte’ (or cable TV or monthly entertainment allowance) or my goal of debt freedom?”

The latte’ purchase or cable TV expenditure isn’t necessarily a bad thing if it is high on your list of valued purchases, but what you must determine is if it’s high enough that it’s okay with you that the purchase extends your debt free date by another year or whatever.  If not, the latte’  or other expense goes, and the money spent on that other expense goes toward your debt.

Using value based spending determinations as you work to reach your financial goals is a great way to accelerate achievement of those goals and help ensure that all future earnings are being spent in a way that’s worth the effort you put into earning that money.  If you haven’t implemented a value based spending plan in your home, now is the perfect time to try one out.

Do you work to make value based spending purchases in your life?  If so, how has it affected you?  What things can you think of in your life that might not be worth what you spend on them?