Last week, I talked about money throughout my life. I’ve had my ups and downs with it just like most folks. What I didn’t talk about though is my hate for budgeting.
I’m probably one of the most organized people with a good old case of OCD you’d love to know. I need structure in order to operate. For me, everything has its place and making a plan is always the smartest way to do something.
It’s actually soothing for me to do little things like putting away the dishes from the dishwasher. I think that’s because I feel like order is being restored and everything’s going back in the cupboard or drawer it belongs in.
I sound like a ton of fun, right?
The good news is that I do like to enjoy the moment and you never know if I’ll do something stupid like shaving my head just for the heck of it. Regardless, I need to have some structure in place in order to live.
For me, the world of the Internet and the online services available has become the solution of solutions for me. I love that we have shared calendars that sync up and can be viewed from our phones. I love that I have my contacts and passwords always at my fingertips.
And I’ve fallen fast for services like Google Keep, OneNote, andTrello that seem to be designed for anal-retentive folks like myself! Ideas, checklists, and planning can be done at ease from your desktop or phone.
So, after reading all this, it would seem that making a budget and sticking to would make perfect sense for someone like me, right? It’s all about organizing and planning – two of my favorite things.
But here’s the thing – it’s not. I actually hate the whole idea of it.
My biggest problem with budgeting
Budgeting, if done correctly, can be a great opportunity to follow a good solid plan. However, it’s just not up my alley. To me, it just seems like a waste of time.
I’ve tried budgeting once or twice over the years, but it usually just leads to frustration and too much unnecessary work.
And by all means, to each his/her own – if it works for you, that’s fantastic. But it’s just not something that fits our bill. We’re already pretty frugal with how we do things, so it just doesn’t really add much value to our equation.
The idea behind traditional budgeting is that you determine how much money you’re taking in and then figure out how much to allocate to each category of savings and expenses. Then you adjust your expenses in the different categories as needed.
The sole intent of budgeting is to come up with a way to make sure you have enough money to pay for all your expenses. And hopefully, an added bonus is that you can start saving some money along the way.
My biggest problem with budgeting though is that it’s not an optimal method of saving. Sure, you can allocate an amount to save with each paycheck, but if you end up over-budget, it’s too easy to cut back on your savings “just this once.”
Basically, it’s too easy to cheat and that small detail can drastically harm your financial future.
And that’s the reason I like the idea of reverse budgeting instead.
Reverse budgeting
Reverse budgeting, Jim? Are you trying that whole thing where you make up some stupid phrase and try to get it to catch on?
Um, yes. Not biting? Well, let me explain what it is first and then you can judge me.
My thinking is that it makes more sense to look at this differently and turn this on its head. Instead of focusing on your expenses, wouldn’t it make more sense to focus on your savings first?
Rather than making saving a category of your budget, why not have your saving dictate what’s left to spend?
And from there, you just pay your major expenses first – mortgage or rent, groceries, etc. Then whatever’s left over is yours to spend on fun and any other expenses.
That’s it – the entire premise. I’ll take my copyright on reverse budgeting now, please.
Why is this a better method of handling your money?
For a long time, my mind had a hard time getting a handle on actually spending money… weird, right?
Believe it or not, that was actually my financial stress. If Mrs. R2R bought something I didn’t think we needed, it was tough for me to wrap my arms around that being Ok.And if I needed to buy something (even something like undershirts!), I would leave it in my Amazon cart for weeks before buying it because I didn’t feel I absolutely needed it.
Hmm, I see I’m coming off as a little bit of a wack job.
Sure, that might sound a little strange, but know that there is a light at the end of this tunnel.
I’ve talked about how Paula Pant helped me realize that I need to live a little more today (as opposed to just focusing on tomorrow). That epiphany helped my mindset out tremendously in regards to my finances.
On top of that, though, another wake-up call for me was reading David Bach’s book “The Automatic Millionaire.” The whole idea is that if you create systems to automate all your saving first, you’ll have no choice but to come out ahead.
Easy concept, right?
What was interesting to me though is that is that I realized that I was already doing everything Mr. Bach was recommending. The systems I have in place are sound. Between my contributions to my 401(k), Roth IRA, 529 plan for our daughter, and transfers to our online savings, what we’ve put in place for ourselves over the years is solid.
So what I finally realized after reading Bach’s book was that since we’re already saving everything needed, the hard work is already done. That means we’re good to use the remainder of our money to live on. The remainder can be used for bills and actually having fun.
In essence, this isour budget. We automate everythingand then enjoy life after that. THAT’S our reverse budget.
The simplicity of this realization really astounded me.
How to set up a reverse budget
So maybe I’ve hooked you. Are you interested in doing a reverse budget?
If so, there’s really one key to making a reverse budget work – automation. With today’s technology, you can easily automate all your savings and investments and that’s exactly what you need to do.
Currently, here’s a high level of what I have in place (don’t judge me for my lack of flowchart skills!):
All the pink and blue is automation at work. That’s everything with the exception of buying groceries. That’s it. It’s like a fail-safe way to budget.
I then up the amounts (and sometimes the percentages) for the different systems once a year with pay raises. It’s taken time to figure out the right amounts to ensure we can still actually live on what’s left, but now that it’s there, it just works.
As long as we don’t overspend in that last block for other expenses and entertainment, we’re good to go. And since we live pretty frugally, that’s never really been a problem. If there were an actual emergency, I can move money back over from our savings account at Ally.
The only thing that can screw this up is human intervention. If we tried to do this manually every payday, life would happen. We’d move a little less to savings here or there because of _______ (I’ll let you fill in the blank of whatever “emergency” comes up every couple of weeks).
This is a system that might not work for everyone, but if your mindset is similar to mine (so sorry!), this can be the answer you need to managing your money. And it still can leave a nice balance to enjoying today as well without the need for a sophisticated budget.
If you’re in a small amount of debt, this can still work for you, but you’ll need to make the debt payoff some of your automation. Once you pay off those anchors, you can up the percentages or amounts of your different vehicles for automated savings and investments.
Ok, sure – I tried tocoin the idea of reverse budgeting, but here’s a little secret – it already goes by a different name. I’m sure you’ve heard of the phrase paying yourself first? Yeah, this is the same thing.
But here’s the thing – it works and it can be the most valuable way to budget your money and to reach financial independence.
Do you use a traditional budget, a reverse budget, or some other solution to handle your savings and expenses?
Thanks for reading!!
— Jim
