Everybody agrees that budgeting yields BIG results. But that’s only IF you can stay on your budget.
I’ll admit that I’m a bit of a spender. And I do have a budget but I’m very creative at finding ways around it. Yes, I know. That defeats the purpose. But the truth is, even when I fudge a little, I still do better than if I didn’t have one at all.
But that’s not the point of this post. There’s a third budgeting step that I think is even more effective, at least for me, than the first two steps (1 – create a budget; 2 – follow a budget). It’s what I call reverse budgeting.
It’s really very simple.
1. At the end of your budgeting period, sit down with the record of what you spent (yes, you have to keep track for this to work) and figure out how you did overall on your budget. Let’s say you had $1,000 to spend on non-bill items but you spent $1,200.
2. Now start going over each item. You can simply go line by line or you can get a little fancier and group the spending by categories and then review categories. It doesn’t matter. However you want to do it.
3. As you’re going through the list, keep in mind that you were over budget by $200. See if you can find $200 of items that you could have skipped so your budget would have balanced.
Just for the record, my intent here isn’t that you never get to do anything fun. It’s just that a lot of the stuff we spend discretionary money on ends up being things we didn’t even really need or want – impulse purchases. Or we can’t even remember what we bought. And it’s usually those items that blow the budget. If we can figure out what they are, we can avoid them.
4. If your budget balanced, review your spending to see if you’re happy with it. You might also look for items that in retrospect you didn’t really need. Add those up and think about other ways you could have spent that money. If you had $50 that you wasted on stuff you don’t even remember, that’s $50 that could have gone into savings or for something you really did want.
5. The next month, try to do better and then repeat the review process.
See. Reverse budgeting. Analyzing how you spent your money can help you spend better in the future.
Have you ever done reverse budgeting? Did you think it helped you do better in the future?