Reverse Budgeting

Monthly Budget Worksheet

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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?

 

Comments

  1. kanalt says:

    Great post! I don’t have a strict budget that I keep to each month, but I do keep track of how much I spend in a month. I write down the things I want to buy (the frivolous things, as opposed to the “absolutely need” things). Each month, I pick and choose what to buy. When I reach my limit, no more spending, and whatever is left on my list, gets moved to the following month. (If I don’t buy it first, it’s not that important.) Every time I make a purchase with a credit card, I write the amount in a running list as well as a specific list for that card — I use two cards throughout the month, so this helps me keep track of what I spend overall in addition to per card. When I get close to my self-imposed limit, I stop spending. Of course there are things we can’t plan for (like a car breaking down and such) so I try not to spend all of my allottment right away. I aim to first buy the important things and save the others towards the end of the month. It’s a fail-safe system, but it’s one that works for me without denying myself a few fun purchases.

    • Thanks for sharing. That’s a great strategy. That’s how I like to budget, too. Instead of having specific dollar amounts for specific categories, I have an “amount”. When it’s gone, I’m done. Having the strict categories makes me go a little nuts.

  2. Dianne in the desert says:

    I never heard of this being called “reverser budgeting”. It is one of the steps in “budget analysis”.

    I have been in bookkeeping/accounting for what seems like “forever”. I have been the manager of two trucking companies at the same time. Looking at the expense/spending is the only possible way to determine where the “leaks” are in a budget. If you need/want to reduce what is sspent overall, then you need to know how, when, and why the funds are spent.

    Why isn’t this stuff taught in school anymore? “Life Skill” training is essential to help young people who are just starting out to keep them out of financial “hot water”. Currently, there is a credit card ad running on TV that suggests that in spite of the college student running over the card limit and the unexpected things that have arisen, Dad should just increase his credit line and not worry about it. Huh? If I ever did something like that on a card held by my parents, they would have had my head. Teaching irresponsibility via mass media may help the banks and other lenders in the short term, but it will not help the debtor. Ouch!

    What I spend on a credit card is paid off when the bill comes in to be paid. My debit card does not have a “float” feature on it, so I know better than to spend more than I have. Cash, err, paper currency, is only spent for things like lunch or a beverage while I am away from home. I do, however, track my daily, weekly, and monthly spending and review it every month. Doing so is the best way to see what the spending habits are and change the ones that are not wise/prudent.

    This is a good post, Patty! And it is just in time for summer when having the kids at home can cause a lot of silly spending.

    • I made up the term reverse budgeting. That’s what I call it.

      I’m really big on analysis of anything: food journal, schedule, budget, etc. I think it’s really hard to improve in any area if you don’t know for sure what you’re doing right and wrong.

      And I do wish they taught budgeting in school. Everybody needs to know how to do it but a lot of people don’t.

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