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Reverse Budgeting

For most of us, the thought of budgeting is painful. It involves calculators or spreadsheets and a good amount of internal finger wagging because we know we can do better. We want to be more disciplined, but life gets in the way. If a forward-looking money plan isn’t your thing, you may want to try reverse budgeting.

A budget is a plan for future spending. A statement review is looking back at what we actually spent. Reverse budgeting is taking the statement review one step further by adjusting your expenses for the next month (year/week/day). Repeating this process each month is sure to result in spending that better reflects our financial priorities, because it is based on what we are already doing. Then working to do a little better each month.

The hardest part is getting past that cringy moment when you find the balance isn’t what you thought it would be. I am always surprised at how all those little things add up to such a big balance. Once I have the courage to look past the balance and actually review where I spent my money, I get a clear picture of my financial life.

It is much easier NOT to look. To just keep plugging along. If you brave the uncomfortable and actually review your statements, you are halfway there. Keep going. There is great insight to be found.

It can be like a Marie Kondo for your money. Did that night out bring you joy? Did the trip to the mega retailer to get a few things result in what you needed or a trunk full of consumables soon forgotten? Even if you take no action, the simple act of reviewing your spending increases your awareness and make you more decerning next time.

Treat it like a financial decluttering. Pick one or two items to focus on over the next month. Look for ways to reduce expenses for that category or item. One month could be ways to cut down on the small daily incidentals. The next month you can look for savings on a bigger ticket item or call the internet provider and see what deals are available. More often than not, I end up with the same service at a lower cost. It has a hassle factor, but the return on invested time to make the call is worth the savings.

The first month you’ll likely have some quick wins by catching billing mistakes, or cancelling that subscription service you no longer need. Multiple times over the last 6 months, I have found cases where a business started charging me a monthly fee I didn’t authorize. A quick phone call stopped future charges and reversed one. A longer call was needed to get a refund I was owed, but it was worth the 15 minutes. Those calls saved me hundreds of dollars that can now be directed to savings or the fun fund.

Like everything in life, we all have to find what works for us. An advantage of the reverse budget approach is you are focused on your actual spending. You aren’t trying to project into the future and fit your spending into someone else’s guidelines. You are simply working to line-up your spending to better match your priorities. Each month will look a little different, but the long-term trend will move in your favor.

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