The Reverse Budget Technique: The Quick and Easy Way to Manage Your Money

I’ve written quite a bit about the “proper” way to set up a family budget. You know the one; where you sit down at the beginning of the month with a list of everything in the world you’re going to spend your money down to the last penny.

In a perfect world, you’ll know exactly how much money you’ll have left over at the end of the month and exactly what financial goal you’re going to spend it on. Perhaps your goal is to pay down your debt, build up your emergency fund or buy a new boat.

As best intentioned as we may be, things NEVER work out the way we think they’re going to. Sometimes we just don’t have enough time or maybe we don’t exactly agree with our spouse on what we’re going to spend our money on.

We end up losing track of our finances and overspend in a ton of different areas.

But…

What if we actually funded our financial goal first?

Ladies and Gentlemen, say hello to the Reverse Budget!

When you use the reverse budgeting technique, you set aside a predetermined amount of money at the beginning of the month that represents your target financial goal and spend whatever is left over throughout the remainder of the month taking care of the highest priority items first (food, shelter, bills, transportation, etc.).

Here’s how the reverse budgeting method works:

Let’s say your combined household take home pay is $4,000 per month and your financial goal this month is to pay an extra $1,000 per month toward your credit card debt.

You would simply set aside your $1,000 credit card “goal” payment first and use the remaining $3,000 to get you through the rest of the month.

You know you’ll have certain fix bills like rent, utilities, car payments, etc. You’ll also have other expenses such as food, clothing, medical costs, entertainment, gifts, charity, etc.

As your month goes on and you have less and less remaining of your original $3,000 target, you’ll know you’ll need to curb any additional spending to ensure you have your priorities covered until next month.

Naturally, this plan is best run using cash or debit cards so there is no ability (or temptation) to overspend with a credit card that likely has a higher limit than what you have in your bank account.

The reverse budget method isn’t perfect but it can be implemented and tracked much more easily than the more burdensome budgeting method outlined in my budget workshop series.

Too Much Debt?  Download our free Trees Full of Money Debt Snowball Calculator and see how quickly you can pay off your debt.

One Response

  1. Nate 2 years ago

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