Reverse Budget (For You Rebels)

The Reverse Budget

Do you hate to budget?  Does your significant other always get on you for your lack of budgeting?  Do your colleagues talk about your poor budgeting behind your back?  At family functions are you left feeling ashamed and alone as the outcast due to your atrocious budgeting skills?  If this sounds like you, worry no more as I have the cure.  While supplies last you can learn my sure-fire way of budgeting with a fraction of the time and energy. 

How you ask?   

With not one, not two, but three minutes of your time if you keep reading, maybe you’ll learn Andrew’s reverse budget method.

That was fun right?  In all seriousness, I find not all budgeters are created equal.  As a matter of fact, a very interesting thing starts to happen as you make more and more money.  Seemingly, you start to budget less and less.  Why do you ask?  I suppose what starts to happen is you don’t need to budget quite as much.  You know you’ll be able to afford that next vacation out of cash flow. 

I’ve often talked about in my own marriage we started off where we would have a rule to discuss any purchases over $100, then it was $250, then $500, and so on.  The time and energy for a lot of people who are higher up on the pay scale seem to put their energy into other things besides budgeting.

Not that the reverse budget can’t also work if you are finding yourself tighter on income/expenses, but most commonly I talk about it with those “higher earners”.

How to Reverse Budget

Ok, so if you are still reading, I’ve got your full attention.  Here is how the reverse budget works.  I DON’T CARE WHAT YOU SPEND MONEY ON.  What? Huh? Are you serious dude?  Yes ma’am.  You see the beauty of the reverse budget method is there is no budget.  I don’t want to see your spreadsheets, or credit card bills. 

Instead, I simply need to see your paystubs.  For the reverse budget to work, all we need to do is really understand how much money you make.  You see once I have this information, we can start to reverse budget.

Here is how it works:

Let’s say you make $450,000/yr all in.  My first comment is to max out your 401(k).  From there we will assume you are bringing home roughly $20,000 net a month.  I want you to take that net after-tax income and immediately save, at minimum, 15%.  In this example $3,000/mo or an additional $36,000/yr.  That is it, that simple!

Once you’ve done exactly what I suggested, you are done.  I simply don’t care where you spend your money or on what categories.  As long as you aren’t accruing debt, continue to reverse budget and set yourself free of the budgeting shackles.  That is the beauty of the reverse budget, budget. 

To reiterate:

1. Max out your 401(k).
2. Save 15%, minimum, in an after-tax investment account.
3. Don’t go into debt.
4. Spend on whatever the heck you want.

This is a great way to make sure you are doing a good job of saving, while not worrying about keeping a strict budget. 

Warning

Now for all you newly minted reverse budget disciples, there is one major caveat.  This works great while working, however, when you go to retire, you have no income.  Naturally, this throws a little wrench in the plan.  For those of you that fall into this category here is your simple hack.  As you approach retirement and are fully doing the reverse budget method you’ll need to be aware of a few key numbers. 

1. How much did you start the year with in cash?
2. How much did you save in your investment accounts throughout the year?
3. What was your net take-home pay that year?

These figures should be enough to really quickly determine what your net expenditures were during the year.  This will be critical as you go from income to no income so that we are able to plan a strategy for the draw-down years.  It is impossible for us, or you, to retire and do our job if we don’t know what you need to live on in any calendar year.  This isn’t an exact method but will be close enough for you nonbudgeters.

To reverse budget or not

Now the choice is yours.  If you don’t budget, then definitely give this a consideration as it is a good general guide to getting you on the right path when it comes to spending and saving.  It is kind of the pay yourself first mentality as you will spend whatever is left over at the end of the day.  Hopefully, this will help many of you in your domestic disputes over budgeting.

As always hope you enjoyed this nugget and stay wealthy, healthy, and happy.

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