The Reverse Budget: Why Normal Budgeting Sucks And What To Do Instead - The Money Habit - Deepstash

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The Reverse Budget: Why Normal Budgeting Sucks And What To Do Instead - The Money Habit

https://www.themoneyhabit.org/the-reverse-budget-why-normal-budgeting-sucks-and-what-to-do-instead/

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The Reverse Budget: Why Normal Budgeting Sucks And What To Do Instead - The Money Habit
Budgeting as it is normally implemented sets you up to fail. Here's what to do instead. If there is one word in the personal finance lexicon that makes people cringe, it has to be the word budget. Every well-meaning article suggests you build and stick to an ambitious budget.

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Typical Budgeting is Flawed

Typical Budgeting is Flawed

Typical regular budgeting methods assume that just by allotting limited money to a particular expense type (like groceries) is enough for us to spend less and balance our budget instantly.

This suddenly asks us to curb our lifestyle by focusing on everything at once, instead of a step-by-step approach. We normally fail at this 'ideal' method and need a realistic way to deal with our budget.

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The Reverse Budget

A Reverse Budget looks at your current lifestyle and makes slow improvements over time until things are sufficiently better.

We look at how much we are spending eating out, commuting and daily indulgences and see the past quarter trends using your credit card and bank account spending.

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The Two Approaches using Trends

When you look at our past spending patterns and trends, you can select one or two categories to focus and use one of these two approaches:

  1. Tackle the high-dollar impact areas like housing, fuel, food, or healthcare, and see if those can be cut down to some extent.
  2. Focus first on your 'disposable money' expenses like eating out, and entertainment and curbing those, gradually.

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Week By Week Progress

Each week, make one improvement in your chosen category, fixing it completely over a period.

Set yourself a broad goal of reducing your overall spending by a certain percentage in a Three-Month Check-In. In the next quarter, shave off another 10% or 20% from your expenses, making sure your base goal is realistic but can stretch if needed. Keep repeating this activity for the next few months and build momentum.

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SIMILAR ARTICLES & IDEAS:

A Monthly Budget For Your Money

No matter how little or how much money you earn, creating a monthly budget is one of the most important aspects of managing your finances. What gets measured gets managed.

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The Envelope System

The Envelope system is a way to track your variable expenses like food, entertainment, and drinks.

This method, preferably used weekly, allocates a certain amount in each category in labeled envelopes (food, drinks, movies, etc.). Once the envelope is empty, you are done spending in that category.

How to Create a Good Budget

The principles that make a good budget, something you can stick to:

  • Being Realistic: Being too strict is a recipe for failure.
  • Making Adjustments: A budget is not set in stone, but a fluid thing.
  • A Team Sport: If you live with a partner or spouse, you have to agree mutually on how to budget the financials.
  • Expect the Unexpected: Keep an emergency fund, ideally 3-6 months of necessary expenses.
  • Budgeting the Expected: Certain upcoming expenses need to be budgeted in advance, like property tax, holiday shopping, etc.

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The 50/20/30 budgeting method

The 50/20/30 budgeting method

With the 50/20/30 budgeting method:

  • 50% of your monthly spending goes toward essentials - your home, your food, etc.
  • 20% of your monthly spending ...

Debt payments

Debt payments may look confusing when you add it to the savings column. But the easiest way to build up a savings balance is not to have your money go toward debt. Once your debt is paid off, you can increase the savings.

Reducing your essentials

Play around with your monthly budget to see where you can reduce your monthly spending:

  • You could contact your internet company to get a discount.
  • You can clip coupons and use rebate apps to spend less on your monthly groceries.
  • You could set aside less for medical expenses if you have an emergency fund.

When budgeting comes in handy

  • You have no idea where your money is going.
  • You’re chronically overspending.
  • You’re not saving any money.
  • You struggle to afford the things you really want.
  • You...