Reverse Budgeting

It is difficult to create and stick to a budget because the procedure is time consuming and limiting. Traditional budgeting compels you to make all of your decisions as if you were living within a spreadsheet. But then, it’s not possible to spend each day in a spreadsheet.

Rather than focusing on spending, “reverse budgeting” can help you focus on savings. You can learn all about Reverse Budgeting in our blog post here.
Is there anyone implementing this idea already?

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Something that helped me when I first stated to save was to save more than I could afford to save. This might sound a little odd, however, we’ve all ‘spent’ more than we can afford to spend somewhere along the line, too much on coffee, or meals out, or purchases that we don’t really need. The difference with saving too much is that it is reversible. If you put away an amount of savings on the day you get paid, you can always move some of that savings back into your current account to pay for your monthly expenditure as/if required. Habitually putting money away into savings is a good trait to generate, the necessary admin (although quick and straightforward) to move money back out of a savings account may just be enough of an inconvenience to prompt you to think twice before buying a more fancy coffee or unnecessary clothing purchase. So in actual fact you may find that you’ve not saved too much after all. This has the added benefit of always ensuring that you save the maximum amount possible each pay period. You will not be left with excess cash in your current account burning a hole in your pocket at the end of the month, your entire ability to save will have been realised.

In summary, my advice is to knowingly save too much then transfer back only what you need.

I am not sure if that counts as reverse budgeting, but it certainly helped me develop good habits, it ensured that I was always growing my savings and kept me aware of my monthly expenditure. I don’t do this so much now as I have improved my financial awareness such that I am making better spending decisions and know how my lifestyle fits within my financial means. I now don’t see spare money in my account at the end of the month as free cash to buy a treat with. I now see it as a failure to maximize my savings or investment opportunities within that month.

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Very interesting trick @John. When you intentionally oversave, do you feel bad for withdrawing money from your savings account?

I think it’s a good tactic but only for those who really understand well their monthly cash flows.

A common mistake made by lots of people is to move too much money to a savings account and rely on credit card to make it until the next payday. They pay 20% interest on credit card and earn less than 1% on their savings. That’s the kind of mistake we want Nova to identify for people.

I treated it like a game, I felt good if I managed to not transfer anything back.
I didn’t feel like I had failed if I did need to because I knew I was ‘saving too much’ often the reason for needing to move money back was to cover unexpected things. But I was comfortable about it because I had built up the savings buffer that meant I was able to cope with the unexpected more easily.

The whole practice made me think a bit more proactively about my annual bills. The things I set up as a one off payment rather than spreading them monthly as they are cheaper if paid in one go.
It was easy to forget about it and get surprised at renewal 12 months later.

One thing that I did do was to increase the amount of savings I made whenever I got a pay rise. I made sure I tried to keep my standard of living the same and just saved more each month. I knew if I allowed myself to spend more then I would just run in to more expensive problems.

Over time this increased savings pot, and increased awareness of my monthly and yearly expenses, meant that I could plan to do tangible things with my savings, rather than savings being something to cover an emergency, I could save a house deposit, or for a holiday, or a vehicle purchase.

I didn’t have cash coach to help me, I used to do it manually in a spreadsheet and ‘tag’ things simply as a bill or a discretionary spend.
I used an account aggregator that was available as part of my Egg credit card account (which shows his long ago my journey to financial enlightenment started). More recently I used Money Dashboard to keep a check on things, but now that has been kicked as Nova provides me with the oversight and tagging and planning that I need.