Written by: Drew Feutz, CFP®
If the beginning of the year is the time when we’re supposed to get on track towards reaching our goals, the end of the year is when we can often go off the rails. Between wrapping things up at work and finishing out the year strong, with holidays and cold weather piled on top, the end of the year can be busy and overwhelming. This can lead to not exercising as regularly as we usually do, eating more than normal, and…blowing through the budget.
Budgeting is not something that we often discuss with clients. In fact, I have found that many of our clients don’t want us to dive into their day-to-day spending, analyze everything, and make suggestions of where to cut back.
While our clients hand over information about their entire financial lives to us, spending can be very personal to some and not everyone is comfortable sharing. On the other hand, many clients have no problem at all sending us their full credit card and bank account statements.
Regardless of which camp you’re in, you may be surprised to hear that we truly don’t care what you spend your money on day-to-day as long as you’re following our recommendations and doing what you need to do to reach your financial goals – saving enough for retirement, paying down debt appropriately, not accruing new debt like credit cards, etc.
A Real Life Cash Flow Example
In a recent client meeting, the couple I was with brought up that they have been struggling with managing their personal spending. They told me that they give each other a budget each month, but one spouse always spends more than their allotted amount. Sometimes both will go over their budgets. While they see this as being an issue, they don’t want to micro-manage each other’s spending.
After hearing about this dilemma, I introduced the concept of reverse budgeting to them. This concept can help us move away from worrying about every little day-to-day expense and whether one spouse or the other spent more than they were supposed to.
Reverse budgeting is the concept of ‘paying yourself first’. In other words, when you prioritize saving for retirement, saving for short-term goals, and paying down debt you can spend whatever is leftover without worrying about where every dollar goes. If you’re able to meet all of your financial obligations, including those I mentioned above, then why does it matter what the rest of your money is spent on?
Everyone has different preferences and people find happiness in different things. Where you choose to spend your money is unique to you. What truly matters to us is that you’re on track to improve your finances and reach your goals while spending money on the things that you enjoy.
(Of course, I still encourage tracking and reviewing your spending as it can be an extremely helpful habit. Doing so can help you be mindful of where your money is going, evaluate if you’re actually spending on things that you value or if there are areas of waste, and can help identify and prevent fraud.)
Stay On Track With Reverse Budgeting
Sometimes, staying on track towards reaching a goal means that things need to be simplified. This can be especially true regarding personal finances. If you can make hitting your financial goals your number one money priority (preferably through as much automation as possible) and you’re able to consistently make progress and achieve those goals, then you will have the freedom to do what you want with the rest of your money and not have to agonize over where every dollar is being spent.