YNARB

You can be forgiven for thinking the title might be one of those off-brand product names that seem to have taken over Amazon.  I’m not sure who’s advising Chinese companies, but Fncle and Legmeeth are not brands that carry a lot of cache in the US high-end electronics market. I digress.

YNARB probably sounds like a pre-attack checklist developed by WUGs trying to earn reputational glory for instituting the most efficient method inter-flight CAS briefs. (I’m looking at you FROTIES guy 😊). YNARB actually stands for You Need a Reverse Budget. Hang with me.

Mint-Free

A small subset of my fellow nerds are still lamenting that Mint.com, a free and quite useful budgeting/money tracking tool met an untimely demise recently.  To use the remaining tools that do a good job focusing on secure account integration, you’re probably going to have pay $10/month or more.  YNAB.com (You Need a Budget), Monarch.com, and several other services do what Mint.com did, but if free is the price you like pay for budgeting tools, you might be back using Google Sheets.

Why YNARB?

Budgeting is a four-letter word. You can put lipstick on this pig by calling it cashflow planning, or spending planning, but very few people actually like budgeting. The list of reasons to hate budgeting is long but distinguished:

1. You’re busy. Most people reading this article have more money than time, more to-do’s than time, and more fun things to do with their time than mission plan for dollars, then flight follow dollars, then finally debrief about dollars.
2. It’s tedious. A quick glance at your credit/debit card statement will not be quick. Especially if multiple family members are spending off the same card, it’s not uncommon to have hundreds of transactions per month. Sure, it could be fun to parse each transaction into a category to validate that you’re overspending on Fabergé Eggs and Beanie Babies…
3. It’s contentious. Money fights devour marriages. Stepping into the marital octagon to duke it out over who’s porking up the family budget worse may have long-term side effects like… hiring separate lawyers.
4. You’ve already earned money merit badge. If you’re not worried about over-spending, why put in the effort to budget? There are no gold stars earned for unnecessary budgeting.
5. Scar tissue. Budgeting can feel like some authority figure from your past is staring you down like the eye of Sauron, shaming you for your money choices.
6. If there’s one thing worse than PowerPoint, it’s probably a spreadsheet.

Unfortunately, left to our own devices, most of us will spend more than we ought to/wanted to/meant to/needed to/etc.  What gets measured gets fixed. If we don’t use some method of directing and managing our money, we can limit our future decision space by spending too much today when we needed to save for tomorrow.

Enter the Reverse Budget

A reverse budget is simple methodology to (hopefully) eliminate the tedium, marital fight club, time poverty, and other unwanted aspects of traditional budgeting. The path to a reverse budget is:

1. Automate retirement & other savings.
2. Automate monthly bills.
3. Determine the floor you want in your checking account.
4. Spend as desired, but don’t go below the floor.

Just because it’s simple, doesn’t mean it’s easy… at least to get started.

Automating retirement and other savings implies that you know how much you need to be saving, in which accounts, and that you’ve set up the automatic investing (and that it’s going into the right investments—not just piling up in cash.) If you’re not sure how much to save, talk to your financial planner. If that person is in the mirror and isn’t sure of the answer, let’s chat.

Automating monthly bills is easy these days, but it’s probably still good to have an annual reaping where one or two subscription services offer up a tribute that you ceremoniously cancel.  For lumpy bills like electric or gas that might fluctuate seasonally, the padding built into your floor should account for variance.

Maintaining a floor in the primary checking account doesn’t work for everyone.  Clearly, bouncing checks is poor form and punishingly expensive, but some people see dollars and think spending capacity.  If that’s you, a reverse budget might not solve the spending problem. Contentment and amputation of spending clutter might be worth looking into first.

The hard deck is there for your spending safety and that of your family.  Keeping a floor, say $1K, $5K, or more in a checking account creates padding for minor excursions in spending. This is a key reason why reverse budgeting works: It’s easier to keep an eye on proximity to the checking account floor each month than it is to review, categorize, or otherwise flight follow each transaction.

***NOTE***

In today’s interest rate environment, keeping excess cash in your checking account at zero-point-nothing interest rate is an unforced error.  This is a great article about what to do with cash.

Just like in BFM, you can’t go through the floor just because you want to. But if you’ve already paid yourself first with monthly saving and investing, your bills are paid, you’re not carrying credit card balances or taking on other spending loans, and you’re not raiding savings to get through the month, then a reverse budget can simplify money management.

Reverse Budgeting Advantages

Simplicity isn’t the only advantage of reverse budgeting.

1. Cards, Points, and Perks. Many folks use one or more credit cards for nearly all monthly spending to try to get as many travel and cash perks as possible. While this demonstrably encourages overspending, it’s very compatible with reverse budgeting. You can see what the card balance is as you’re getting to the end of the month and compare it to remaining cash in the checking account.  Again, this is easier than tracking transactions.
2. Priorities. We save so we can defer gratification and provide for our future. Nearly all of us say this is a priority, even if our ambient spending habits say otherwise. A reverse budget knocks savings out first.  If we can keep ourselves from spending into the red ink (literally a requirement…) then a reverse budget is like eating vegetables first—it takes care of our future self and lets our present self get on with the fun stuff.
3. Flexible. A reverse budget adapts easily. Rather than tweak 69 different categories, you can change the amount you save, the allowable floor in your checking account, or what you spend overall (probably by focusing on the leakiest spending categories).
4. Human Hacking. No, not the B-Flick movie type… the behavioral stuff.  It’s natural to skew away from unpleasant things like saving and tracking dollars. Hacks are simplistic ways to get around barriers.  A reverse budget is lightweight lift compared to other methods of making dollars behave.
5. Agency. Feeling like we’re in control and making the decisions our way gives us a sense of agency. If spending is out of control, we don’t feel like we’re flying the jet—it’s flying us.  Knowing that we’re executing a plan helps us feel like we’re in control and en route to the target.

Is Reverse Budgeting Really that Simple?

A reverse budget really can be simple, but chances are you have some ingrained financial methods that you might need to integrate into your reverse budget.

Perhaps you use “electronic envelopes” to manage lumpy spending categories.  This is no different than automating longer-term savings.  Decide how many dollars need to go to the vacation or veterinary fund and get those moves automated.  When you spend on those categories, whether on a platinum “convenience card” or from your primary checking account, just move the dollars back from your electronic envelope.

Maybe you’re a holdout for cash (keeping Dave Ramsey’s heart warm). Great news, reverse budgeting works great for that.  You’re really just substituting the spending portion by using cash instead of plastic.

What if Reverse Budgeting Doesn’t Work?

No budgeting method is flawless, nor should one be considered permanent.  Regular budgets are like diets for many families, they rarely survive contact with the second month.  Just like any more detailed budget method, willingness to adapt and modify the process rather than quit the process is probably more important than perfecting the process.

Cleared to Rejoin

Regular budgeting is tedious and riddled with more #failshame than diets and exercise in the first week of February. Reverse budgeting solves a lot of forward budgeting’s problems.  It reduces workload, prioritizes saving, and focuses on fewer moving parts—the checking account floor and potentially leaky spending categories. Maybe YNARB… You Need a Reverse Budget?

Fight’s On!

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