Monday, November 7, 2011

Try Reverse Budgeting

I'm usually the one that keeps track of our finances. Every once in a while, Neil will get interested in it (usually because we've run out of money before the end of the month and gets worried I'm spending too much)<--mostly that's true. ;) But his response is usually the same. "WOW! We have a lot of money in X account or in our IRA or money market accounts. I wasn't expecting that." So, in a nutshell, our primary checking account flucuates a lot and is usually low at the end of the month, but all of our other accounts are growing.

I used to be one that loved working with numbers, I would have spreadsheets with very detailed entries about what we spent and worked with a debt paydown tool to reduce my school loans. As I've gotten more busy and have gotten other interests, I don't spend any time on this anymore, nor do I have any inclination to do so. This has been brought back to light after doing just one week of keeping track of food expenditures. I don't like doing it! So what I've been doing instead is figuring out where we want to be at the end of the year (with regards to IRAs, saving to pay for owed taxes, and baby needs). Split between 12 months (or actually 26 pay periods), I've channelled the amount of money we need out of Neil's pay check (because it's easier to do that with mine) and it's direct deposited either into a different savings account we don't have a lot of access to or to our IRA accounts at a bank in Chicago. So, we NEVER see that money and it makes our primary checking account look smaller than it should.

I didn't know there was a name for what I was doing, but I found it today while looking at a finance blog entry called the Fine Art of Reverse Budgeting. So, we've been Reverse Budgeting. We set predetermined savings goals and then with the leftover money we let the chips fall where they may. This explains why we sometimes run out of money at the end of the month.

I came to realize that even though we are saving a lot, we aren't saving enough or for the right stuff. We want to buy a house someday and right now we only have $7,000 saved for that. With 20% down, that would get us a house worth $35,000. As far as school loans go, I have paid off 2 of them and boy did that feel good! I still have 2 more to go and I shifted to just paying the minimums because we kept running out of the money at the end of the month. That has got to stop. We're saving enough to fill Neil's IRA, but not mine, so we need to bulk that up. And lastly, we're going to have a baby! We will need a 529 plan or something for her. I don't want her entire college career paid for, I think it was a REALLY GOOD life lesson to have to pay for that myself and be responsible for the debt it created.

So, how are we going to be able to bulk up our savings, with a new baby on the way, and running out of money all the time? One word: Minimalism.

More on that later.

1 comment:

Linda Oelrich said...

This sounds confusing. But good luck if you keep it up.