Upside-Down Budgeting

Want to reach a goal? Make it a priority, not an afterthought.

You’ve decided that you really want to lose a few pounds, tone your muscles, and enjoy the feeling of being physically fit. It only makes sense to allocate time to exercise, right.

Is this the best way to achieve your exercise goal?

Are you going to get the type of body you want exercising 15 minutes a day? Of course not. The method used above is not aligned with your physical fitness objectives. If you plan to use time that’s “left over” for exercise, you might as well not bother dusting off your workout clothes.

The person who is truly motivated to get in shape will put exercise at the top (or at least near the top) of their list of daily activities. They will adjust other items in their schedule to fit within the 24-hour day. Perhaps they will cut TV time by 30 minutes. They might change their work hours to achieve shorter commute times. Perhaps reading and sleep can each be cut by 15 minutes.

The point is that if you want make a change in life, you need to put the important activities (especially the new ones) at the top of the list and make everything else fit under them. If it’s important to get in shape, don’t limit yourself to a few left-over minutes at the end of the day.

Saving Money Is Like Working Out

Today, one of the emails in my inbox was from Pinterest. The subject line was “12 Pins to get you inspired.” I cannot say that any of them really got my juices flowing. Because personal finance is the area I work in, one did catch my eye: “5 Steps to Managing Your Budget Like an Adult.” So, I clicked the link. It took me to the graphic you see, below.

Like the exercise schedule I created, above, this is a “pick up the leftover scraps” form of budgeting. If you want to get in shape, schedule it as a priority. If you want to save money each month, make it a priority. This template identifies savings as 'what's left' (in red box). The reality is that is the model people are living without using the template. How as that been working out for them?

Over the years, I have frequently heard people say, “At the end of the month, there is never any money left to save.”

If you are experiencing the same result (too much month left at the end of the money), don’t waste your time documenting what doesn’t work. That’s all the upside-down budgeting template will do.

Saving money needs to be at the top of the list, not the bottom.

“But I can’t afford to save!”

Really? I will argue that you can. It may not be easy. It might require some sacrifice. For many, saving money always seems like an optional exercise or a habit to start with the next pay raise.

To begin saving money each month, you simply need to put it in a different context. If you view saving as something you do with leftover money, you’re right—you cannot afford it. Leftover money is rare.

Let’s change the context. You work for a fast-growing, venture-funded company. Your boss calls you into her office. She informs you that you have an opportunity to have 10 percent of your compensation go toward buying company stock. Although nothing is carved in stone, the company plans to go public within 2-3 years.

There is an opportunity for you to earn thousands of dollars of profit. This would put your goal of buying a house on a fast track. Could you find a way to ‘get by’ with 10 percent less pay? If you’re like most people, you’ll find a way. How? You put that monthly investment at the top of the budgeting list, rather than the bottom. In this case, your employer does it for you, which automates the process.

The odds are that your supervisor won’t make the same offer. However, many of you have the opportunity to begin—or increase—your 401(k) contributions. If you are not taking full advantage of an employer matching contribution, you are missing out on ‘free money.’

The End of the Month Still (kind of) Looks the Same

People who put monthly saving and investing at the top of their budget soon discover that they experience the same result at the end of the month. They still have little or no money left in their checking account. However, their savings and investment balances have increased.

That Pinterest budget? It should be renamed to “5 Steps to Managing Your Budget Like an Adult Who Never Has Any Savings.”

You need to ignore ‘upside-down budgeting.’ Move savings and investments to the top of your monthly budget. You’ll still be broke by next payday, but you’ll be accumulating wealth at the same time.