How To Budget? Don’t Budget. Reverse Budget Instead.

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Don't budget? People say to us all the time, “I think I need a budget”. Conventional wisdom says that if you're trying to save, you need to limit what you spend in order to have something left over to save. Budgeting makes perfect sense – in theory. But budgets rarely ever work because they leave little to no margin for error. They are time-consuming to set-up, tedious to manage and, like dieting, usually result in feelings of deprivation followed by binging followed by guilt. Don't worry, you'll do better next month.


“Budgeting makes perfect sense – in theory.”

We believe that there's a better way – and billionaire investor, Warren Buffett agrees with us. Warren says that you shouldn't save what's left after you spend, you should spend what's left after you save. At Stash we say save first, blow the rest. We call it the Reverse Budget™ – and once we show you how it works, you'll never look back. But first, why we don't budget…


don't budget reverse budget


Budgeting Doesn't Work

Conventional ‘smart money' wisdom has us divvying up the money we earn among the various categories of life: food, dining out, groceries, travel, gas, etc. It suggests we create a limit for each category on a monthly or even weekly basis to help us better understand how much we can afford to spend. It also leads us to set aside a certain amount of savings. The savings number is usually arbitrary: “I think I can save $800 per month.” So far so good. But then…life happens.


“There's no such thing as a typical month.”


One of our clients told us that as they were sorting through their monthly expenses, they noticed that no month was ever “a typical month”. They kept trying to figure out what a typical month meant for their groceries, or what a typical month meant in terms of transportation. They realized that each month, something random popped up throwing their budget out of whack. A rainy month meant more Ubers (been there!), a holiday month meant a higher a credit card bill (been there!), a month when friends were visiting meant restaurant expenses were through the roof (been there!). They just couldn't figure out how much they could “afford” to spend in each category – let alone manage a realistic savings number because they always “needed it”.


How The Reverse Budget™ Works

The Reverse Budget™ was born when we realized that NO ONE actually wants to budget and that life is unpredictable. What we want is to spend our money without feeling guilty or irresponsible.

Using that as the starting point, Stash's anti-budgeting philosophy was born. In a nutshell, we advise that you figure out what you're saving for, automate it, and then blow what's left in your checking account — guilt-free.


don't budget budgeting doesn't work


Here are 4 steps to execute the Reverse Budget™


1) Figure Out What You're Saving For

Studies show that saving for the sake of saving almost never works. Why? Because without a purpose in mind for your savings, it's very easy to justify using that money for something else – something more instantly gratifying. On our complimentary “AM I A HENRY?” call, we always ask about savings. It almost always goes like this. Most people say that they've been saving for months but when we ask about how much they've been able to save up, they answer with hesitation and usually a justification about why the amount doesn't resemble what they'd expected.

Start by thinking about what you're saving for. Break it down into small, tangible goals: travel, a new couch, a downpayment, holiday gifts, a designer handbag. This sounds like a no-brainer, but humor us and please do this exercise for yourself.


2) Use an Online Bank + Nickname Your Savings Account

Once you've decided what you're saving for, DO NOT keep your savings at a brick and mortar bank (sorry Chase, Bank of America, etc., nothing personal). Use an online bank like CapitalOne360, Ally, etc where it'll earn a higher interest. Why? Online banks don't have the overhead that a brick and mortar bank has so they are able to pass the savings on to the consumer.

Secondly, nickname your savings account. If travel is your thing, set up an account called TRAVEL, or better yet, be more specific, call it <destination of your choice>. When you see a cute sweater but have blown through your cash for the month, you'll be much less tempted to tap your savings when you know you're basically stealing from your Turks & Caicos trip!

CapitalOne360 allows you to have up to 25 savings accounts!
Here are some of the ones we recommend:
-Emergency Fund
-Holiday Gifts
-Tips for Doormen
-Extra Pet Care
-Baby Fund (if you're trying to get pregnant in the next 6-12 months)


3) Figure Out How Much You Need to Save and Automate It

Next, decide how much you want to save for each account:
Travel: $1500 (that's $125 per month or $62.50 per pay period)
Pet Care: $300 (that's $25 per month or $12.50 per pay period)
Holidays Gifts: $1000 (that's $83 per month or $41.50 per pay period)

Set up a direct deposit from you checking account to automatically move the savings over to the proper account on the day the funds hit your checking account (pay day or a lot of our clients do it the next day – just in case). This way, it's gone before you have a chance to spend it.


4) Blow What's Left Over

And finally, after you've set up and automated your savings, whatever's left in your checking account is yours to spend, guilt-free!


Stating The Obvious: The Pushback

Upon hearing how the Reverse Budget™ works, the critics say: “what if there's nothing left over?!” Well, then you're probably saving for a life you can't afford or a victim of lifestyle creep. It's harsh but it's the truth. So before you decide that it won't work for you – give it a try.

Most people feel like there's no extra wiggle room in their situation, but for all of the hundreds of H.E.N.R.Y.s™ we've worked with, that's almost never been the case (less than 5% of the time). Start small with your savings goals and build from there – because starting small is better than not starting at all.

We know you can do it! And it's so much easier than budgeting!!

Don't budget. Get started with the Reverse Budget™ and put your savings strategy on auto-pilot today.


Related: Lifestyle Creep and Living a Life You Can Afford

don't budget lifestyle creep

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Priya Malani is an entrepreneur and founding partner at Stash Wealth, a financial planning firm for H.E.N.R.Y.s™ [High Earners, Not Rich Yet]. After years of working on Wall Street, Priya left to work with Millennials, who are largely ignored by traditional financial firms. Stash’s clients are 20 + 30-somethings who make good money and want something to show for it. In addition to running Stash, Priya serves as the Resident Financial Expert for Refinery29. She is a featured expert on numerous sites including Gawker, The Coveteur, Shape Magazine, Bustle, PureWow, Brit + Co and Forbes. She speaks regularly at business and universities around the country and has been invited to speak at Cornell, Harvard, New York University, Yelp, Twitter, Blue Apron, IBM and more. She appears regularly as the Millennial Money Expert on SiriusXM Radio’s Wake Up With Taylor broadcast.

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