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making ends meet – the art of reverse budgeting

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This article will tell you how to budget for your household, or more correctly, how to reverse budget your household.  This means that instead of figuring out how much you can spend, you tell yourself how much you have left to spend.  The clock is ticking, and you will be aware of the tradeoffs you make and the implications in your budget.

The steps to reverse budgeting are:

#1 – Figure out your total income

#2 – Figure out total unavoidable expenses.  This includes items such as rent, you cell phone bill, medical expenses that you have no control over whatsoever.  Your income minus your unavoidable expenses will be your Gross Income

#4 – Put aside a small savings.  Build your savings by putting aside a small, set amount of money.

#5 – Plan ahead – put aside some small amount of money for future expenditures.  Put some money aside for the holidays, save money in order to anticipate emancipation costs for your children.  Always include a small cushion of money in case the unexpected happens.

#6 – Spend what you have left.  Whatever is left over at the end of the month, rolls into next month’s spending money.  Use this money to pay for your expenses, weigh if you can afford to go to a movie, or else keep the money and save for an iPod.

For example: If I make ₪ 6,000 a month:

₪ 3000 is put aside immediately to cover rent, electricity, phone, internet and medical expenses.

₪ 300 is put into savings

₪ 200 is put into planning ahead.  I know that the Tishrei will be here in a few months and I will have to pay shul fees, buy a lulav etc.  Also, I want to have some money set aside in case something terrible, God forbid, should happen.

This leaves me with ₪ 2500 to spend on food, transportation, and having fun.

Now let’s say I am deciding to buy a new shirt and tie.  If I do, then that means there will be less money for other items.  If someone can give me a ride to a destination that normally costs me ₪ 20, then I have ₪ 20 more that I can spend.  The important thing is to know how much you have left as all times.  I like to carry around a piece of paper with a number and ever time I spend money I cross out the number on the paper and replace it with how much I have remaining.  This helps me to keep in mind the cost of my spending and  its impact.

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