Standard budgets focus on tracking recurring monthly expenses such as rent, utilities and food costs; these budgets are designed to allocate your entire income every month. Negative budgets instead place percentages of your income into various categories based on your spending habits.Photo by Ken Teegardin.
Start a negative budget by placing your income into each category you need to track. Let’s say you make $2000 net per month and in addition to your $500 rent you need to account for petrol, food and upcoming holiday, entertainment and emergency expenses. Your rent is a fixed cost at 25 per cent of your income so you’d automatically setup that percentage, but the remaining 75 per cent of your income should be divided as you think works best. In this example we might put 10 per cent toward petrol, 25 per cent to food, 10 per cent to the holiday fund, 15 per cent for entertainment, and 15 per cent for emergencies.
Finance blog Get Rich Slowly explains in more detail:
This method also saves me a lot of time. I don’t track every penny that goes out. I simply make sure that every dollar comes from the proper pot. I call this negative budgeting because I count down from what I’ve budgeted rather than adding up what I’m spending. Having a budget this specific isn’t for everyone, but it makes sure one type of expense isn’t dependent on anything else. If you’re the sort to put off a vacation because your dog had to go to the vet – or even worse, putting off getting that sore knee looked at because Christmas is coming – this type of method might be for you.
Negative budgeting is definitely not for everyone, but it can offer an alternative if standard budgets don’t work for you. Even better might be a hybrid where you use a standard budget for fixed costs and a negative budget for irregular expenses.
Reader Story: Budgeting and a Healthy Outlook on Life [Get Rich Slowly]