Allocating out all your paycheck each week to pay bills can be disheartening.
Reverse budgeting keeps some of that money in your pocket and helps you feel like your hard work is benefiting you in a more direct way. By the time monthly bills and everyday expenses are paid for, it can be hard to find extra money for savings. This budgeting strategy encourages setting aside money for things like retirement, savings and debt before paying for other expenses. Acknowledging what influences you is key to a successful reverse budget.
Paying yourself first is a personal finance strategy that prioritizes saving and helps limit spending.
Essentially, you pay yourself first before working out what to do with the rest of your income. But it’s still important to keep up with debts and other bills. Falling behind on those could ultimately result in damage to credit and extra expenses in the form of interest charges and fees. Make sure to keep up with the necessities as well.
Reverse budgeting treats saving as a mandatory expense—like rent, utilities and groceries.
While you may feel convinced to skip contributing to your savings or only save what’s left at the end of every month, doing so may keep you from accomplishing your financial goals. This method helps to set aside money that can be used for things like an emergency fund, college tuition, debt repayment, a down payment on a home, or adding to your retirement.
Monthly expenses and spending can be managed while still putting a portion of money away.
The easiest way to do this is by setting up an automatic transfer for some of each paycheck to go directly into a savings account, retirement account, investment or other means of savings. Rather than setting spending limits on specific categories such as food delivery, give priority to savings. As part of a purposeful approach to building savings, paying yourself first is a way to stay focused on long-term financial well-being. Keep in mind, you need to stay disciplined to make this work for you, but seeing your money “do something” more directly to benefit you is a great motivator.
