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Reverse Budgeting

January 17, 2020

If you decided to focus on improving your budget and cash flow management as your New Year’s Resolution, some questions you’re probably asking yourself are “where do I start?” and “what are my goals?”

Many budgets focus on managing your expenses and trying to eliminate “unnecessary” expenses to save money. This can lead to frustration, trying to resist your temptations which can eventually lead to failed plans because you get discouraged and give up.

We recommend taking a step back and identifying what your savings goals are and what you’re trying to accomplish. From there, take the time to run the numbers to determine how much you need to save towards each goal. These may include a longer-term goal such as retirement, mid-term goals of a house down payment, and/or short-term goals of saving for a vacation. Then determine if the goals are reasonable and achievable and set priorities.

Reverse Budgeting allows you to pay yourself first by funding certain “buckets” of money earmarked towards different goals rather than focusing on eliminating certain expenses and fighting temptation. Once you’ve funded those goals each pay-period, you should feel a better sense of financial freedom to spend the rest on whatever you desire.