Reverse Budgeting 101: Quick Guide to Revive Your Finances

By now, you probably tried different budgeting methods. Unluckily, none of them worked for you. No matter how you adjust your cost of living, your money seems lacking. 

Maybe you should try something new. Focus on yourself rather than the expenses. Try out the Reverse Budgeting Strategy. 

Here’s what you need to know about reverse budgeting and how it can help revive your finances.

What Is Reverse Budgeting?

Reverse Budgeting is famous as the pay-yourself-first method. It prioritizes building your spending plan around savings goals. Afterward, you figure out the rest of your budget with what’s leftover. 

For example, you focus more on your retirement plan and investments instead of fixed and variable expenses. Nevertheless, you will not jeopardize the necessary costs. You still divide funds for housing, utilities, and insurance. 

This budgeting style suits certain people best, especially those who have a hard-time saving by the end of the month. 

So, if you want to be on top of your bill and obtain a desirable outcome, enforce this method. It forces you to check all your spending habits. Putting your savings and needs ahead of your wants keeps you on the financial track. There’s no need to worry about not meeting your savings goals before your next paycheck. 

Budgeting in reverse makes investing and savings your top-most priority. But not to the point of sacrificing your basic needs. 

Advantages Of Reverse Budgeting

The pay-yourself-first budgeting method is popular because of the following reasons. 

Easy to use

This budgeting strategy does not need a financial advisor. You don’t need to be an expert with complication equations. 

Make a financial plan based on your target savings. Adjust when necessary. Find out what works well in your financial situation. 

However, even if reverse budgeting doesn’t require a financial advisor because of its ease of use, it might still be essential to identify your sacred money archetype or money personality to help you manage your budget well. Knowing your money personality might help you promote self-awareness of your finances. The more you know about your personality, the more you can create a financial plan that will work best with your reverse budgeting efforts. So, if you want to know who you are in terms of money, take a Sacred Money Archetypes quiz now and get ready for a better financial future. 

No need for constant Budgeting

Most budgeting methods need constant checking of your balances. Overlooking sometimes results in a fall short of budget goals and overspending, which can affect your overall budget. 

On the other hand, you can go easy with reverse Budgeting. Once you set your plan on the table, you can secure your savings. There’s no need to check and recheck now and then. Adjust the rest for your bills and other necessities. Consequently, you can rest knowing your budget covers your savings; hence, there’s no need to adjust your budget from time to time to cater to your savings. 

Focus on big goals

Reverse Budgeting always looks at the big picture. Its attention is more on your goals instead of the nitty-gritty. 

Always aim for the prize. It keeps you on the ground, especially if you fall short of this method. These big goals might include your retirement and other long-term financial goals. 

For example, reaching retirement age means you stop working. So, you need a significant amount of savings to ensure a financially stable retirement life. This can be one of the big goals associated with reverse budgeting. Instead of tackling the short-term financial needs, reverse budgeting considers your financial future, making it one of the best personal finance management solutions nowadays. 

Match with automation

Working your budget in reverse is convenient. Once you receive your paycheck, depositing your money into your savings and investment accounts is easy. 

Set into your account how much amount you must transfer. Many savings and investment platforms online automatically deduct the amount of money you want to deposit, making the entire reverse budgeting automated and easy to manage.  Because of this, achieving your financial goals with automation is more likely. Save yourself from the temptations of withdrawing more than you should. 

These are the perks of the pay-yourself-first method. It is so clear why many choose this budgeting strategy and succeed in achieving their financial goal. 

Disadvantages Of Reverse Budgeting

Just like other budget methods, reverse Budgeting also has its cons. 

It is not for everyone.

Some people need a stricter budget for their financial situation. Sometimes, reverse Budgeting is not enough. If this happens to you, try another budget method out there. 

Not for people with a lot of debt

Having student loan debt and auto-loan debts is not suitable for reverse Budgeting. If you are in these situations, we advise that you try out other budgeting systems. Sometimes, zero-based Budgeting or the 50/30/20 budget rule of thumb works better. 

Not fit for overspenders

Overspending is inevitable, especially if the budget strategy you use is not for you. If this occurs to you every month, we suggest you pick a stricter budgeting tool. Also, it would be best if you track all your spending. Write down all the details about it so you can tackle your overspending more. 

Reverse Budgeting may or may not work for you. But we believe that for every financial dilemma, the best budget method will save the day. 

Quick Guide About How Reverse Budgeting Works

Follow these step-by-step guides and experience how magnificent it helps your financial struggle. 

Step 1. Assess your spending

Everything starts with a complete assessment. Without proper evaluation, your financial plan might lead to turmoil. 

Do this by writing all your income, savings, and spendings. Know your goals and spending. This way, you can determine how and where you spend your money. 

Find out how much it costs your essentials, groceries, credit cards, and shopping. Also, take note of your short and long-term financial goals. Don’t forget to jot down home buying or car purchase, if you consider one. 

Step 2. Decide how much your goal is.

Now that you layout all your spendings and goals, you figure a clearer view of your budget. Determine your actual target amount. How far are you from reaching it? Identify how much you need to set aside each month. Allocate a rational number. Try using the 50/30/20 approach. Don’t forget to give a room for both your bills and some leisure. 

Step 3. Identify saving goals

List all your short-term and long-term savings goals. Prioritize saving for retirement and emergency fund. Then, your other goals like travel, house, and new appliances follow. 

Pick which one you will focus on first. Afterward, decide how much you need to save for that specific goal. Find out how much you can afford to take away every month. Use the 50/30/20 method as your guide. 

Step 4. Invest in yourself

On your next paycheck, invest in yourself first. Add funds to your savings and investing accounts first. Follow the amount you calculated earlier. Then use the leftover money for your bills and entertainment. 

Step 5. Pay your bills

You now know how much to set aside each month. Your next step is bill payments. Based on your assessment, how much do you spend each month? Include all bill types, especially the monthly subscriptions. 

Evaluate if those subscriptions are necessary. If not, cancel them at once. Once you paid all your bills, you can find out exactly how much you need every month. 

But if your bills still exceed what you expected, better get a little help from licensed cash lender. This way, you will be able not to use your saved money. 

You can look for a flexible loan from a local money lender Ang Mo Kio. The great thing about money lenders is that they give borrowers flexible options to repay it without any pressure.

Step 6. Learn and adjust as necessary

The first months of reverse Budgeting might be confusing. There are instances where you might put aside too much or too little. Don’t stress yourself out. It happens to anybody. 

If this occurs to you, adjust your budget as needed. Don’t give up. Keep prioritizing your investment and savings. 

Fulfilling reverse Budgeting is as easy as that. There’s no need to trouble yourself with a financial advisor. 

There are tons of budgeting strategies. Choose which one suits you best. Reverse Budgeting is the best for most people. Once they have secured enough money for savings and bills, they can spend the leftovers without feeling guilty.