Conventional wisdom says that if you're trying to save money you need to first limit what
you spend in order to have something left over to save.
This is how most budget methods operate.
They have you track all of your expenses and figure out how much you need to put towards
each category and then whatever is left over after expenses is what you save.
However not every budgeting method works like that, and today we're going to cover one of
those budgets.
Hey everyone Daniel here and welcome to Next Level Life a channel where you can learn about
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Today as you can no doubt tell from the title we're going to be discussing the reverse budget
also sometimes known as the pay yourself first budget.
You'll notice some similarities between this budgeting method and some of the other ones
I've covered on this channel because the principles behind it are similar.
The idea behind the reverse budget is to figure out what you're saving for first, make your
savings automatic, and then blow the rest that's left over on whatever you feel like
guilt free.
This makes it a much more hands-off budget than most other methods.
And in today's video, I'm going to walk you through the three steps to set up a reverse
budget as well as talk about some things to keep in mind if you decide to use this budgeting
method.
Let's get started.
STEPS: So the three steps to set up a reverse budget
are as follows: first figure out what you're saving for, second figure out how much you
need to save to meet your goals and then make those savings automatic, and third spend whatever
you have left over in your checking account without feeling any guilt.
Studies have repeatedly shown that saving just for the sake of saving almost never works
because without a purpose in mind for your savings it's very easy to justify using that
money for something else.
After all, as far as you knew at the time it wasn't really going towards anything more
than a vague idea of a rainy day or something similar.
That is
why figuring out what you're saving for is so important.
You need that purpose.
and you don't want to just have titles such as travel, that's certainly better than nothing
don't get me wrong but it doesn't really paint a vivid picture.
You want a dream and high-definition like Chris Hogan always talks about.
Where are some of the places you would want to travel to?
What experiences would you want to have in those places?
How much would doing that actually cost?
The great thing about asking these questions is not only does it often times get you excited
about the possibility of doing what you're thinking about but it also gets you to start
researching online and trying to find ways to do what you want for less.
You'd be amazed how much money you can save especially on something like traveling the
world if you do some research beforehand!
There are tons of blogs out there that are dedicated to just giving you ideas on how
to save money when traveling and I can say from personal experience they are very, very
helpful!
And for goodness sakes don't just estimate on that last question!
I know so many people that have tried to estimate how much their dream would actually cost and
basically talk themselves out of trying to reach their dream right there on the spot
because they estimated without doing any research and their estimate was way too high.
Trust me do your due diligence, do your research, you won't regret it.
I would also recommend breaking your goals down into smaller bite-sized chunks if possible.
In my experience doing this generally makes the goals, especially the longer-term ones,
seem less overwhelming.
And at least for me that makes it a lot easier to actually take action and start tackling
them.
One idea would be to break them down into short-term, intermediate, and long-term goals.
Short-term goals would be anything you want to do in the next five years whether that
be traveling to another country, buying a new car, or whatever floats your boat so long
as it's within the next 5 years.
Intermediate would be maybe 5 to 15 years and longer-term goals will be anything over
15 years.
This is obviously just one example to help give you an idea what I'm talking about you
can change the time periods to whatever you want.
Or even use an entirely different system that would work better for you.
The point is once you have those goals written down it becomes much easier to figure out
how much you need to save per month to be able to achieve that goal when the time comes.
Once you are satisfied with your list you can automate your savings to make sure that
you hit your goals.
After that, you can spend whatever is left over without worrying because you know you
already have your future covered.
As I said that's kind of the upside to using the reverse budget is it's very low maintenance
compared to some of the other budgeting methods that I've covered such as the zero-based budgeting
method.
Since the reverse budget is mostly automatic (or at least the important parts of the budget
are automatic I.e.
your savings), there shouldn't need to be a whole lot more than tweaks along the way
as your priorities change.
As you can tell the theory is very similar to the automatic budget I covered earlier
on this channel.
The downside or possible downside to using this budget similar to other more automated
budgets that I've covered in the past is you can either save too little or too much and
put yourself in a position where you either don't have enough money when you reach retirement
or that you aren't able to meet your bills in the present.
Obviously, this is a little bit of a trial-and-error situation if you're just starting to use this
budget and there's nothing wrong with being conservative when you're starting out and
then increasing the amount that you're saving to meet your goals as you go along.
So that's my big tip if you're feeling a little bit nervous about using this budget but want
to give it a try.
So that's how the reverse budget works.
As always if there are any other types of budgets that you want me to cover let me know
in the comments below.
But that'll do it for me today once again if you enjoyed this video be sure to subscribe
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