When creating a budget, it’s easy to get caught up in the immediate expenses- utility bills, student loans, groceries, rent. With so many things pulling at your income, it can be difficult to make savings a priority. How can you make a financial plan that starts with the end in mind?
Reverse budgeting may be the solution! Try applying this method to help you save money more intentionally.
Set A Goal
There’s no use in making a financial plan without a prospective goal. Are you trying to have enough money for a down payment on your first house? Are you trying to set some funds aside for early retirement? Whatever the case may be, it’s important to know where you’re headed before you determine the best route to get there.
In order to be effective in your goal setting, it’s good to distinguish between short-term and long-term targets. Prioritize savings between items that need to be paid for immediately and expenses that can be paid off over time. Budgeting with this kind of specificity is crucial to ensuring that you stay on track as you earn, save, and spend.
Pay Yourself First
The phrase “pay yourself first” is a practical strategy for making savings a priority. When you receive portions of your paycheck, transfer money into your savings account before anything else. You want to be proactive about the areas in which you allot your money, not just reactionary to the last minute expenses that stress your pre-planned budget.
Fixed expenses are essential to pay off, as well as charges that vary between payment periods. Nonetheless, you can still choose to put money into your savings account before addressing any other costs.
The 50/30/20 rule is a practical guide to addressing all of the pressures being put on your paycheck. It suggests that you use 50% of your income for things you need, 30% to purchase what you want, and 20% to set aside in savings and the repayment of debt. What falls into each category is up to you. Whatever you deem to be an urgent purchase will help you to realize what your priorities are. This rule also assists you in being intentional about savings, which can be easily neglected if they are not planned out prior to placing that sum of money in savings.