With Christmas hurtling towards us, we’re all thinking about money at the moment.
After all the usual expenses — from rent and bills to travel and groceries — you’re no doubt working out how much you have left over to pay for the festive season.
But ‘reverse budgeting’ is a money hack that turns this mindset on its head.
Rather than waiting to see what you have left to put into savings — whetherthat’s for Christmas, a house deposit, or a more general safety net — reverse budgeting is all about prioritising your nest egg before needless impulse buys.
What is ‘reverse budgeting’?
According to consumer champion and Spendology podcast host, Vix Leyton, the concept harks back to finance experts’ favourite mantra: ‘Pay yourself first’.
‘This phrase is often used when referring to reverse budgeting, and it involves making saving your number one priority when it comes to financial planning, flipping the usual approach,’ she tells Metro.
‘Instead of waiting to see what you have left to save over after bills and household expenses, you start by setting aside your chosen amount to save and then work with what you have left.’
A psychological trick
While you’ll still have the same income, reverse budgeting tricks your brain into seeing saving ‘alongside other compulsory outgoings’.
As Vix explains: ‘It takes away the pain point of choosing how much to set aside; like a subscription, or a regular bill, it goes out as a standard not as a sacrifice.’
Essentially, the practice shifts your mindset from ‘I’ll save if I can’ to ‘saving done, the rest of the money is mine to spend’.
‘It also clears the ever present gnawing “haven’t done my homework” feeling you get when you know you should be saving, but you haven’t managed yet, leaving mental bandwidth free for others things,’ adds Vix.
In terms of how to actually do it, your best bet is to transfer the cash via direct debit as soon as you get paid.
‘Automation allows you to set and forget,’ Vix says. ‘Work out how much you want to save and your end game for it, and let your bank do the hard work.’
But be realistic
Once you see your balance rising, it can be tempted to put more and more away. The key thing to keep in mind though, is manageability.
Some people simply don’t have enough spare funds at the end of the month, so going too big at the start will create more pressure and stress if you later need that money — especially if it isn’t in an easy access accountthat allows you to withdraw whenever you like.
‘The biggest mistake is planning your savings based on you on your best day,’ Vix says. ‘If you over-save and end up short later in the month, you’ll just dip back into the pot, undo the progress, and weaken the power of the ringfence you’ve set up.’
She recommends tracking what you spend for a month or two first. Then, once you have a better idea of your actual outgoings (rather than the outgoings you wish you had) you can ‘set a realistic saving amount with margin for mishap and joy.’
‘You can always adjust as your circumstances change,’ adds Vix. ‘The goal is steady progress, not self-punishment.’
To avoid any issues, it’s may also be wise to stick to easy access savings accounts — at least at the start, in case you need to readjust your budget.
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