Saving money is crucial for everyone, yet it’s something most struggle to do. One way to start saving is to use the “pay yourself first” budgeting method. Pay yourself first, also known as "reverse budgeting”, is one of the most effective and simplest methods for meeting your savings goals. It allows you to fund your saving goals first then use the rest of your money on your variable expenses or however you like. The pay yourself first method is easier than other types of budgeting because tracking your expenses is no longer a problem. As long as you’re prioritizing your savings, and all your expenses are being covered, you’re good to go.
Five Steps to building the “Pay Yourself First” budget
Although this budgeting strategy may sound easy, starting it can be a bit tricky at first. So, here’s a guide to setting up your own reverse budget:
1- Assess your spendings
People misunderstand the strategy of ‘pay yourself first’ by neglecting their financial responsibilities in pursuit of saving goals, which is not the case here. Creating a budget means reviewing your spending & categorizing them, so you can keep track of where your money is going.
2- Identify your saving goals
Listing your long-term and short-term goals should be the second step. You can assign different amounts to each goal and decide how much you need to save each month to reach it. You can start by picking one goal or a few goals to focus on, depending on your saving priorities.
3- Set up automatic transfers
Once you’ve decided on the amount you’re saving, set automatic transfers that fund your savings account. Setting these transfers removes the possibility of forgetting to do it and prioritizes your goals.
4- The rest of the money is yours
The best part: spending the rest of the money however you like, without the stress of overspending. Your savings money is already in your savings account, so the rest is yours to spend on your own terms.
5- Make Adjustments
It’s pretty normal if it doesn’t go well from the first try. You may find it hard when it comes to covering all your expenses, which is why you’ll need to make adjustments until you find the ideal amount you want to save.
I know budgeting may not sound like fun; however, changing the way you think about budgeting can make it much more interesting. For example, you can try to gamify the process by rewarding yourself when you stick to your budget. In the end, budgeting is not only about discipline but also about creating a plan that best works for you.