“Pay Yourself First” to Save More Money

When it comes to formulating a budget, a line-item budgeting model is what we often see, where one focuses on the expenses rather than the savings.

This type of budgeting style details a precise amount of money for different spending categories, and just end up saving whatever amount they have left before the month ends.  Unfortunately, not everyone is lucky enough to still have remaining money at the end of each month.

If you are one of the “unlucky ones,” I guess it’s time to reevaluate your budgeting method (and your spending habits too…) because it doesn’t sound like this one’s working for you.

One financial game plan that you might want to consider is doing the total opposite of what you are doing right now – think “reverse budgeting.”

Reverse budgeting focuses on savings.  Basically, you just have to figure out how much you want to save and spend the remaining amount of money for the rest of your expenses.

So yeah, you just always have to remember to pay yourself first.”  Simple, yet not many do this.

To help you get started, here’s how to do the Reverse Budget Method:

First, you need to figure out how much you may be able to save each month.

When I say “pay yourself first,” that doesn’t mean without considering your important fixed expenses, such as rent, insurance, kid’s tuition fee, etc. Remember that the amount allocated for coffee runs, gas, groceries, eating out and other leisure purchases every month are clearly out of the picture.  These are variable expenses and the culprits of your overspending.

So before jumping into the savings department, you need to do a little math first – subtract your fixed monthly expenses from your monthly income to get an idea of how much you can pay yourself with.

Once you got that already figured out, it’s time to decide on how much you are really willing to give.  It’s highly recommended to pay yourself as much as you can based on the amount left over after subtracting your fixed expenses.  But make sure to make it realistic and leave a wiggle room for emergencies or other unexpected expenses.

Next, is to set savings goals to help you decide on how much money you need to set aside for savings.

Your goals can be as big as saving for retirement or a house, or just simply paying yourself in advance for a dream vacation or items from your wish list.

To make sure that your savings stays untouchable, make “paying yourself first” automatic using a separate savings account.  Your options would be setting up an automatic transfer wherein your savings bank will automatically debit your checking account once your salary is deposited or just ask your HR department to split your direct deposit between checking and savings account.

Now the money left is what you can only spend for all your monthly variable expenses.

The best thing about this is that you will be encouraged to make wise spending decisions, become frugal (but not cheap) and find other ways to boost your income.

Remember, budgeting take time, patience and a bit of trial and error.  What works for others may not work for you, and vice versa.  So don’t be afraid to try out different methods. Someday, you will surely find a budgeting style that is best suited for you.

I hope this blog post helps. :)

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