I wouldn't consider myself a budgeting type of person.
To me, budgeting is like going on a very strict diet and it's no wonder why most traditional budgets fail.
Despite that fact, I knew that I had to come up with a simple savings plan if I wanted to achieve my goal of buying my first home.
So, one day, I decided to learn how to create a budget plan for myself a few years back. I also wanted to see what options I had.
Instead of following a traditional budgeting plan where you save the remaining of your paycheck after covering all your living expenses, I decided to go with a reverse budget system because of its flexibility.
I have to admit that after learning about this, budgeting isn't as bad as what I thought it to be.
Using a reverse budget system
Today, I'm going to talk about how the reverse budget system helped me save for my first down payment.
The reverse budget system turns your finances around by focusing on this concept: Pay yourself first. This budgeting method “reverses” the budgeting process by prioritizing savings over expenses.
We all know that the reality is after all your bills and expenses are paid, you’re left with nothing.
Create a savings fund for your first home
So here is one of my recommendations if you'd like to make saving money for your first home a top priority.
When you receive your regular paychecks, the first thing you need to do is take care of yourself by saving a portion of that money. This is a must if you want to start saving and investing for retirement; and nope, it's never too early to start planning for retirement in your 20s and 30s.
After you’ve set aside money to meet your monthly savings goals, then you move on to pay your living expenses.
Here you would treat your savings fund for your first home as a regular reoccurring expense (or a separate savings) along with all your other living expenses. My partner and I made it into a habit and followed this savings plan for several years.
The system becomes a lot easier when you automate your finances. That way you don't have to constantly keep track of what bill to pay or where to park your savings. I highly recommend spending some time to automate your finances.
In addition to automating our savings for our first home, we also used our year-end bonuses from our employers to put towards this savings plan.
To our surprise, we eventually had enough to pay for our first down payment.
How much you allocate will depend on your income, expenses, lifestyle, etc. Whenever we felt like the budget was coming tight, we would find ways to make extra money on the side so that we could maintain the lifestyle we want.
The benefit of a reverse budget system
The great thing about the reverse method of budgeting is that any money left after paying yourself first, and after funding or paying for expenses, can be considered "guilt-free" spending.
In our case, we included savings for a home as a priority before we could tap into our leftover money for free-spending.
As Warren Buffett would say, "Do not save what is left after spending, but spend what is left after saving".
This way, you won’t be the last person in line, thinking there will be money left over for you.
Based on my experience, this type of budget works best for people that find it challenging to save money at the end of the month.
To be honest, I'm not the world's greatest when it comes to saving money, and I tend to be loose with my money from time to time without realizing it.
This is why the reverse budget system has worked for me.
I personally don't like tracking my random splurges or spending, so whatever I have left AFTER paying myself first, saving for a home, and covering for living expenses, I could treat myself or spend on the things I enjoy (dining out, mini getaways, movies, entertainment, etc.) without following a strict budget or plan.
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