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What Is A Reverse Budget? (And…Do You Need One?)

Have you found yourself restarting your budget over and over again? Do you find it hard to budget and save money each month? Are you getting discouraged with budgeting and think you’ll never get it? The problem most likely isn’t even you. Maybe you just need a budget that fits your needs and ideals, and that’s where a reverse budget comes in.

But what exactly is a reverse budget?

And what makes it so different from other budgeting techniques.

And most importantly, do you need one?

Reverse Budget Meaning

First, what is a reverse budget? Unlike traditional budgeting, the reverse budgeting method starts with saving money, also known as “paying yourself first”. Then the bills and other spending come after.

Related: How to Become an Automatic Millionaire

Reverse Budget vs. Traditional Budgeting

Is that really the only difference between reverse budgeting and traditional budgeting?

Yes and no.

Reverse Budget Basics

For the most part, reverse budgets are different than traditional budgets, simply because they focus more on paying yourself first, saving and investing, and then budgeting what’s left over.

Traditional Budget Basics

For traditional budgeting, most people pay their bills and debt first, then try to pay themselves by saving and investing what’s left over everything else is paid.

Reverse Budgeting – Switching it up a little!

While there is more to focus on when reverse budgeting (more on that later), it’s basically making sure you’re taken care of first. However, it doesn’t mean that by budgeting this way, that you have to sacrifice your basic needs and four walls (food, shelter, clothing, transportation).

Instead, it’s just putting your other needs (like your future retirement) in focus as well.

Related: 10 Ways to Actually Stick to a Budget

reverse budgetWhy It Works + Who It Works For

So, does the reverse budget work?

And who does is it work best for?

It’s easy to make a budget of your fixed expenses and what you’ll think you’ll spend in a month. But random expenses pop up, and sometimes they pop up often or all at once.

  • An unexpected birthday party,
  • a vet bill, or
  • car repairs…

…They can easily throw your budget out of whack.

Because of that, it’s easy to go over budget or throw your budget out altogether during those months of unexpected expenses. And with a traditional budget, you take the risk of paying for all of these extras with money you wanted to save or invest.

A reverse budget eliminates the need in pulling from savings or investments in order to cover unexpected expenses. It instead focuses your efforts on saving what you need and spending what’s left after.

Using the reverse budget method is best for people who have a hard time saving or paying themselves at the end of the month.

And, even if you think you’re a decent saver, it can also be good for you if you like staying on top of bills, since it forces you to look at other spending habits and your wants and needs.

If you focus on your savings and needs ahead of wants, you’ll more easily meet your savings goals.

Related: More Than 50% of All Bankruptcies Are Due to Stupidity

Reverse Budgeting Pros and Cons

So, are there any pros and cons to reverse budgeting? As with all budgets, there are both!

Pros

First, what are the pros to reverse budgeting?

  • Easy to use – focus on saving and then spend. It’s really that simple!
  • Focuses on the big picture – you’re saving first and focusing on your future, whatever goals you may have.
  • Easy to automate – You get to decide how much you want to save/invest each month and automate it if you choose.

Cons

Are there any cons to reverse budgeting?

  • Not a strict budget – if you find yourself needing to be more strict on your budget, a more traditional budget may work better.
  • May not work for emotional/impulse spenders – if you find yourself spending money whether you have it or not, this budget may not work for you. Instead, the 50-30-20 budget may work slightly better.
  • Not great with debt – focusing on debt payoff is a huge priority for many people. If you have a lot of debt, this budget may not work as it focuses more on savings vs. debt payoff.

Related: The Absolute Simplest Way to Become Wealthy

benefits of owning real estateHow To Start Reverse Budgeting

Now that you know what a reverse budget is, and who it works for, now is the time to give it a try!

Here’s how to start reverse budgeting.

1) Know What You’re Spending

The first step is to know what you’re spending.

Take some time to review your typical spending for at least three to six months. Use bank and credit card statements to really review your spending and use that for step two. 

2) How Much Will You Pay For Yourself? 

Once you’ve seen a detailed report of how much you’ve spent in the last few months, you can then come up with a good number to save automatically. This may be smaller at first, but feel free to re-evaluate your budget every few months or so to see if you can save more. 

3) Know Your Goals

Make a list of your savings goals. It can be short-term or long-term, but it’s important to know what they are. That way, you can stay committed to the reverse budget and know exactly what you’re focusing on. 

4) Adjust As You Go

Of course, you’ll want enough money coming in to focus on saving and your bills, plus some wants if possible. But, no budget is perfect and life happens. So be sure to adjust as you need to in order to make this budget work. 

Related: Use the Growth Mindset to Grow Rich

Reverse Budgeting: A Great Budget Technique For Spenders!

So, is reverse budgeting a good budget method?

Absolutely!

Of course, it may not work for everyone, but it’s a great option for those who find themselves spending more throughout the month. If other budget options haven’t worked for you, give the reverse budget method a try.

What about you? Are you ready to try reverse budgeting? Tell us in the comments below!

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AUTHOR Kimberly Studdard

Kim Studdard is a strategy consultant, product launch expert, and mastermind behind the www.theentrepremomer.com. When she isn't spending time with her daughter and husband, or crying over This Is Us, you'll find her teaching other mompreneurs how to scale their business without scaling their workload.

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