Reverse budgeting, also known as ‘pay yourself first’, is whatever percentage or amount you want to save will go to your savings before you spend any of your income when the income arrives, and then spend the remaining amount accordingly.
As mentioned in my post here, it is always wise to save money this way rather than using the traditional budgeting, which is based on ‘spend first, save the rest’ principle.
When I still worked full time, I used to save 40% of my salary straight into a savings account that I made and spend the remaining amount, which I often still tried to save further.
From this 40%, I used 60% of them to invest in high interest saving accounts, and the rest go to shares that give me regular dividends. As a result, when I got redundant, I could breathe easily without worrying about money for one full year before jumping to another job. I could even breathe easily for two full years if I wanted to, thanks to all the savings and dividends I’ve had.
One of the most popular budgets is the 50/30/20 rule where you spend 50% of your income on necessities like food, bills, house, etc, 30% on things you want to have, and 20% for savings.
I wouldn’t recommend the 50/30/20 rule because there was only 20% allocated to savings while in fact, saving for the rainy days is very important, especially with unpredictable economic situations these days.
Therefore, the 50/30/20 should be changed to 40/50/10, which is 40% goes to savings, 50% goes to our needs, and 10% goes to our wants. Here is my post about how to tell the difference between wants and needs.
Let me know via the comment box below what your budgeting style is and if it’s been working well with you.
