2023 Money Challenge
Pay your 'future' self first!
There are many ways to budget and manage money – from the simple to the complicated. On day 5 we introduced you to a range of budgeting apps that can help you understand and track expenditure.
But today we’re going to explain one of the most simple budgeting methods to help you achieve your goals. If you’re already budgeting your money, read on, because this may be compatible with your current method, and if you’re only loosely watching your $$s this could be a great method to take better control with only minimal additional effort.
‘Paying yourself first’, or ‘reverse budgeting’ as it’s often called, involves funding your savings and investing goals as the first item on your agenda after you get paid – before you pay rent, do your groceries and especially before you start spending on lifestyle and entertainment. It’s a great way of ensuring that you’re prioritising future you.
So how does it work?
You’ve already established your financial goals in week one of the Challenge. Some popular goals from our survey, included: building long term wealth, a milestone holiday, a safety buffer, and paying back debt.
Reverse budgeting means that you put money away each pay cycle towards these goals before spending money on anything else. Automating this is the easiest way to ensure you stick to it. From week one of the challenge, you know how much you need to save or invest towards each goal each pay cycle, and hopefully in week one of the Challenge you also checked your current budget to determine how much you could feasibly set aside for different goals.
Now it’s time to automate. You can reverse budget by setting up different accounts aligned to your goals with your bank and sending the money you want to save each month into these accounts. You can also do this through the Verve Money App by setting up to 5 goals (consider investing any short term goals in ‘fixed income’ for a more stable return). Then each pay cycle just send the total amount you want to put aside and we’ll automatically split it amongst your goals based on your preferences.
You can combine the ‘reverse budgeting’ method with other types of budgeting. For instance, if you follow the 50/30/20 budget (where you spend 50% on needs, 30% on wants, and 20% on savings/investing) you can also still transfer the 30% into a seperate account and the 20% into your savings or investing account the day after you get paid.
1. If you want to try reverse budgeting, set up new accounts or goals with your banking app or investing app today (if you have a goal based investing app like Verve Money). And establish a direct debit to fund your goal/s. Consider setting your direct debit to come out the day after you get paid.
2. If you’re already reverse budgeting then check out your direct debit amounts and see if you can turn it up a notch!
Today’s word of the day is:
(Check day one of the challenge for more info about the word of the day competition)
Want to learn more? Verve Money is an investing app that makes it easy to start ethically investing towards your goals. Best of all, we want you to feel proud of your money knowing that 20% is invested in climate solutions.