Budgeting Backwards? Pay Yourself First

By | Lending Education

6988272680_8146a984c3_o

There are articles upon articles, whole blogs indeed, devoted to helping people become better financial managers of their own lives, often by the application of principles (I shudder to apply the too-trendy word “hacks”) that help them scrimp and save and cut away the excessive aspects of their budgetary lives in a kind of low-percent-bodyfat personal trainer analogy.

Of course, it’s still important to watch how you spend. Staying disciplined is one of the key aspects of financial success, and this discipline often applies when it comes to strategies that help you curtail unnecessary spending.

However, starting a budget by asking “what will I need to spend” may be, for lack of a better word, a bit of a counterintuitive budgeting strategy. Once you’ve paid your bills, your chief expenses, and dealt with the little things that jump up out of the blue each month, you may find that there’s nothing left over to help you grow in the longer term.

Thinking about budgeting from the perspective of how much you save can be a much more effective way to set about managing your personal finances. It’s a different kind of discipline – one that requires a bit more patience and focus on the long term effects of your actions.

What do I mean by this? It’s quite simple: plan to save. Don’t do your spending for the month and then save what’s left over: make a commitment to contribute to your savings beforehand. In other words: Pay yourself first. You can set goals and save toward them. And the sooner you start, the better you’ll do – your savings will compound more quickly over time.

It can be a challenge to adjust your frame of mind to this approach. There’s an old adage, though: you can’t miss what you never see. This can be applied to the practice of good savings habits! I’m talking about automating the savings process through your financial institution. You can set up a separate account with your bank and arrange for automated deposits from your payroll to be contributed each month: the amount will vary based on your needs and goals, but even a little bit helps. If you’re self-employed or your monthly income varies, you can assign a percentage rather than a fixed value.

Your personal financial stability can be your biggest asset in the long run. It’s just a matter of finding a way to make the changes you need to move toward that stability. At Progressa, we can help: give us a call or visit online to find out how.

2 Responses to " Budgeting Backwards? Pay Yourself First "

  1. […] your everyday spending. As we’ve covered in a previous blog: put your plan into action and pay yourself first. There are numerous resources such as “calculators” (another here) that will help you […]

  2. […] Keeping an awareness of a more “pessimistic” view of financial planning will keep you better prepared. Thinking through the possible pitfalls you could face motivates you to keep saving – one of the most important goals for any financial plan. It also helps our spending practices: we all tend to believe that we will be able to show more restraint in the face of temptation than is realistic. The restraint bias is a hallmark of financial optimism. Such an optimist might think “I’ll spend less this month and bank the savings at the end of the month” – this goes against fundamental financial principles such as paying yourself first. […]

Leave a Reply

Your email address will not be published. Required fields are marked *