What is reverse budgeting? And how to do it

Budgeting can feel like a game of catch-up. You pay the bills, cover groceries, maybe grab a coffee or two, and if there’s anything left over, you might remember to move a little to savings. But what if you changed that approach?

Reverse budgeting (AKA, the “pay yourself first” method) takes traditional budgeting and turns it on its head. Instead of saving what’s left, you save first. You prioritize your future, then spend what remains.

It’s a simple but powerful shift that can help families build consistent savings habits and teach kids an invaluable money lesson: Your goals deserve to come first.

How reverse budgeting works

Unlike the 50/30/20 or 50/15/5 rules, reverse budgeting starts with your savings goals and works backward. Instead of tracking every expense down to the penny, you decide up front how much you’ll put toward savings or financial priorities each month. And then you automate it. The rest of your income goes to bills, spending, and daily needs.

This approach builds off a core principle that waiting until the end of the month to save sometimes means that you may never actually save. But by paying yourself first (in the form of savings), you’re locking in progress toward your biggest goals, whether that’s an emergency fund, a vacation, or your child’s college tuition.

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It doesn’t mean ignoring expenses. It just means your savings goals come first, not last.

Why families like reverse budgeting

Budgeting the old-school way can feel like a never-ending math problem: tracking every little expense and hoping there’s something left to save. Reverse budgeting is the opposite. Start with your goals, then decide what to save this month.

It also works well in real life, where income and expenses don’t always follow a perfect script. If your income’s a little unpredictable or you have the occasional tight month, you can still lead with savings. Adjust the amount when you need to, and keep the habit going.

It also makes you more thoughtful about how you spend. When you set aside money for savings first, you naturally become more thoughtful about what’s left.

4 steps for trying reverse budgeting

If you decide to give reverse budgeting a try, don’t worry. You don’t need to overhaul your entire budgeting process overnight. Here’s an easy way to start:

1. Figure out your financial goals

Before you can start reverse budgeting, you need to know what you’re saving for. Start by identifying your financial goals. They can be long-term or short-term. Your list might include goals like:

• Starting an emergency fund

• Saving up for a (much-needed!) family vacation

• Contributing to your retirement savings

• Setting aside money for college or other big purchases you’re anticipating

Knowing your goals will help you decide where to put your savings and make it easier to stick to your plan.

2. Decide how much you want to save

The next step is figuring out how much to save from each paycheck. It could be a set amount, like $200, or a percentage, like 10%. There’s no perfect number. Just pick something that fits your budget. If you’re unsure where to start, it’s okay to start small. Even setting aside $25 per paycheck is a great first step. You can always increase it later.

3. Use automation to make it easier

Once you’ve picked an amount, check if your bank or account provider allows you to set up automatic transfers to savings or investments. If it does, automation can take the hands-on stress out of remembering to do it manually.. Some people like to schedule it for the same day their paycheck hits, so they’re not tempted to spend it first. You’re basically building good budgeting habits on autopilot.

4. Use the money left for everything else

After savings are taken care of, you can use the rest of your income for bills, groceries, and everyday spending. The reverse budgeting mindset helps you get clear about your priorities.

Here’s an example of how it might work. If you bring home $3,000 a month, you might move $300 to your emergency fund and $200 to a long-term goal. That leaves you with $2,500 to cover your essentials and day-to-day expenses.

This approach ensures you’re putting your goals first (automatically) before life gets in the way.

How to teach your kids reverse budgeting

Reverse budgeting is one of the best ways to teach kids that saving is what you do before you spend, not just after. 

Switching your mindset to save first, spend second is a simple shift that can help families build better money habits. It takes some pressure off and turns saving into something you plan for, not just hope for.

And for kids and teens, it’s a great way to teach one of the most important money lessons: if you have a goal (financial or otherwise!), you need a plan to reach it.

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