Pay yourself first: Making the anti-budget work for you

Richard Irwin |

In today's busy world, there are many conflicting demands for one's financial resources. Meeting the ever-rising cost of food and utilities, paying down debt, discretionary spending, insuring against risk and achieving education and retirement savings goals all compete for your paycheck's attention. Given these competing demands, it's no wonder that many of us have to adhere to a strict budget to make it all work. For sure, the exercise of tracking one's expenses for a few months to determine a reasonable budget level and see areas where you might be able to curb some costs is healthy. But for many, monitoring and adhering to a strict monthly budget on a long-term basis is something like being on a permanent diet.  

For those with sufficient financial discipline, the "reverse budget" may be a better route. The reverse budget is simply this: if you set, and stick to, strict debt pay-down goals and set in place specific retirement and other savings goals such that, if followed, you will be financially independent and debt-free by your target date, there is no reason to budget at all! The concept is "paying yourself first," meaning that your debt repayment and savings goals happen automatically before any spending occurs.  It sounds easy, but it takes discipline to stick to this month in month out, but the results are that investment and debt freedom goals happen on auto-pilot, without careful ongoing budgeting.  

Like any plan, the reverse budget needs regular monitoring to ensure that the debt and savings plans are on track. This approach may not work for everyone as it takes great discipline to pay yourself first and stick to that 100 percent of the time, but doing so will allow you to spend the rest if you choose to, knowing your financial future is secure according to plan.