In principle, budgeting sounds fairly easy. You start with your income, keep track of your expenses, and set aside savings toward your goals. Simple, right? Unfortunately, it’s easier said than done. Budgeting requires two things that many people don’t seem to have a lot of these days—time and discipline.

And let’s be honest here. As human beings, we’re hard-wired to repeat activities we take pleasure in, as Freud pointed out many years ago. We also tend to avoid activities that are not so enjoyable. This is why finding a budgeting system that works for you is important. It has to be effective enough so that your finances work for you. And at the same time, it must be easy enough to do so that you actually, well, do it regularly.

This is where backwards, or reverse, budgeting comes in. Especially during periods of your life where you are pressed for time. For example, maybe when you’re newly hired and you find yourself really giving your 100 percent effort toward your job. Or maybe you just had a baby and the hours of your day are caught up with childcare. In situations such as these, you can opt to use a simpler, no-nonsense form of budgeting.

So how does backwards budgeting work?

First of all, a change of perspective is needed with backwards budgeting. In the more traditional method, first you track expenditures into specific categories. Then you look at how you can make adjustments in your spending in order to put away more towards savings. In other words, considering what you spend takes first priority when you budget, right? And whatever remains after all your expenses is what you save.

With backwards budgeting you do things in reverse. What this budgeting method does is that it changes your priorities—because with it, you prioritize saving before expenses. This causes you to adjust your spending rather than your saving. It also ensures that you are keeping yourself on track toward fulfilling your financial goals.

Financial planner Ken Robinson explains it this way, “Instead of figuring out ‘Where do I cut back and therefore how much can I save?’, just make a decision about how much you’re going to save. The ‘where to cut back’ takes care of itself.”

But what are you saving for? With traditional budgeting, you start with expenses. With backwards budgeting, you start with your goals. Keep in mind that its best to include your emergency fund and retirement fund as part of your goals. This is important no matter how young, or old, you are. And then, aside from these two, start dreaming. What do you want? A car? A trip to Europe? To open your own business?

Again, we go back to human nature, having a dream in front of us motivates us to work for it. And in this case, work means putting aside savings and living within an allotted budget.

The backwards budgeting formula

The formula for backwards budgeting is simple:

Net income (salary after taxes) – savings = living expenses.

You might be saying to yourself right now, how much should I be saving? Why not use the 50/30/20 method where half of your budget goes to necessities? You’re left with thirty percent to discretionary spending and then twenty percent to savings. We write all about it here, “Simplify Your Budget With the 50-30-20 Rule?”

Therefore, if you make S$ 5,900 a month, the twenty percent for your savings would be S$1,180, that you’ll put away for your wedding, a vacation, or a new car— whatever your long or short-term goals are. Of course, if you’re still building up your emergency fund, as everyone should, then set aside half toward your emergency fund first and the other half toward your other goals. This means that you have S$ 4,7200 a month to live on, and so you adjust your lifestyle accordingly.

Now, if you are paying off a loan or perhaps even some credit card debt, it’s wiser, of course, to get these paid up before saving towards your dream. While realizing our dreams should be an important part of our lives, we must be women who are financially responsible.


Don’t be afraid to start small and keep things simple

And, one more thing. Keep the amount you allot for savings realistic. If you need to start small—just a few hundred dollars a month—for example, that’s just fine. Better to start small and add to your savings next month than to realize you put too much money away and cannot make ends meet. Remember, this is supposed to simplify your life, not make things more difficult.

If you need more practical advice on getting into better shape financially, check out our article on getting financially fit here.

Pro-tip: Automation can be your close ally when it comes to backwards budgeting. Set up an automatic withdrawal of twenty percent from your paycheck to be transferred to another account. This way you won’t even see it in your regular account. If you don’t see it, you won’t spend it.

The beauty in this method is that you don’t have to keep overly meticulous track of individual expenses. As long as you stay within your budget and you are putting aside your savings regularly, that’s pretty much it. You free yourself from no small degree of busywork. As I said earlier, this method is particularly useful during times in your life when your plate is very full indeed.

Because, if you think about it, what is the purpose of budgeting anyway? It is not so you can trace to the last cent where your paycheck went. As Patrick Brewster writes, “The real purpose of budgeting should be about tracking where your money is going so you can make better decisions with it….When you save enough for your goals, then you gain the financial freedom to spend the rest of your money on anything you please.”

Recommend0 recommendationsPublished in Budgeting, Money Savvy, Plan
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Founder @ The New Savvy
Anna Haotanto is the Advisor (former CEO) of The New Savvy. She is currently the COO of ABZD Capital and the CMO of Gourmet Food Holdings, an investment firm focusing on opportunities in the global F&B industry. She is part of the founding committee of the Singapore FinTech Association and heads the Women In FinTech and Partnership Committee. Anna is the President of the Singapore Management University Women Alumni. Anna invests and sits on the board of a few startups. Anna is also part of the Singapore Chinese Chamber of Commerce & Industry Career Women’s Group executive committee. Anna’s story is featured on Millionaire Minds on Channel NewsAsia. She hosts TV shows and events, namely for Channel NewsAsia’s “The Millennial Investor” and “Challenge Tomorrow”, a FinTech documentary. Anna was awarded “Her Times Youth Award” at the Rising50 Women Empowerment Gala, organised by the Indonesian Embassy of Singapore. The award was presented by His Excellency Ngurah Swajaya. She was also awarded Founder of the Year for ASEAN Rice Bowl Startup Awards. She was also awarded the Women Empowerment Award by the Asian Business & Social Forum. Anna has been awarded LinkedIn Power Profiles for founders (2018, 2017), Tatler Gen T, The Peak’s Trailblazers under 40 and a nominee for the Women of The Future award by Aviva


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