Budgeting That You Won’t Hate: The Backwards Budget

Doing things backwards doesn’t often yield desirable results, but there are times when working backwards to solve a problem can be helpful. Budgeting, which is something I’ve never actually done, is one of them. Hence, the backwards budget.

 If you don’t like tracking your expenses and categorizing them and you’re not into self-imposed limits on your spending, the backwards budget may be right for you, too.

In this post, we will discuss why traditional budgets usually fail, the advantage of a backwards budget, a step by step process for making your backwards budget, and a case example of part of our budget when I finished training.

Budgeting That You Won’t Hate: The Backwards Budget

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The first step in making a backwards budget is to figure out what your big goals are in this life. How soon do you want to rid yourselves of your student loans?

Step 1. Define the Big Picture

At what age do you want to reach financial independence? Retire? Are you going to pay for college for your kids? Do you need to protect your assets? When do you want to get rid of that mortgage?

Now that you have an idea of the goals you’d like to achieve and by what age, this is where the backwards budget starts to work.

Step 2. Attack Each Goal Starting with the End in Mind

For example, say you finish training at age 32 and your goal is to be FI by age 50. After you’ve spent some time determining how much you need to reach financial independence, you should be able to determine how much you need to save each month to get to that goal.

You should repeat the process from step 1 and 2 as many times as is necessary for your big goals. Say, for example, you had $300,000 in student loans and that you wanted those paid off in five years after training.

Step 3. Rinse and Repeat for Other Goals

Once you have gone through Step 1 and Step 2 for all of your important financial goals, you have to add all of this together to figure out your monthly backwards budget.

Step 4. Put it all together

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