Smart Choices – Summer 2012
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Reverse Budgeting: Save for Your Future by Working Backward

While we all know it's important to budget and save our money, it's easier said than done. You have to list and track all your expenses, create a budget and then you have to stick to it. 

Well, let's try working backward. Have a dream vacation to Hawaii in mind? Or a down payment on a house? Reverse budgeting starts with your goal and dangles that carrot in front of you. 

Here's how it works:

  1. Establish your savings goal.
  2. Use our goal-based savings calculator to see how much you need to set aside each month to reach your goal.
  3. Once you determine how much is needed and how soon you want to live your dream, revisit your discretionary spending to find money in your budget each month. 

Once that monthly savings amount is set aside for Maui, you cut back elsewhere. So perhaps this weekend you skip shopping for shoes or going out for dinner and a movie. Or you carpool for a month or cancel that super premium cable package. Those extras won’t be missed as much when you’re a step closer to your goal. 

Reverse budgeting is also a great way to quickly build an emergency savings. Peace of mind can help you sleep better and dream bigger. Make it even easier by setting up regular automatic deductions to a money market account.


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