Far too often, it is almost natural to make plans and start in the beginning. But does that hold up in the long run over more meaningful tasks? For instance, starting from the beginning may work for writing a paper, but where do you start with personal finance?
In this article, I want to explore the concept of reverse planning and how I interpret this methodology regarding budgeting and personal finance.
What Things Matter To Me
Budgeting is not as linear a concept as some may make it out to be. Plenty of factors that directly have nothing to do with personal finance can influence an individual’s decision-making.
In any given scenario, an expecting child could influence a timeline or maybe even the lingering purchase of my first house. Perhaps a family member is sick, and I have been tasked with caring for them.
A step further, I can have scenarios that sort of correlate with my budgeting. Maybe I need to be free of debt before I can take on a student loan. Maybe I want to get my credit score as high as possible before I try to buy a house.
Your goals are a personal decision, and your ability to create a budget with this information in mind during the entire process can greatly impact your financial health and mental well-being.
What Is My Priority
Once I establish the real-world scenarios I must consider, I prioritize. I may have multiple things to account for, and it may not be feasible to prioritize everything at once.
So, I need to figure out what needs to come first and what I can put to last. It is important to remember that being last on this list does not mean it is not essential. It just means other things make sense for you to put first.
Let’s say, for example, I have three credit cards, and I want to implement the debt avalanche. Debt 1 is $15,000 at 15%, Debt 2 is $14,000 at 18%, and Debt 3 is $10,000 at 9%. Debt Avalanche says I would order Debt 2, Debt 1, and Debt 3. But what if paying Debt 1 off as fast as possible is imperative? This is an okay decision; I just need to accept that it will not be the most efficient way to pay off the loans.
How I Begin From The End
Once I had my priorities in order, I would build the budget. Using a combination of calculators and techniques, I would curate the ultimate budget, which would be in complete lockstep with my nonnumerical priorities.
If the goal was the fastest debt payoff, I would calculate the fastest timeline that works with all factors considered, and then I would build the budget around that goal. If I want a certain amount saved by a certain day, I’ll estimate how many months I need to obtain that.
Reverse planning is not the only way to initiate your budget, but it can be a promising path. Taking some time before you jump right into budgeting to understand what you’re trying to accomplish can save you from stress down the road. Once you know what you want, it can make it easier to stay the course as you plan and budget.
So, as my high school principal used to say, begin with the end in mind.
