Why You Should Reverse Budget

One of the things I hate most when it comes to money is the concept of budgeting. I always chuckled a bit to myself when watching shows like Gail Vaz-Oxlade. Writing out spreadsheet and filling jars with cash... what a horrible, spirit-dampening, waste-of-time practice. I think budgeting is awful, and I'm a self-admitted numbers nerd.

That's why my wife and I reverse budget. It's quite simple, instead of counting all my spending and tracking receipts and such, we simply put away a fixed amount of money each month for 10 months of the year.

This practice generally means our bank account gets slowly bigger from March until June, goes down a bit during summer vacation, and slowly climbs up again from August until December. I like to make our TFSA contributions in January (front-loading) and RRSP contributions in February so it ends up all sort of evening itself out nicely.

It's great because I don't keep track of any expenses during the year. Sure we watch what we spend like we always have, but that just becomes habit. The biggest thing is we save religiously and stay debt-free.

Starting to Reverse Budget

The hardest part about reverse budgeting is getting started. The saving grace is most people who care about money (even a little bit) do not spend what's not in their chequing account.

If that's tough for you, cut up your credit cards and switch to debit now!

If you don't save at all right now but are getting through each month without accumulating any debt, start by saving 5% of your paycheque every time you get paid.

For starters, put the money into a Savings Account. Tangerine Bank and PC Financial (now Simplii) offer no-fee savings accounts so they're a good place to start.

With each passing month, slowly ratchet up your savings by 1% of your net salary each time. You should target saving at least $562 a month ($260 bi-weekly) if you are 30 or younger. If you're older, do some Moose Math to figure out your minimum number.

Even if you are contributing to a decent pension plan, I would strongly recommend saving $5,500 a year to fill up your TFSA. That's $458/month or $211 bi-weekly. Having this extra savings is a great hedge against political dabbling in pension plan benefits. And lets not forget that most pension plans are seriously underfunded and benefits are likely to be cut at some point in the future.

Investing When You Reverse Budget

Once you have accumulated $5,000 in your savings account, open up a Questrade TFSA and transfer the money to your TFSA. For starters, watch some Questrade Youtube videos to learn how to place limit orders. When you got that part down, buy XAW.TO with every contribution. Once you have between $25,000 and $50,000 saved in XAW.TO, start reducing volatility by investing in a Growth or Balanced Portfolio with new contributions.

With most self-directed brokerage accounts, including Questrade, you can set up pre-authorized deposits so your saving is done automatically for you every time you get paid. Automation makes saving effortless.

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