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Welcome to The Financial Foundation, hosted by friend of TFD, attorney, and all-around financial mastermind Cindy Zuniga-Sanchez from Zero-Based Budget! In today's video, Cindy will be talking about the reverse budget, a foolproof tactic for those of us who are too lazy or busy to think too hard about how to create a budget.

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CHELSEA: Hey guys it's Chelsea, I wanted to quickly jump in to introduce this little takeover we have going on with a friend of The Financial Diet and a friend of mine personally, Cindy Zuniga Sanchez of Zero-Based Budget. It's called The Financial Foundation and it's a three-week series all about everything you need to set up a healthy, sustainable relationship with money. It's fun to talk about pop culture, social media society, and all of these other things that affect our finances but sometimes it's really important to get back to basics and understand all the building blocks of our financial health; and Cindy is the perfect person to teach us how to do that. So enjoy the series and I'll see you in a couple of weeks. 

 Preview of "The White Lotus, Succession, And The Problem With Making Fun Of Rich People"

As someone who used to be a domestic worker for high-net-worth individuals, I've been struck by White Lotus in particular as to how accurate many of the portrayals of working for these individuals was.

It was especially accurate, for example to the experiences I had working at yacht and country clubs, but in the case of succession, we're talking about a level of wealth that's so far removed from day-to-day society that it's unlikely that most people would ever have encountered people like this.  

 Cindy and Her Background

CINDY: His everyone, I am Cindy Zuniga-Sanchez, the founder of Zero-based Budget Coaching LLC, a personal finance educational platform for millennial women. I am also the author of "Overcoming Debt, Achieving Financial Freedom, Eight Pillars to Build Wealth". Welcome to the three-part series The Financial Foundation. Some of you may recognize from TFD: the four-week financial foundation, an interactive four-week course for those who are new to the wealth-building game.

Now in case you are new to my story, I was born and raised in the Bronx, New York, My parents immigrated from Ecaudor and Honduras in the 1970s and they raised me and my two sisters in our one-bedroom apartment in the Bronx. I was raised in a very low-income community, so financial literacy honestly consisted of telling us that there simply wasn't enough money for certain things that we wanted to purchase.

Instead, we would stick to the necessities: food, shelter, education, clothing, et cetera. Now with all of that said, I was confronted with a need to learn financial literacy and to really educate myself when I graduated law school in 2015 with over 215,000 dollars of debt. I immediately felt extremely overwhelmed, pressured, and honestly quite embarrassed about the challenges I was facing with my money. I found myself desperately seeking personal finance resources so that I can get my money in order, and I found them.

I found resources such as TFD, podcasts, blogs, books, and more. In December 2019, I officially became debt free, having paid off 215,000 dollars of debt, which consisted of approximately 202,000 dollars of student loans and about 13,000 dollars of credit card debt. And now, I'm on a mission to help people create realistic money plans to achieve financial freedom.

 The Budget

I'm excited to kick off the first in this series to talk about a tool that was instrumental to my personal finance journey: the budget. You see, in my experience creating a budget is rarely the issue. Rather, sticking to the budget is.

So I'm excited to share one of my favorite foolproof ways to sticking to your budget: the reverse budget. Let's dive in. Simply put, a budget analyzes your income and expenses over a designated needed period of time.

Whether you are looking to save, invest, pay off your debt, a budget is the key foundation for whatever financial goal you may have. TFD has covered many different budgeting methods from the 50-30-20 budget to the Zero-based budget and more. But, in today's video, we're speaking to those that honestly don't really like budgeting.

Look, the truth to the matter is that many people find budgeting restrictive, time consuming, boring, and really difficult to stick to. Look, I hear you, so the first thing that I want you to do is to do a simple swap of words. If the word "budget" makes you cringe, swap it for your money plan instead. Words have power, and a simple swap can help you start seeing your money plan as a tool to get you to where you want to be. Second, if the reason why you don't like budgeting is because you find it really difficult to stick to, time consuming, cumbersome, consider the reverse budget.

 What is a Reverse Budget

Reverse budgeting is a budget method where your focus is on your financial goals, such as saving, debt payoff, retirement, and other investing goals rather than focusing primarily on your expenses. The reverse budget is also known as the "pay yourself first" method because you are paying yourself first by building your budget first around your financial goals rather than building it around your expenses.

The reason why the reverse budget is such a favorite, especially in the personal finance community, is because you don't have to track every single dollar that you spend. There's a lot more flexibility rather than having to jot down every single dollar that you spend every single day.  Okay, now let's get into how to create a reverse budget. Now the reverse budget does require some initial set up.

 How To Create A Reverse Budget  

So to help us walk through that set up, we're gonna look at Ana's budget. Ana earns a monthly net income of 4,000 dollars. She has never been much of a budgeter and cringes at the thought of tracking every single dollar that she spends.

She has tried to save what is leftover a the end of the month but finds herself making little progress on her goals. She opts for the reverse budget so that she can prioritize her financial goals while not having to track every single dollar that she spends. 

 Assess your monthly cash flow

Step one: assess your monthly cash flow. You need to understand how you're managing your money, specifically what comes in and what goes out of your bank accounts every single month.

For this step, I recommend analyzing four core numbers:

  • your monthly income,

  • monthly savings, and

  • investments, monthly expenses, and any monthly debt payments that you may have.

And if you have not already done so now would be a great time to assess your monthly spending. Doing this exercise will help you realize if there are any areas that you need to cut back on, or maybe potentially any additional income opportunities that you might have to take on. 

Ana creates a budget to organize her four monthly numbers and understand her cash flow. She lists her monthly income, current savings and investments, expenses, and debt payments. While reviewing her cash flow, she realizes that she is overspending on areas like dining out and shopping.

Hey look, I can relate to Ana. I, too, used to overspend on both dining out and shopping. She reworks her budget and makes a note to reduce her spending in these areas so that she can meet her goals. 

 Determine How Much You Will Pay Yourself

Step number two: list your financial goals and determine how much you will pay yourself. Now that you have a grasp on your monthly cash flow, ask yourself "what are my money goals?" Perhaps you're working on saving for an emergency fund, or funding that dream trip to Costa Rica, or perhaps you really want to pay off that credit card that you've been struggling with for years.

Write down your goals with the corresponding amounts that you want to direct towards those goals monthly. You're going to add up those amounts, and that's the amount that you're going to prioritize every single month. 

Ana has two main money goals: building up her emergency fund and saving for a trip to Cosa Rica. She decides that each month, she will send 300 dollars to her emergency fund and 200 dollars to her travel fund. The total amount that she will prioritize in her budget is 500 dollars monthly. 

 Create A System For Your Reverse Budget

Step number three: create a system for your reverse budget. After you've decided on the amount that you will pay yourself, it's important to set up a work flow across your financial accounts to ensure that you actually stick to your plan, and one of the easiest and best ways to do this is to set up automatic transfers.

Ana is paid on the first and fifteenth of every month. She sets up an automatic transfer of 250 dollars each time she gets paid from her checking account to her savings account. If Ana wanted to take things further, she can ask her employer's payroll department to automatically transfer this money from her pay to her savings account. This way, Ana never even sees the money in her checking account.

 Spend The Rest!

Last step. Step number four: spend the rest!

Once you've covered your financial goals, you are free to spend whatever remains in your checking account, without having to create budget categories or even track every single dollar that you spend, because your main priority, paying yourself first, paying your financial goals, has already been covered. But, as you can imagine, this is easier said than done. So, let's check out Ana's budget to see what she does to support her budget goals.  With $500 automatically transferred to her savings goal, Ana is free to spend the remaining $3,500 in her checking account.

However, because Ana is new to the reverse budget, she wants to ensure that she sets herself up for success, so she opens a second checking account. Ana's second checking account will be her designated "bill pay" account where she transfers the amount needed to recover her bills such as her rent, utilities, and student loan payment. This way, Ana knows that her bills will always be paid on time.

Her primary checking account will cover her discretionary spending, without the need to create separate budget categories or track her spending. Having separate checking accounts allows Ana to spend with ease and confidence. Now, let's get into some of the pros and cons of the reverse budget.

 Pros And Cons Of The Reverse Budget

Pros: Because the reverse budgeting method prioritizes your financial goals, you can be confident that you are making consistent progress towards those goals. Second, there's no need to categorize your various expenses or carefully track your spending.

Cons: Because you are free to spend what is remaining in Step 4, this method may not be ideal for those who have struggled with controlling their spending. This is why having the right systems and bank accounts is key to ensuring that this budget method works.

Second, be careful with being too ambitious and directing too much money to paying yourself, which could lead you to having insufficient funds for your other expenses. I recommend starting off conservatively with the amounts that you decide to pay yourself. You can always increase the amount once you get the hang of things.  Now let's get into my top two tips for a successful reverse budget.

 Top Two Tips For A Successful Reverse Budget

First up, automate, automate, automate. Setting up automatic transfers is key. Taking the time to determine how much you want to designate to your savings or investment goals and automating that process is important to actually sticking to those goals.  

Tip number two: multiple checking accounts. One checking account should be for your bill pay, where your bills will come out such as your rent, utilities, debt payments. And the other will be for your discretionary spending, for your entertainment, personal spending, dining out, etcetera.  This helps provide structure and create boundaries between your spending and your goals.

And remember, the reverse budget is just one way that you can manage your money. Find the right budget method that works for you and your lifestyle.


Have you tried the reverse budget? What tips and tricks do you have for sticking to your budget? Let us know in the comments below.

And tune in next week for the next episode of The Financial Foundation. And don't forget to like this video, subscribe, and I'll see you all soon. Bye!

 Chealsea's Q&A Corner

CHELSEA: And now it's time for our TFD society member questions of the week. Reminder that amongst all of the other perks you get by joining at the join button below or at our Patreon, you also get to ask me questions every week that I will answer on my videos. Let's get into them.  

First question says, "I was paying over three hundred dollars a month for a whole life insurance policy but decided to cancel after a few months because I couldn't afford the payments. I know I'll never see that money again. Did I make a mistake?"

I'm not sure whether you're asking did you make a mistake to have gotten it in the first place or to have cancelled it. But what I can say is that we have done a whole episode of Too Good to be True on the problems with the whole life insurance industry, and why it's a bit of a scam to be honest.

So I would say, if I were analyzing it as a financial decision, it was probably a mistake to get it in the first place. But to have cut your losses on that I think is actually probably in the long run a better thing because whole life insurance in general is not usually worth it and you're much better off with term life insurance if you're going to get it.

The next question says, "I make $100,000 a year and have a really good deal on my current rent, $1,500 a month. However, my place is tiny and I would love to have more space. Do you think it would be worth it for me to pay more to have a nicer living space or should I just focus on saving right now? I don't have a partner and would continue living by myself regardless."

If you're living by yourself and you would continue to regardless, I think continue living in the great deal that you have because you can always move later. Nothing will prevent you from getting a bigger space if you decide that it's really too much and you really just do need that extra space. Lean into the fact that you have a really rare combination which is high income and low cost of living. Save up as much as you can during this time and really lean into it, and then reassess. Again, you can always move later.

This is one of the really great benefits of renting versus buying, you have a huge level of flexibility. So keeping that in mind I think it would be easier to stay in the slightly less desirable living situation in the short term because you know that you can always make a different decision long term and you'll have all that much more money to make the decision with.