- The budgeting process:
- Allocate income to future spending: Build your savings.*
- Allocate income to current non-discretionary spending: Take care of your essential current expenses (your needs).
- Allocate income to past spending: Pay down your debts.*
- Allocate income to current discretionary spending: Take care of your non-essential or optional current expenses (your wants).
- Reverse budgeting, known also as scarcity budgeting or the “pay yourself first” strategy, is perhaps best accomplished via automated periodic savings transfers and / or automated periodic investment purchases as part of a dollar cost averaging strategy.
* Note: Paying down high interest consumer and student loan debts may precede #1. Please reference “Your path to financial independence” topic for further refinement.