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Reverse engineer your goals

Do you have a set goal in mind, or are you just wanting to build a secure future for you and your family? Either way, we suggest the best way to achieve this is by Paying Yourself First a comfortable amount you can afford to set aside each pay.

But how much should you be setting aside? Where does this number come from?

One way is to reverse engineer your goals; starting with that future goal and breaking it down into steps to get you there over time.

How does it work?

To do this, take an honest look at what you spend each year. In the simplest form, download your bank statements for a year and add up all your outgoing expenses. Then divide that by how often you get paid and deduct that amount from your net pay cheque.

For example, if your total expenses were $26,000 for the year, and you get paid fortnightly, then you would deduct $1,000 (26,000/26 fortnights) from your net fortnightly pay. The balance that is left is how much you have to implement a PYF towards those future goals. Reverse engineering!

Less expenses, more goals

Another way to look at this is to figure out how much Future You needs for your goals. Let’s say your goal is to live overseas for two years and you want to make this happen in 2025.

How much time do you have to save/invest? Well, based on it being early 2020, right now you have approximately 59 months (12 months for each of 2021-24 and 11 months remaining for ’20). You estimate your move is going to cost you $30,000 for flights, visas and an expense buffer. At the most basic level, assuming you literally stuffed this cash under your mattress (not recommended), you would need to save $509 per month to have $30k in 2025.

Of course depending on your time frame, you would choose to invest or save this money according to your risk appetite. A good way to test out how much you would need to save, factoring in different types of assumed return is with one of these calculators.

Not happy with your number?

Maybe it’s time to dig deeper and see what some of those expenses were during the year. But…while we encourage you to maximise the amount you put towards Future You, don’t over-commit too early. Putting yourself under too tight of a budget may cause you to step away from those goals.

Over time you can continue to reassess and increase the payments to your PYF account. Working backwards from the bigger picture to reverse engineer your goals is just one of the ways to help Pay Yourself First.

Disclaimers & Assumptions

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