5 Essential Tips to Work Backwards with Your Finances

Work Backwards Finances

Hi, my name is Josh and I run a personal finance blog called Money Life Wax. The name is different, but essentially it means whatever you want it to mean, so long as you take care of your finances. I ventured into blogging after wanting to know how to pay off debt and become more secure financially.

Prior to getting married in the summer of 2016 my wife and I had close to $300,000 in debt, with the majority of that coming from her student loans. So for us, we had an uphill battle digging out of a hole that big. However, one thing that worked for us… was the concept of thinking long-term when it came to finances.

In the coming paragraphs, I aim to expand on this very concept that has helped my wife and I pay off six figures in student loans, get our finances in order, and start to live a life on our own terms. I attribute most of our financial success to the process of working backward. But I will start with a quick analogy.

Working Backwards with Finances

Being a former high school wrestling coach, I like to use sports analogies, especially when it comes to finances. While the two are completely different in nature, they are very similar in mentality. Especially when it comes to looking at finances from a long-term perspective.

Each year in November, when the weather got colder, as a wrestling team we would discuss our yearly goals. Wrestlers and coaches would throw out things like winning a conference title, placing in the state, or even winning a state championship. The purpose of this exercise was to these goals, crystalize them and make sure our daily actions lined up to meet those goals.

You might not be familiar, but if you have ever met someone who wrestled they will tell you most of it really sucks. Cutting weight sucks. Practice sucks. And honestly the sport can be downright brutal. So going through all of the training, losing the weight, not being able to hangout with your friends, well why would someone do that?

Chances are if they’re not thinking long term, or looking at the main overarching team goal, they won’t.

They will quit. Losing weight and dehydrating yourself, when all your friends are crushing Chipotle and McDonald’s, sucks. And the same can be said about finances.

Just like realizing cutting weight is a means to get you to your goal of winning states, looking at your finances backwards will help you stay motivated, on track, and constantly in action mode.

However, on the flip side, if you are looking you finances day by day, chances are it will be harder to ever create serious momentum or stay consistent.

It doesn’t matter if you are an investor or just looking to pay off debt, things will come up. Starting with where you want finish, like winning states or retiring early, then developing a plan to get there and working backward is vital to your financial success.

Last Time You Heard Work Backward…

If you have ever heard someone say work backwards, chances are you were most likely sitting in your algebra class, wishing you were not there. The teacher was standing over you, guiding you on how to correct or solve a problem by working backwards. 

Well now, you can finally apply the work backwards concept to something that matters in your life… your finances. 

  • Want to retire early? 
  • Need to payoff student loans?
  • Would you like to save more money?
  • Looking to invest more into your stock index funds?

Starting with the end goal in mind, the challenge of staying consistent just got a little bit easier.

I will be the first to admit that paying off student loans when all your friends are traveling, popping out kids seemingly overnight, and going to every bachelor/bachelorette party on the face of the planet can really suck.

But it is all worth it when you are working backwards. 

The same can be said when you take every spare dollar to invest it into your future, while all your buddies seem to go out on the town just about every night. Heck, even saving for a house for 6 months can seem like an eternity if you don’t keep it in perspective. 

Having the end goal in mind is vital. But how do you work backwards?

5 Tips to Work Backwards with Finances

1. Stop Thinking in Present Value

In order to effectively work backwards when it comes to your finances, learn to stop thinking in present value. For example, your $30,000 car will not be worth $30,000 in 5 years. Most likely it will be worth closer to 60% less.

So when you make purchases or invest ask yourself, what will be the future value of this be? Don’t look at the present value. Five dollars in an index fund can be twenty down the road, whereas five bucks at Starbucks is worth zero within 60 minutes.

2. Stop Comparing Yourself

Comparing yourself is not only bad for your mental health this day and age, it is also bad for your wallet. If you are constantly comparing yourself to your friends, peers and co-workers you will have trouble working backwards. 

Now, that being said, working backwards should help you with the comparison. But as a general rule of thumb, don’t compare yourself financially. Make sure you can separate social media posts and reality when working towards your financial goals.

3. Have Big Dreams

Have big dreams and big goals. You don’t have to sing it from the mountain top, but having huge dreams will keep you on a path of action. Whether you hit your goals or not doesn’t matter.

Just the fact that you have goals and dreams that would make most uncomfortable will pull you further then you can imagine.

4. Take Action, Then Adjust

Don’t worry about the plan, there is almost a 100% chance it will change. Just start by taking action to work towards your financial goals. With the work backwards approach, your plan of action should be roughly designed. 

For example, maybe your goal is to have a net worth of $2 million. Working backwards would mean the first action would be to payoff your debt, then save and invest. Maybe the first step is paying an extra $2,000 towards debt each month. As you progress you can then adjust.

5. Stay Accountable

Holding ourselves accountable is typically the most challenging part when it comes to  finances. Just like when we were kids and we did dumb stuff, we can convince ourselves of just about anything. In order to avoid this, find someone that can help hold you accountable.

Having an accountability partner makes life better. If you have a spouse then you have a head start. If not, look to see if you can find a mentor or a trusted individual to help with finances. Taking advice from ourselves can only get us so far. 

As we part I would just like to thank Todd for allowing me to guest post and I hope you can all reach your financial goals in the coming months and years. Until then, work backwards and stay focused! 

~Josh, Money Life Wax