Step1
Gather your financial institution(s) information for the past year. These are your bank accounts or securities accounts.
Step2
Add ALL your sources of income (your salary, interests, capital gain, cash gifts). We are looking at CASH only here.
The number you come up with is your TOTAL YEARLY INCOME (TYI).
Step3
Add ALL your expenses. If you use credit cards, add the actual expenses you incurred during the year, NOT what you paid (i.e. if you paid less than what you owed). Interests you paid need to be added.
Examples are:
- Rent or mortgage
- credit card bills
- utilities
- taxes NOT deducted by your employer (ex. property tax, DMV fees etc.)
- checks you wrote (ex. charity)
The number you come up with is your TOTAL YEARLY EXPENSE (TYE)
Step4
Subtract your TYE from TYI, this is your TOTAL YEARLY SAVINGS (TYS)
TYI-TYE = TYS
Hopefully this is a positive number, but it is not extremely important at this time.
Step5
At this point you are ready to budget. You already know how much you spent last year, so if you divide the TYE by 12, that is pretty much you start with as a monthly budget. Break down your monthly budget in your monthly detailed expenses.
Ex: Monthly budget = $1500
Rent=$700
Groceries=$150
Utilities=$100
Car (gas + repair)=$150
Entertainment=$100
Clothing, gifts=$200
Emergency fund=$100
Step6
If your TYS was positive already, then with a budget like the one above (in which all of your funds are used) will still yield savings, if your income is still the same. If you want to increase your savings, now you have a base line from where to start, and you modify in a way that is FEASIBLE for you in the long run:
Ex: new Monthly budget = $1500
Rent=$700 (same)
Groceries=$140 ($10 less)
Utilities=$100 (same)
Car (gas + repair)=$150 (same)
Entertainment=$75 ($20 less)
Clothing, gifts=$150 ($50 less)
Emergency fund=$100
ADDITIONAL SAVING=$80
With this feasible modified budget you increase your yearly savings by $960 ($80 a month times 12 months).
Comments
dasbootjoe said
on 5/27/2008 Great Ideas! Nice Job...