How to Make a Budget to increase your savings

This is a step by step guide on how to plan a high level budget and stick to it.
It includes an easy example that shows how to save extra $960 a year.

Difficulty:

Moderate

Instructions

Things You'll Need

• 1 year bank statements
• 1 year credit card statements
• some kind of spreadsheet (pen and paper are ok)
• calculator (not needed if using a spreadsheet like excel)

1. Gather your financial institution(s) information for the past year. These are your bank accounts or securities accounts.

2. 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).

3. 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)

4. 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.

5. 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

6. 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).