How do I Create a Savings Budget?

Create a savings budget by analyzing your expenses and paying yourself first.

Create a savings budget by analyzing your expenses and paying yourself first.

The first step in creating a savings budget is to analyze your expenses over the course of a month. Only then can you begin to understand where your money goes and where you need to make necessary changes to reach your savings goals. If you are going to get serious about building your savings, you need to understand the concept of "paying yourself first," a method recommended by many financial professionals.

Set SMART goals for your savings plan. SMART stands for specific, measurable, attainable, realistic and timely. For example, with some planning you can easily save $365 per year by cutting one dollar from your daily spending, measured by having roughly $30 per month in your savings account. Telling yourself you'll save $10,0000 per year is not truly realistic unless you have a killer job.

Create an expense tracker for one month using a notebook or computer spreadsheet. List expense types across the top and add costs entries in rows underneath each column. At the end of the month, total all expenses and you'll have a pretty good idea of how much you're spending and where the money goes.

Add occasional and yearly expenses to your expense tracker such as annual or bi-annual insurance payments, gifts for holidays and special occasions, vacation costs, annual dues, doctor visits and others. This may require some creative estimating, but do the best you can and put a realistic dollar amount on these items.

Multiply the total in step 2 by 12, and then add in the total from step 3 to determine your annual expenses, and compare it with your annual take-home pay. If your pay is less than your expenses, go back and see what adjustments you need to make. If your pay is more than your expenses (which is the ultimate goal here), you're off to a good start.

Compare your savings goal to the difference between your paycheck and expenses. For example, if your goal is to save $1,000 in one year but your paycheck will only allow $900, shave more off of your expenses to make up the difference.

Divide your annual savings goal by your total number of paychecks in a year's time. This will give you an amount to put toward savings every time you are paid. This is called "paying yourself first."


  • If you have direct deposit with your company, have your savings amount deposited into a separate savings account. Most human resource departments or payroll offices are able to do this with notice of a week or two, and you'll never see or handle the money except on your bank statement.
  • Investigate as many ways to trim expenses as possible. The use of grocery coupons, buying only generic or sale items, bringing your lunch and thermos coffee to work, shopping at thrift stores and other tactics can dramatically reduce expenses.
  • Cut monthly costs to increase your savings budget by contacting your insurance agent or shop around to inquire about discounts, call credit card companies and ask for a lower rate, get on budget plans with utility companies and eliminate non-essential cable channels. Many companies will work with you to lower your costs—the worst they can say is "No." Sometimes, telling them you are thinking of switching to a competitor can sometimes even turn a "No" into a "Yes."


  • Saving requires a large degree self-control and diligence, as it can be easy to jump off the savings track once you've accumulated some money and all your planning and sacrificing will be for nothing.
  • Avoid saving cash and leaving it at home in case of fire or theft. All of your hard-earned cash is better off in some sort of insured financial institution earning interest.

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About the Author

Matt McKay began his writing career in 1999, writing training programs and articles for a national corporation. His work has appeared in various online publications and materials for private companies. McKay has experience in entrepreneurship, corporate training, human resources, technology and the music business.

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