How do I Create a Savings Budget?

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

Step 1

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.

Step 2

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.

Step 3

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.

Step 4

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.

Step 5

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.

Step 6

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."

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