In the first two parts we have classified our expenses and set up the system that will allow to track them month after month. Now is the time to create a budget out of this.
In the example shown in the Excel file (fourth tab, here), we are assuming a salary of 2200 Euro, recurring expenses for 897 Euro and discretionary expenses for 259 Euro.
The last number is the one we should pay particular attention to, as we only have one month of data. This can and should be revised the more time passes and the more data points we accumulate.
Based on this we can say that at the end of the month we should have around 1044 Euro left in the bank account. Leaving this money there and seeing it growing month after month can be tempting and lead to additional expenses, so a better solution would be to transfer part of it to a saving account.
How much should you transfer? A good saving rate is considered to be 20% plus. Just to be clear, the saving rate is calculated as the ratio between what you save and your disposable income (for example, your net salary).
In this specific case, we can even go around 30% and have some buffer at the end of the month. In one year, we can potentially save up to 7920 Euro.
Make sure you set up an automatic transfer at the end of the month from your regular to your saving account. Dont trust yourself with doing it every month! You will forget, or you will be tempted. Avoid that at all cost.
If your saving rate is too low or you are not even able to save something, then take some time read the last chapter of this series - part 4
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