Creating a Budget

Saving is easy in theory: just spend less than you earn and put what’s left into a separate account. What’s not so easy is keeping track of your daily spending habits.

To do that, you may want to establish a budget to help you understand how you spend your money and help you reach your financial goals.

To develop a budget that is appropriate for your lifestyle, you'll need to identify your current monthly income and expenses. You can jot the information down with a pen and paper, or you can use one of the many software programs available that are designed specifically for this purpose.

Start by adding up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest, and child support. Next, add up all of your expenses. To see where you have a choice in your spending, it helps to divide them into two categories: essential expenses (e.g., housing, food, clothing, and transportation) and non-essential expenses (e.g., entertainment, vacations, and hobbies). To make sure that you're not forgetting anything, it may help to look through bank statements, credit card bills, and other receipts from the past year.

Once you've added up all of your income and expenses, compare the two totals. To get ahead, you should be spending less than you earn. If this is the case, you're on the right track, and you need to look at how well you use your extra income. If you find yourself spending more than you earn, you'll need to make some adjustments. Look at your expenses closely and cut down on your discretionary spending. And remember, if you do find yourself coming up short, don't worry! All it will take is some determination and a little self-discipline, and you'll eventually get it right.

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