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Creating a Budget
by Julie Moore

Most of us have a simple budgeting strategy: money comes in and money gets spent. It seems logical and flexible, right? Maybe not.

Supporting yourself or your family is expensive and it undoubtedly comes with numerous unexpected costs that are hard to predict and plan. In addition to the unexpected costs, there are, without fail, multiple bills and expenses that you encounter each month.

This is the way of life, and while you can never perfectly plan for every dollar you will earn, you can definitely manage your money and curb the stress of financial strain. If you want something more automated, a free online personal budgeting system might be more up your alley.

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Step One: Save all Receipts and Bill Stubs.

This step probably does not come as a major shocker, and that is because it is vital to any successful budgeting strategy. It is one thing to guesstimate that you spend $300 on groceries each month, and quite another to actually save and add up your receipts to find that you actually spend $350. I recommend saving every single receipt, bill stub, and ATM withdrawal receipt for an entire month. Once you do this, you can accurately see where your money goes on a monthly basis. You will be surprised.

Step Two: Document and Organize your Expenses.

Once you know what you are spending your money on, you are ready to divide your expenses into categories. There is no perfect method to this division because every financial situation is different.

Generally, though, you can expect to have a category for housing, utilities, food, investment and savings, gas, entertainment, and various other expenses. Make an elaborate chart on the computer, or just jot this information down in a notebook. The point of creating this list is to help you organize your financial life in a way that makes sense to you.

For your fixed expense categories (bills that are the same each month), go ahead and budget exactly the amount necessary to pay each bill. It is a good idea to making your savings account a fixed expense - meaning that you will deposit a specific amount of your income into a savings account each month. Your fixed expense categories must be taken care of first.

Next, we turn to bills with varying costs. For these recurring bills, estimate the cost and budget accordingly. It is usually a good idea to round up.

The categories that remain should include entertainment, vacation funds, clothes and other expenses that are not mandatory. Subtract your fixed bills and your recurring bills from your monthly income, and you will have a good idea of what is left for your remaining categories.

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Step Three: Evaluate and Adjust your Budget.

Essentially, you will have an idea of your current budget after Step Two. Now, it is time to analyze this budget. Are you happy with spending $75 a month on a cell phone bill? Is it okay that half of your income goes towards rent? If not, adjust your current plan and generate a new budget that will help you reach your goals. For example, you could find a cheaper cell phone plan and contribute the $25 you save each month to a savings account.

Step Four: Stick to your Budget.

If you make cutting your grocery bills by 10% a goal, stick to it. If you budget $50 for entertainment, do not spend $75. Learn to be disciplined and creative with your spending. Setting goals is always helpful. If you are dying to have a spa day, or if you really want a new set of golf clubs make the attainment of such luxuries a goal. Save for the things you really want by eliminating frivolous and unnecessary purchases. This can be easier than it seems. Approach your finances with optimism and become a savvy saver! If this seems like too much work, then we recommend you try a free online personal budgeting system.

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* Debt Basics is not a lender or broker. We provide information and research on debt help and debt consolidation. Product and service offerings differ by state.