1. Budgets are great way to keep track of how much money you have left over after the bills are paid.

They provide a practical way to keep track of your spending. It doesn’t matter if you are rich or poor, it is nice to know where your money is going.

2. Creating a budget requires:

Identifying your spending habits. What did I spend my cash on last week? Why don’t I have any money left before payday?

Setting goals that take into account your financial objectives

3. Use software to save time and make it easier.

Use a personal finance program such as Quicken or Microsoft Money. These software programs have built in tools that can help you setup a budget easily. I personally use MYOB which is mind your own business software (”yes it is a real accounting software”), but I am considering going with Quickbooks.

4. Keep track of your cash withdrawals.

Cash withdrawals from the ATM machine disappear from your pocket without any explanation. Take a little pad with you or a pda and put the transactions in for eating out, car washes, shopping at the supermarket, etc. Keeping better track of your expenses will give you a better idea of where the money is going.

6. Don’t overspend.

Most people overspend, don’t become one of them. Government statistics show that many households with total income of $50,000 or less are spending more than they bring in. See Social Class in the US

7. Beware of needs and wants.

If your income doesn’t cover your needs, then some of your spending is probably for wants which aren’t necessary. Do you really need that latte every day?

8. Pay yourself first.

Set aside 10% of your money for savings, investing and emergency funds. After that money is set aside then spend the rest on your needs and wants.

9. Don’t count on windfalls from taxes, presents, bonuses, etc.

Those windfalls may not come in and you don’t want to get caught holding the bag on expenses that you can’t afford.

10. Beware of spending increases to match your income.

Lets say your annual income rises from raises, promotions and investing, don’t spend increases to match your income because someday something may happen to your income and your overhead may be so high that you can’t afford to live.
Save some of that excess income and set it aside in savings for a rainy day.

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