Making a budget is a great way to keep track of your finances and calculate exactly how much money you are making and spending each month. It is one of the most practical ways to understand how you are spending your money.http://money.cnn.com/magazines/moneymag/money101/lesson2/index.htm A budget is the heart of a successful financial plan and one of the first things that any good financial adviser will recommend. An accurate budget will allow you to identify all of your necessary expenses, which in turn will give you the ability to calculate exactly how much you can afford to set aside for savings. While every person's budget will inevitably be different, there are some basic guidelines that everyone should follow when setting up their budget. Below are some simple steps for setting up your budget.

A budget can also help in stopping spending problems before they happen and is a habit that can serve you for the rest of your life.http://articles.moneycentral.msn.com/CollegeAndFamily/MoneyInYour20s/HowToBuildYourFirstBudget.aspx Government figures show that households with an incomes of $50,000 or less are spending more than they bring in.http://money.cnn.com/magazines/moneymag/money101/lesson2/index.htm Keeping a consciousness budget will help in identifying possible problems areas for you. There is software available to help make budget making a little easier, but you will need to know which numbers to plug in where and have a basic grasp of what a budget is all about.http://money.cnn.com/magazines/moneymag/money101/lesson2/index.htm

• The first thing that you'll need to do when coming up with your budget is to figure out exactly how much income you have coming in.http://money.cnn.com/magazines/moneymag/money101/lesson2/index.htm This should include your monthly salary (after taxes) and any supplemental income you may have coming in (from additional jobs, investments or other income sources). If you are in a salaried position, simply divide your yearly income by 12.

• 1. If any of your income sources vary widely from month to month (such as income from freelance work, commissions or bonuses), try to figure out a monthly average by calculating how much you made last year from these sources and dividing by 12.
  2. Other income sources (besides your work salary) can include Social Security or pension payments, child support, unemployment checks and investments.
  3. You may need to look over the previous year's tax records in order to calculate your after tax income.

• Here is where things get interesting. Now that you've calculated how much money you have coming in each month, you'll need to figure out exactly how much you spend during the same period. While some expenses remain constant and are easy to figure out (Rent, Car Insurance, Car Payments, Phone & Cable Bills), others are not so easy to pin down. Expenses such as utilities, gas, food and entertainment may change from month to month, so the best way to figure them into your budget is to come up with a monthly average for each one. Over a three month period, keep a record of how much you spend on each of these things and then figure out, on average, how much you're spending each month. Add up all of these things to come up with a monthly total of your expenses.
  1. Break your expense report down into different categories (Housing, Food, Insurance, Utilities, Entertainment, etc.) so that you have a better picture of where your money is going each month.
  2. Make sure to calculate in any interest that you may be paying as a result of finance plans, credit cards or loans. If you don't, you'll have an inaccurate budget.
  3. Take special note of any non-essential spending that you may be doing (Entertainment, Travel, Gifts) so that you can identify where you may want to make cuts in your spending.

• Now that you've figured out your monthly Income and Expenses, you can start to determine how much you have left over for savings. Simply subtract your monthly expenses from your monthly income to find out how much surplus money you have coming in each month. Fill in the figures on a budgeting worksheet to calculate the surplus. http://www.betterbudgeting.com/budgetformsfree-basicbudgeting.htm While you don't need to put aside this exact amount for saving each month, this figure can help give you a rough idea of how much you can afford to save.
  1. If your monthly expenses turn out to be larger than your income, then it may be a good time to figure out ways to reduce your expenses and keep your spending more in line with your income.
  2. While many financial experts suggest that your expenses should work out to 60% of your total income, the reality is that for most families and individuals, this is not the case.http://articles.moneycentral.msn.com/SavingandDebt/LearnToBudget/ASimplerWayToSaveThe60Solution.aspx Try to make this a goal, but don't stress out if you can't reach it right away.
  3. Just because you have a surplus, doesn't mean it's time to rush out and buy the newest iPod. Figuring out your surplus income is the perfect opportunity to initiate a good savings plan.

• While writing out your budget on piece of scrap paper once every year or so may seem like the easiest way to go, it is wiser to keep a continuing record of your expenses, income and savings somewhere that is permanent and can be easily updated. While software programs such as Microsoft Money and online money management services such as Mint.com can make it easy for you to manage your personal finances on the computer, something as simple as a personal ledger or notebook can be just as effective for keeping tabs of your budget.ch month to organize your finances, write down of record of your income and expenses for the month, and update your budget.
  1. While you don't need to keep receipts for every single purchase you make, try to at least keep ones from purchases over $20.
  2. Keeping good records will allow you to adjust your budget over time to better reflect your financial situation. In general, the more accurate your budget becomes, the easier it will be to manage your money.

The content in this page is not a substitute for professional financial advice. Please contact your financial adviser before using the information presented here.