How to make a budget and stick to it: Part 1

How to Make a Budget and Stick to It

A realistic budget is your best weapon against overspending.

If you want to keep your spending under control, it's essential that you make a budget. A budget allows you to get a handle on the flow of your money -- how much you make and how much you spend. With that information in hand, you can make intelligent choices about what to buy with your hard-earned cash.

Make a List of Your Expenses

The first step in making a realistic budget is figuring out where your money goes. To keep track, make an expense record.

Limitations of computer programs. Unfortunately, most computer programs that track expenses only analyze your check or credit card payments -- they don't record your cash outlays.

Make your own expense record. Rather than relying on a computer program, keep track of your expenses in a low-tech but comprehensive way: with some paper and a pen. Here's how:

1. Use one sheet of paper per week to record your expenses for two months. By doing this, you'll avoid creating a budget based on a week or a month of unusually high or low expenses.
2. Begin recording your expenses on the first day of a month.
3. Create seven columns on the page, one for each day of the week. Record the date at the top of each column.
4. Carry that sheet with you at all times.
5. Record every expense you pay by cash or cash equivalent -- check, ATM or debit card, or automatic bank withdrawal. When you make a payment on a credit card bill, list the items paid for.
6. At the end of the week, put away the sheet and take out another. Go back to Step 3.
7. At the end of the two months, list seasonal, annual, semi-annual, or quarterly expenses you incur but did not pay during your two-month recording period. The most common are property taxes, car registration and maintenance, magazine subscriptions, tax preparation fees, insurance payments, and seasonal expenses such as summer camp fees or holiday gifts.

Coming in Part 2: How to determine your total income