Determine Your Monthly Budget

Realism Is The Key To Effective Budget Planning

Yes, it would be nice to live on twenty dollars a week, but if you say you're going to do that and you don't -- and you probably won't, because after all, who can? -- you're going to find yourself over-budget and perhaps even overdrawn from your account. To make a budget for yourself is a great thing, but to get the most benefit from the budget you make, be realistic about your spending habits.

Step One: Watch Yourself For A Week Or Even A Month

A lot of people like to sit down during financial crunch times especially and set unrealistic goals (See above.) for how little money they can spend. Before you write down a financial plan, observe your spending habits for one week. For even greater accuracy, track yourself for a month: this way, you'll be sure to include an accurate amount for expenses like gas and groceries, which might be hard to estimate, especially for those new to the world of budgeting. Write down what you buy, how much you spend, and when you buy it. Do not try to put on a good show for yourself. Live as you did before you decided to create a budget. Observe yourself as you would another person, and record your actions.

Step Two: Total Up Week One, Month One

You might have a fancy software application that will allow you to view the purchases you made over the course of the last week or month. Though you certainly don't need such a program to determine your monthly budget and perhaps implement more fiscally sound spending strategies, if you have one, you should use it. Why? A picture is worth a thousand words. And you might be surprised at what that picture shows you. "Little" expenses like take-out or pizza delivery can really add up and take a chunk out of your take-home pay. If you're looking to spend less and save more, a graphic representation like a pie chart can show you in RGB colors where you can cut back.

Step Three: Determine Your Monthly Overhead

Whether or not you have the capability of creating a pie chart, your first step towards budgetary discipline should be looking at your fixed expenses. You might be able to get away with spending a little less at the grocery store, but typically, the amount you spend on gas is a function of the amount you drive to your job that pays the bills, and so that goes in the fixed expenses column, as do items such as rent, student loans, car payments, etc. Once you have determined your fixed expenses, take out your monthly paycheck. Subtract your overhead from your take-home pay. You can consider saving part of what you have left over each month, or, if there's nothing left, you might consider looking into a higher paying job.

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