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Having a budget is the number one step in managing your money. A budget is essentially a plan of all your incoming funds, less any outgoings occurring over the same period of time. The result is either a net cash increase or decrease, called your net cash position.

INCOME

Detailing your income is usually quite straight forward. Generally, there will be one or two streams of income, paid on a regular basis. If your income changes from one pay to another, try starting with a basic amount that you're guaranteed. This way you can always allocate the additional income to savings or paying off debt.

WHAT ARE YOU SPENDING

With any budget, it's knowing what's being spent, that is tricky. If you're not sure where to start, try tracking your expenses for a month or so. You can do this by keeping all your receipts and adding them up, or by noting everything down in a notebook as you go.

In the meantime start detailing what you think you spend. If you're not sure, don't worry, you can always change your budget later once you have more of an idea.

Rather then just listing everything, look at categorizing your expenses. Begin with the following, and expand on them if necessary.

1. Required Expenses

Basic essentials should be included here. Examples include food, rent, mortgage repayments and utilities.

Be ruthless! Ask the question, would you be able to live a reasonable life with out it? If the answer is yes, then it's not a necessity and you should really be including it in your luxury items.

2. Minimum Debt Repayments

It's sad but true, nearly all of us have some sort of debt. Only include your minimum repayment here, those required to keep the banks off your back. Any additional repayments or savings should be categorized separately.

3. Luxury Items

Don't be surprised, when this is your largest category. When first starting your budget, include everything you can think of. This will give you a good guide on your current spending habits. If the end result is not looking good, this will be the first place to look for unnecessary spending.

4. Additional Repayments and Saving

Hopefully, you should have some cash left over to play with. If you don't, then re visit those luxury items and make some hard decisions if need be.

Regarding debt, try to pay off more then your minimum repayment, otherwise you will continue to just pay off the interest and never pay much off the balance.

Where possible try and put something away for savings. A little nest egg will help when an emergency comes up. It's always better to dig into savings, rather then putting it on the credit card and getting into more debt.

TOOLS

So, you have some where to start, but how do you put it all together. A simple spreadsheet is a good starting point. Nothing fancy, just something that will easily show you totals for income, each expense category, and your net cash position.

Once you get into the routine of using a budget, you might want to upgrade to a software package. Recommend products would be Quicken and Microsoft Money, both quite simply packages to use, however require some general knowledge on how to mange your finances.

If your looking for more tips on how to spend less and save more then a great website is The Savings Vault http://www.simplesavings.net/. Not only is there a huge resource of tips on how to save and spend less, but it will also change the way you think about money.

Learn more about this author, CE Wynn.
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