by Julie Dancer

Created on: September 25, 2008   Last Updated: March 20, 2009

A basic budget is the first and most important tool you have when it comes to managing your money. A budget allows you to see exactly where your money is going, and what your monthly cashflow is. A good budget can let you spot dangerous overspending before it spirals out of control - or it can help you plan a recovery plan if you're already deeply in debt.

When setting up your budget, the first thing you need to do is make it accessible and easy for you to fill in. Ideally you will want to update it every day or two days to keep it current.If that means using a computer, then do so. If it means doing it on paper, then do it on paper.

A budget is, at it's simplest, a list of income and outgoings. By adding up each column, you will know if you will earn more or spend more in the next month. It only works if it's accurate and you stick to it. If you decide to allot yourself $30 for entertainment, and then spend $120 on video games, movies, books and magazines, you will find yourself in trouble.

Begin by writing down all your income. This is usually pretty steady - your expected pay, plus any other dividends you might have such as interest on savings accounts or passive income.

Next, write down all your expenses. Begin with fixed ones, such as your mortgage or rental payments, bills, taxes etc. Then give yourself money for all other expenses - entertainment, health and beauty (haircuts, medicines, manicures), food (groceries and eating out), travel (gas, bus tickets), gifts (birthday cards, wrapping paper), and write it down. Finally, get any annual or six-month expenses, and work out how much you need to save each month to meet them. For example, if you know you need $500 for Christmas presents, that means you need to save $167 in the three months before.

Now, you may find you balance your budget straight away, but you may need to cut back on some things in order to make ends meet. Tweak your budget accordingly, and then run it for two weeks. You may find you need to allocate more to some sections, and less to others. After two weeks, you should have a workable budget.

During that two weeks, you should write down everything you spend, right down to the nickels and dimes!

Once your budget works, you need to decide how you will ensure that you don't overspend. Some people work everything out every day or every other day, so that they know how they are doing. You can do this on paper, or in a software program. Another technique is to have seperate accounts for different

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