by Shane Tucker

Created on: June 24, 2009

Every year, the average American falls deeper and deeper into personal debt. Credit cards, car payments, house payments, a line of credit for that new furniture that you absolutely must have. These are all things that collectively strain one's personal finances. So what is a person to do? The first thing that any quality financial advisor will tell you is that you must have a monthly budget to follow.

Any time someone mentions the word "budget", most people start to tune them out. The first thing that comes to most minds is, "I don't want a budget because that will mean I can't always get what I want when I want it." What is often misunderstood is that a budget will help you get the things that you really want, and help to control spending on things that are simply impulse items.

But you may ask, "How do I go about setting up a budget?" Well, there are varying opinions on what is the best way to create a budget, but this article will cover the way many advisors suggest doing so. Here are simple steps that everyone can take to ensure that the bills get paid and money gets saved.

1. List your expenses from greatest importance to least importance.

No matter how much people complain about them, expenses are simply a part of life. Unless you want to live out in the middle of the woods in a makeshift lean-to and trap your own food, you are going to have some type of expenses. Where this area gets blurry is when people start to mistake luxuries as necessities. What is more important, getting 200 channels on the best digital cable package or keeping the lights and heat on in the winter? When you make your budget, ask yourself what are truly necessities. Ones that come to most people's minds are food, shelter, electricity, and water. With these four things, you have your basic necessities covered. Then you get into items such as car payments and gas, which are of moderately high importance. The bottom of the list should include things such as cable, internet, entertainment, etc. Use common sense and rank every expense you have. This will let you know where to make cuts if you have to.

The most important thing to remember in this process is that you should always pay yourself first. Saving for an emergency fund should be #1 on the priority list because if you don't have money saved for something that is unexpected, it can ruin your whole budget when you have to come up with that extra $1000 to fix the car or the heat pump.

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