by Kathryn Lavallee

Created on: September 25, 2007   Last Updated: December 10, 2009

For most people, setting a livable monthly budget can seem to be an almost insurmountable task. However, a monthly budget is essential to moving forward both in your finances and in your life.

Before you begin planning your monthly budget, you must do certain research into your finances. Keep track of both your income and your expenses for the month. The easiest way to do this is by getting receipts for every purchase. Put them in an envelope with your pay stubs until the end of the month. Now the fun begins!

Separate your purchases into consistent monthly expenses such as rent, utilities, vehicle payments, insurance and any credit card bills. Add up these non-negotiable monthly expenses. Of course, for many people, credit card payments will be minimum monthly payments.

The next step is dealing with variable monthly expenses. Some are, of course, more essential than others. Add up the most essential variable monthly expenses. Make sure to include groceries, gas and oil, clothing and toiletries. Anything remaining is most likely a non-essential expense. Find out where you can cut back in your monthly luxuries.

Now that you know where your money is going, you can make plans for your future spending. The key to a successful budget is making sure all aspects of yourself and your life receive satisfaction from your money.

Once you have taken out the money for your essential monthly expenses, you need to divide the remainder of your income in a manner that will let you enjoy your income, while at the same time preparing you for the future. The goal of a budget should not only be to plan for the month, it should be a financial plan that will eventually move you to financial freedom.

The first and most important move you make with your excess income, should be saving for an eventual financially free future. As the experts say, "Pay yourself first." Your goal should be to have about 10% of your monthly income going into a high interest savings account. This account is untouchable, unless you are using it to make investments that will increase its size. Your eventual goal is to be able to live off the interest from this account.

The next step is long-term savings that will eventually be spent. If you have bills you'd like to pay off faster, or a dream vacation in your future, this money will eventually fulfill your wishes. Again, ideally, about 10% of your monthly income should be saved to this purpose.

Nobody can be expected to save every penny, and nor should anyone

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