Most people don't manage their money very well. They pay for things haphazardly as they come up or as they think of them, and make purchases whenever they get the whim. Suddenly, they realize they're out of money and must cross their fingers that nothing bad happens before the next payday.

Sadly, they're also left puzzling over where all of their money went. It's easy to nickel and dime yourself out of a good portion of your paycheck. At any given moment five dollars here and ten dollars there may not seem like a lot, but it can add quickly if you're not keeping a close eye on it.

If this type of behavior seems all too familiar to you, you don't have to continue down that road. You can grasp control of your finances, but it will take a quality decision on your part. The best way to get a handle on your spending and make the most of your money, whether your goal is to get rid of nagging debt or come up with a way to save for that special purchase or trip, is to create a workable budget.

First, you'll need to make a list of your usable income. This is the money that you're left with after taxes and other deductions are taken out of your paycheck. If you receive tips or have more than one job, add all of these amounts together. If you work for yourself and are responsible for your own taxes, make sure to deduct that amount from your "take-home" total so you don't overspend and find yourself unable to pay your taxes. Also, don't forget any incoming child support or alimony payments. And, if you have investments that pay regular dividends, this too should be considered as part of your usable income.

Next, you must account for all of your expenses. Scan the following list and make note of the ones that apply to you:

  • Mortgage or rent – If you have a mortgage, your homeowners insurance and property taxes may be a part of the total you pay. If not, you'll need to list them separately. If you're a renter, be sure to include your cost for renter's insurance.
  • Homeowner-related fees – If you must pay fees to your homeowners' association or for a home maintenance plan, they should be included.
  • Child support – If you're making child-support payments, annotate them. If the kids are with you, include any costs that you're paying for regular day care or babysitting services.
  • Alimony – Include any alimony payments that you're making.
  • Transportation – If you have a car payment and car insurance, these should be listed. Also, estimate how much you spend monthly on gas. If you don’t have a car, but rely on other means of transportation, total up the amount that you pay in bus/taxi/subway fares in a given month.
  • Electric bill.
  • Natural gas or oil utility fees.
  • Water and sewer utility fees.
  • Phone service – This should include your home line as well as a cell phone, if you have one.
  • Groceries – Estimate the average dollar amount of groceries you go through on a monthly basis.
  • Health- and life insurance – If these have already been deducted from your paycheck, you're covered. However, if you pay for after-tax dollars for your own policies, you should list this as an expense. Also, if there are regular prescriptions that you must pay for each month, be sure to include them.
  • Credit cards and loans – Any debt you've accumulated is also now on the list of expenses that you have to pay each month. But you must keep in mind that you should pay more than the minimum due on credit card- or other high-interest accounts. The minimum payment often barely touches the outstanding principal, allowing the creditor to continue tacking on interest (i.e., profit) at the expense of your finances.
  • Subscriptions – Many people nowadays have subscriptions to everything from magazines to DVD rentals. These are recurring monthly expenses that you'll have to include on your budget sheet.
  • Entertainment – Be sure to include an amount for this category. Many people neglect it, thereby creating a barebones budget that requires a little too much discipline to maintain. There's usually no need to do that; simply allow yourself a little "play" money in the initial expense calculations. For instance, you may want to decide when and where you're likely to go out over the next month and budget for those occasions. Likewise, if you have hobbies or social groups that you're involved in, allocate a sum for those activities.

Now it's time to do a little math. Add up all of the monthly expenses you have and subtract that number from your monthly usable income. If your calculations leave you with a negative amount, you're actually digging yourself deeper into debt with every passing month. You'll have to make a change by either identifying where you can cut back on your expenses or come up with ways to bring in more money.

Hopefully, however, you'll end up with a positive number. This is your remaining money. If you find yourself in this circumstance, your next step will be to determine exactly what you're going to do with these excess funds. For example, if you want to save up for something in particular, you can take a portion of this money and put it aside for that purchase. (This will also be the case if you're trying to pay down your debt.)

Great! You've created a budget, but you're only halfway home. You'll now need to make a firm decision that you're going to stick to it. Think of this as a diet. You won’t always be perfect and you may very well overstep it from time to time, spending more than you had budgeted either for something necessary or an impulse purchase. It's not the end of the world. Simply stop, take a breath and get back on track. Just as dieters get into the habit of eating the right foods and portion control, you'll eventually develop a habit of making the right spending decisions and budget control.

While setting up a personal budget is a great way to get yourself on track to save money for something special or to eliminate debt, don't just automatically disregard your system once your goals are met. Once you've develop the habit of more frugal spending, keep practicing it. The better you become at maintaining a monthly budget, the more money you'll have put aside and available down the road for that really special opportunity or circumstance that happens by.

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