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Manage Your Life with . . . a Budget?

Here’s a question:

What is the single action you can take to have enough money to meet all your current needs?

Hint: It’s not winning the lottery—although that could go a long way to meeting your future needs and wants!

It’s something that’s initially slightly painful, but not difficult—kind of like a vaccination.


It’s making a budget. Really.

Before you can effectively manage your money, you need to know, realistically, where it goes and where it needs to go.

1. First, figure out where you are currently spending your money.

Start tracking how much you’re spending, and on what, each and every day. You can use a computer program like MS Money or Quicken, or you can simply just write down each purchase and expense in a pocket journal. Try to do this for at least two weeks–preferably a month—so you get a full picture of all your expenditures. Be sure to track the cash that goes out of your pocket, too (a prime area of overspending). Next, do the same with your income.

Remember that your expenditures each month need to be less than your take-home income. If you operate at a negative each month (spending more than you are making), you will very quickly go into debt, and not be able to accomplish everything you want.

2. Second, set up your budget; again, on the computer, or just on a pad of paper.

Make a line item for each of your projected expenses. It’s easier if you create budget categories for like-types of expenses: One section for utilities; one for health and medical expenses; one for auto, transportation, car insurance, and fuel; one for food, groceries, and dining out; etc.

Be honest. Don’t under-budget an item because it makes you squirm. And, conversely, don’t be too hard on yourself by eliminating all “fun” items.

Your goal now is to plan each monthly expense in line with what it has been historically, tweaking here and there to come out below your monthly take-home income. This is your chance to prioritize the money you spend. Living costs come first, of course. But you might decide to spend less on eating out so you can save for a vacation. Or set some of your clothing “allowance” aside for education.

If you can (and you really should try), set aside a set amount each month in both short- and long-term savings. Short-term savings will help in case of a sudden emergency (surprise doctor visit, car trouble), and long-term savings for retirement.

Now you are in control.

3. Third, monitor your spending. Now that you have a plan, it’s time to put it into action. Track your spending against your budget each month. See if you need to change any of your expense items: Perhaps your insurance rate went down (a good opportunity to put an additional amount in savings, by the way), or you have a new regular expense, or you want to add a special savings account.

The key is to know where your money is going each day, and why.

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