The first step to budgeting your money is to fully understand how you spend your money today. The best method to get a handle on your expenses is to write down every purchase you make for two weeks or a month if you can. This may sound annoying to do, but you will come away from this exercise having learned something about your spending habits. Chances are you will also realize that there is a considerable amount of cash that just disappears out of your wallet each month. Just like a dieter writing down everything he or she eats each day in order to eat less, when you become more aware of what you are really doing, you will tend to be more careful with your money.

If you have a high school-age child, who is beginning to manage his or her own earnings and/or allowance you may want to make this a family activity. If your teenager is constantly looking to you for a handout since they tend to blow through whatever money they have, start the lesson today. After all, there will come a day you hope to stop being their private automatic teller.

The trick to this is to make the process work for you. If you tend to use a lot of cash, you will need to save receipts. If you use a debit card for pretty much all you do, this may be easier. Keep this record in a notebook or an excel document to make the math easier. It is up to you.

At the start of a pay period, enter in your take home pay on one page. Next list all of the following expenses that you will have before the next paycheck.

Saving – Pay yourself first. What amount will you place n savings? If you do not know this role be sure to read Savings 101.

Fixed Expenses – Things like rent (could be half of the total if you get paid twice a month, car payment, insurance, utilities, your cell phone, gas or bus fare – whatever monthly obligations you have.

Variable Expenses – Here we get to the real point of this exercise. These are the expenses that you choose to make. Each day write everything down, no matter how small. Lunch with a co-worker, drinks with friends after volleyball, coffee on the way to work, or those new shoes you could not resist. Enter each expense with some kind of description like meals out, clothes, groceries, cash at an ATM, etc.

Just before your next paycheck, total things up and see how you are doing. Compare your expenses with your income. Be honest with yourself. Did something surprise you? You may never have added up that those trips for bottled water at the fitness club or work, amounts to over $10 a week. Add that to $40 on fast food for lunch each week and you may see why some of you co-workers pack a lunch most days. Convenience is great but it comes at a price. If you spent more than you had, you can try to tighten your belt for the rest of the month.

If you have a considerable gap with cash that was spent and not recorded, you can see that you may need to change a few habits. It is so very easy to go back to an ATM to get cash when you find yourself short. You may need to budget your cash for each pay period and watch that you do not overspend.

Rather than think of this as a punishment, think of this as freedom of choice. Perhaps in hindsight, you would have skipped picking up a burger or sub sandwich for lunch three times this week so you could have enjoyed a nice meal with a friend on Friday night – without feeling guilty. Or you would rather spend all that money on bottled water (and the packaging you toss out) on a hobby. If you followed directions and put money in savings at the start of each pay period, at the very least, your long-term financial savings goals are not completely derailed.

After you have managed to keep a money diary, you are ready to build a budget – and make it one you can live with. Check out How to Make a Budget.

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