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A budget is all about tracking and reporting all your sources
and amounts of income, and all your uses of income.

It should answer the questions
"Where's all my money coming from and how much is there?"
and    "Where's it all going?"


Before you get started, and to make the process more suspenseful
and fun, jot down how much you think you're spending on food, entertainment,
travel, clothing, charity, investing, etc.
Then record how much you want to spend on them.


Next, gather information. For one to three months, record all your financial
inflows and outflows.
(One month will do, but a few more will maximize accuracy.)
Try to account for big expenses that occur once or twice a year, such as car
insurance, too. Jot down how much they amount to per month.

During this two- or three-month period, save every single receipt you get for
any expense. If you don't normally ask for or keep receipts, do so during this
period. Also, carry a small notebook to write down any cash transactions. If
you spend a few dollars for coffee at a local coffee shop each morning, record
each such transaction. If you do some odd jobs for a few extra dollars now and
then, record that too.


After the information-collecting months are finished, sit down with all your
records -- the big bunch of receipts, your checkbook, your pay stubs, credit
card and bill statements, and that little notebook of cash transactions. You'll
also want a pad of paper, a pen or pencil, and a calculator. Start making lists
of all the inflows and outflows. Group them into categories and total the
amounts for each item. For example, you might list all your eating-out
expenses and all your supermarket expenses, and lump them together in a
"Food" category. Then calculate what percentage of your income is spent on
food. (Of course, if you fine-tune things more, separating supermarket and
eating-out expenses, for example, that's even better.)


Make sure you're accounting for all your expenses. Even a $12 check written
for a magazine subscription should be counted. As you're classifying
expenses, notice that some of them are fixed, while others are more flexible.


Now, step back and see what you've got. You should be looking at a
fascinating detailed record of where your money comes from and where it
goes. Compare your actual expenses with your initial estimates and see how
close you were. Assess whether you're saving and investing as much as you
want to. See what changes you need to make in your habits to meet your
goals.


Perhaps you can hit your savings goal simply by cutting out HBO and your
subscription to People magazine. Buy a water filter instead of endless jugs of
bottled water. Use a fan sometimes instead of air conditioning. You might be
able to save a tidy sum by giving slightly less-extravagant gifts. Also, don't
assume that fixed expenses are completely fixed. You might be able to
refinance a loan at a lower rate. Or, a little comparison-shopping might turn up
a less-expensive insurance policy.


You might even discover that by spending less on some things you don't care
so much about, you can spend more on things you care a lot about. For lots of
ideas on how to save money, visit Motley Fool's
Living Below Your Means
discussion board. To learn from fellow budgeters, drop in on Motley Fools
Budgeting discussion board.


Here are a few additional budgeting resources:


Budgeting calculators
Budget Builder
Right on the Money
Houseclicks budgeting
Wife.org budgeting and planning
About.com's Budget Zone

To learn more about ways to save money and spend less, check out this
Personal Finance area, which is chock full of guidance on insurance, buying a
car or home, paying for college, banking, setting up short-term savings,
getting out of debt, lowering your tax bill, and more.

If you have any thoughts or opinions on this topic, share it with
others on our Blog!
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