How to Create a Money-Saving Budget You Can Stick To

Most people say they don't have the discipline to budget and save their money, but it can be easier than you think.

If "budget" sounds like a dirty word, think of it not as some nasty chore, but as spring cleaning. Once you do one good financial cleaning, you may have your money life in order for years.

Your Cash Flow
The crux of budgeting is knowing your monthly spending needs and habits. Creating a budget means tracking your personal cash flow -- that is, how much money comes in and how much goes out.

Adding up your monthly income is easy, but tallying up all your spending takes a little more effort.

First, collect all your bills, your credit card statements, your checkbook register, and receipts for your groceries, gas or anything else you buy with cash.

If you haven't been keeping good records, you may have to keep track of every dollar you spend for a month before you draw up an accurate budget. Track your expenses by making entries in a notebook, or use a money management program such as Quicken or Microsoft Money. Those programs make budgeting easy. They really are worth the investment and often can be found discounted at computer retailers or bookstores.

Next, divide your spending into fixed costs -- such as mortgage payments, rent or loan payments -- and variable spending, which includes clothing, food and entertainment. Although you may be able to reduce your fixed costs by, say, refinancing your mortgage to get a lower interest rate, in most cases it is much easier to trim your variable spending.

Setting Goals
Once you have a handle on your spending, you can easily determine which costs you can cut and which you cannot.

Often, as soon as you see how much you are spending on your morning latte and bagel, you will be motivated to cut back. Keep motivated by setting goals. Attempt to save a certain amount, and put your savings in a special place so you can actually see what you're saving. For example, if you put the $1.50 you would spend on vending machine snacks every day into a piggy bank every evening, by the end of the month you'll have a tidy amount of money. Then put that money into an interest-bearing savings account or a money market account (you can open one of these at discount brokerage houses like Charles Schwab, often with a low starting balance). Now that money is earning interest for you as well.

A Few Tips To Get You Started
Budgeting isn't difficult, but it does take motivation. Promise yourself a modest reward for your efforts. Make it something you enjoy and don't often get to do. Blocking out some personal time for an activity you enjoy (or just to relax!) is a great, inexpensive way acknowledge your hard work.

Gather three months of bills or, if possible, all of the past year's bills, and add up how much you spend every month. Add up your spending in categories such as housing, entertainment and food.

Take a hard look at what you can pare. Entertainment expenses are easy to slash, but utility bills are not so easy to cut. Keeping a daily journal of what you spend each day may sound obsessive, but it can be eye-opening. Once you know where your money goes, you can spot your mindless excesses. It is really not very hard to give up lattes or bring your lunch from home.

Pay bills as soon as they come in. Avoid wrecking your budget with late fees.

Decide what you can cut, then do it. Track what you are saving, and you will be pleased. Budgeting is a bit like dieting; it takes discipline, but once you get in the habit -- and see positive results -- it gets much easier.

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