Creating a Budget: See How Easy It Can Be

The first step in creating a budget -- and getting your financial life in order -- is solving the mystery of where your money is going, every month. And in its humbles beginnings starts with a small, lined notebook!

For 30 days, write down in your notebook where you spent every penny, every day.

Then, at the end of the month, add up all the money that you spent, breaking it into two categories: things you had to spend money on – like car insurance, rent and groceries – and things that you chose to spend money on – like eating lunch out every day or buying a new piece of clothing.

The money that you chose to spend is your discretionary income and it’s your discretionary income that helps you pay more towards your debts.

Once you’ve figured out where you’re spending your extra dollars, it is a simple process of dividing the amount into threes:

1. The first third should be used to pay down an existing debt – like paying more than the minimum due on a credit card;

2. The second third should be automatically transferred from your checking account – or even your paycheck – into a savings account; and

3. The last third is your fun money for the month – preferably set aside in cash - that way you always know how much you can spend and what an impulse purchase will leave you with for the remainder.

After applying this process, you’ll be able to sleep better at night – especially in this economy – knowing that creating a budget helps you save and reduce your debt, while still having a little extra money to spend every month.