Creating a budget can be a valuable tool in keeping up with expenses and keeping spending habits from spinning out of control. Budgeting provides a household with a financial structure or template to follow from month to month. This also ensures that bills are being paid on time and money is categorized and restricted before it is earned. It takes discipline to stick to a budget and this is the most important aspect of budgeting.

List Your Expenses

Creating a budget revolves around the amount of money that you must spend each month, not the amount that you want or wish you could spend. We all have monthly bills that include power and utilities, rent or mortgage payments, taxes and insurance. These are the bills that we must pay. Many other expenses are involved in this process as well depending on your income. Create a list on paper to avoid having to purchase expensive software programs or having your financial information listed online. Start the list at the beginning of each month. It will be hard to create a monthly budget that corresponds to every month because your expenses and income are subject to fluctuate over the course of a year. You will have times when you want to budget in a vacation, or have to buy school supplies if you have kids and don't forget Christmastime. List your expenses in categories that you can easily reference. For example, place House at the top of the list and create subcategories for this reference such as: Mortgage, Rent, Taxes, Insurance, Maintenance. Write the value of the amount that you spend for each category to the right. Repeat this process throughout the list with other categories such as: Transportation: Loan payment, Gas, Bus fare, Maintenance, Insurance. Communication: Cell phone(s), Internet, House phone, GPS service. Loan Payments: Car, Credit card(s), Student loans. List every expense that you have during the month first before adding in luxuries such as: Dining out, Vacation, or Shopping.

Cross Reference Available Income

If you have two members living in the household such as you and your spouse, then combine your monthly income toward the budget. Add up what you both receive as income and how frequently each month. Most individuals are paid twice a month, some are paid every week, and others make money every day as in professions that work on cash tips. Estimate the amount of money that all contributing household members earn and round it down to the nearest $10 to avoid error. You may come up with a figure of anywhere from $2,000 per month to $10,000 per month. Cross reference your monthly income with the expenses in your budget. Add up your monthly expenses and see what you get. For example: if your monthly income is $5,000 and your expenses add up to 3,000, then you have $2,000 to budget into your expenses as luxury or paying off debt. With extra money you can pay ahead on mortgage principal, credit card principal or pay ahead on monthly loan payments such as rent or car loans. You can also take a vacation or budget in a splurging day to go shopping with a certain amount of money. If you make less than your monthly expense amount then you will need to take appropriate action to ensure that you won't go into debt, become bankrupt or ruin your credit score. You may have to find a better paying job, get rid of some of your possessions or take on a second job to even out the amounts.

Source:

CNNMoney: Budgets

Bankrate.com: Art of Budgeting

Gather Little by Little.com: Create and Follow a Budget