Make a Monthly Budget

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Maybe you've shelled out lots of money in account overdraft fees, you have debt that cries out for repayment, or you're just stressed about making ends meet every month. Regardless, you need a budget. But where to start? Follow these seven steps to create a monthly budget that suits your situation and gets your finances under control.

Set a goal.

Before attempting to draft a budget, have a goal in mind. You may want to deposit at least $100 each month in a savings account, pay $100 toward credit card debt, close out each period with an "extra" $50 for pocket money — whatever. Start small, so you don't doom yourself by concluding the goal is impossible to reach before you even try.

Know what's going out and coming in.

First, add up the fixed quantities, starting with your income: every dollar that comes in each month. If you work an hourly job with a variable schedule or don't collect regular paychecks, err on the side of caution by using your lowest monthly take-home pay. Then add up every dollar that goes out on a regular schedule: mortgage/rent, loan payments, car payments, utilities, etc. Subtract the expenses total from the income total. If the result is already less than zero, there's no time to lose.

Keep a running tally.

The variable numbers in your monthly outflow are a little harder to compute in one sitting. Luckily, these days there are budgeting apps and other tools, such as Mint, that automatically track the total amount flying out of your pocket each month via connected banks and credit cards. Most banks have their own online tools to help customers track how much they spend on recurring expenses, such as gas and groceries.

Know the difference between a luxury and a necessity.

As you examine what comes in and what goes out, pay close attention to expenses that are luxuries (dining out, entertainment, beauty) versus those that are necessities (housing, groceries, medications). This can be tricky, because goods and services that some of us regard as luxuries are necessities for others. For example, a weekly massage may be a treat that helps you relax; your friend may need it for medical purposes. The monthly budget you create should make sense for your unique situation.

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Find ways to cut back.

Once you can see the flow of money through your accounts, you'll surely notice extraneous spending — too much fast food, too many pay-per-view movies, the thermostat set too high. By identifying the drains on your resources, you can begin to patch the holes and bring your expenses back in line with your income. Limit yourself to one fast food lunch a week, one movie a month, or a temperature one degree lower. Cutting back even a few dollars on a daily basis can have a huge impact on a monthly budget. Chowing down a fast food meal twice a week for a month, at $7 a pop, totals $56. You can buy a lot of groceries for $56.

Allow yourself a splurge.

Don't give up all the fun in your life; that just makes sticking to your budget goals all that much harder. Allow yourself at least one splurge a month — maybe dinner at a casual restaurant, or a manicure/pedicure, or a movie and popcorn. Consider this a gift to yourself for being true to your new thrifty ways. Just keep the indulgence reasonable — under $50, say. After a while, you may not feel the need to splurge.

Stick to it.

For all this hard work to pay off, you can't cheat. There will be months with unforeseen expenses, such as a flat tire or an exceptional cold spell, but if you've stayed on budget, you should have the resources to cover the surprises without inflicting lasting damage. If you are honest with yourself about what comes in and what goes out, you can find a way to stay afloat with grace.

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