Tips for Setting Up a Basic Monthly Budget

The word debt is swiftly reaching the status of four-letter word to more and more Americans. If rising consumer debt levels and plummeting savings rates are any indication, this line of thinking is certainly justified.

With the advent of every new financial tool of "convenience," it seems more and more folks are taking an out-of-sight, out-of-mind approach to personal finance. Credit cards, debit cards, ATM cards, online shopping and online bill-paying are a few of the tools that are replacing the monthly or bi-weekly ritual and sitting down with a stack of bills and the checkbook and conducting one's financial affairs. By allowing our finances to slowly slip through our grasp, as a society we are living beyond our means and relying on credit cards and other instruments of debt to support our more and more extravagant lifestyles.

The most effective tool to reclaiming your personal finances is with a well-constructed budget. I know that the very term causes most folks to cringe, but as the saying goes, "an ounce of prevention is worth a pound of cure." Taking the time and energy now to set up a realistic budget will save a lot of heartache later on when the burden of too much debt and not enough savings becomes too much to bear.

The first step in creating a budget is to write down all of your monthly expenses. I've found the best approach is to either start a spending journal for a few months or to sit down with three-month's worth of credit card statements, bank statements and bills to come up with a list of expenses. The reason I suggest three-month's worth of spending is that in that time, you should capture most, if not all of you irregular expenditures. That is, expenses that don't necessarily occur monthly, such as oil changes, hair cuts and birthday/Christmas gifts, etc. It's important to note such expenses, because they can become real budget-busters every month if they're not taken into account.