Creating and managing a budget is the cornerstone of good financial health. It's a step-by-step planning process that puts you in control and allows you to better manage your finances. You'll know exactly where your money goes each month. If you think budgeting means depriving yourself, think again! A budget is simply an organizational tool that helps you monitor your spending habits and control where you spend your money. For a discussion of family budget expenses in terms of percentage of income, see the article Family Budget Example.

This article is part of a series of articles on budgeting. To learn more, read the budget planning articles in our Knowledge Center Library.

There's no way to create a budget without first looking at where your money goes each month. This can be a daunting task, so it's a good idea to break it up into manageable pieces. First, examine your expenses over the past two or three months. The best way to do this is to look at your:

• Checkbook register
• Receipts
• Statements

Second, sort your monthly expenses by category. If an expense is not monthly, be sure to convert it to a monthly expense. For example, if you pay insurance quarterly, divide your quarterly bill by three to get the monthly amount. To meet your specific household needs, you may need to add to or delete from the categories suggested below:

Third, track your current expenses for one month. Use a notebook and write down every penny you spend over the next 30 days. If you buy a cup of coffee on your way to work, write it down. If you buy a candy bar for a late afternoon snack, write it down. This can be somewhat cumbersome, but you'll learn valuable information about where your money goes. You may not even realize how much money you're spending. You'll probably have ideas on how to reduce your spending just from looking at this information.

Budgets not only include monthly expense information, they also include your monthly income. For the purposes of a budget, you should look at your take-home pay (net pay) instead of your actual salary (gross pay). If you get paid every other week, multiply your take home pay by 26 and divide by 12 to get a monthly amount. If you get paid every week, multiply your take home pay by 52 and divide by 12 to get a monthly amount. Sources of income include:

You now have the basic information necessary to create your budget. If you'd rather not waste a lot of paper, check out our online budgeting tool. You'll be able to enter all your income and expense information in an easy to follow format. Also, you can keep your budget figures online at Wesabe, a personal finance community website.

After you've recorded your information in the online budget, the next step is to compare your income and your expenses. Add up your monthly income and add up your monthly expenses. If your income is greater than your expenses, you have a surplus that can be used to pay down existing debt or used for savings. If your income is less than your expenses, you have a deficit. Don't be alarmed. Help is just a click away. The other articles in this series will help you explore options for reducing expenses and building a realistic budget. If you are really having difficulties, click on Start Now to find out how this may help you.

Remember, creating and managing a budget plays a crucial part in assuring your financial health and seeing that all of your financial goals are met. Why wait any longer? Spend this weekend sorting through your financial records and begin planning how you'll spend your money.

Take control of your finances and debt. Use our calculators and budget planner to help you manage your money.

• Secure your Future by Creating a Financial Plan - Your personal economic future depends upon your current financial strategy. Whether you live paycheck to paycheck or have been saving for years, learning the essential elements of a sound financial plan will ensure your future success. Quickly learn the required elements of a good financial plan, and put the information to work for you today.
  
  
• The Right Formula for Your Budget - Living within your limits is the key to financial independence. Knowing where your money goes and if you're spending the right amount for different categories like housing, food, and transportation, can mean the difference between just making ends meet or saving a little extra. Learn how to build a healthy framework.
  
  
• Counting All Your Coins - To get the most from your finances and away from personal debt, set some financial goals. Make them realistic and give them a time frame so that you can see how they are working. Managing discretionary expenses (cable, eating out, going to the movies) and variable expenses (telephone, electricity, transportation) will also help you cut back on your spending. And eliminating credit card debt will set you on the right path to financial freedom.