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Create a Budget (and Stick to It!)

A budget may help you stay focused on both short- and long-term financial goals.

Leah Vendl, a 23-year-old barista and café worker, recently moved from Tacoma, Wash., to Seattle, where living expenses are higher. "To make the move work, I had to figure out where my money was," she says. She uses a Microsoft Excel spreadsheet to track expenditures and maintains separate savings accounts for repaying student loans and saving for a trip to Europe.

A budget can help you work toward eliminating debt and cutting unnecessary expenses, as well as keep you on track to meet your long-term financial goals. Here's how to get started:

Find out where your money is going

It's impossible to know where you're going if you don't know where you are now. To get a realistic picture, review your income as well as your expenses. Pay stubs and other income records show how much you're bringing in; recent credit card and bank statements show how much you're spending.

Sort out your accounts

One barrier to keeping a budget is figuring out how to organize all the information. Budgeting software and websites can help you with the task. Here are ways to start:

  • Divide your expenses into categories such as essential expenses, including mortgage or rent, food, utilities and childcare; and discretionary expenses such as entertainment. If you need to cut back, focus on the three or four biggest expense areas in this category. Remember to factor in irregularly occurring expenses such as holiday gifts or vehicle excise taxes.
  • Track how much you're saving each month, including retirement plan contributions and other savings and investments, as well as an emergency fund. Be sure to include a heading for other long-term goals, such as college funds for your kids.
  • List recent purchases in each category, then estimate your spending over the next six to 12 months. Decide on a monthly maximum for each category.

Stick with it

  • Keep on top of your expenses. "I enter my purchases every day, or at least at the end of each week," says Vendl. "It keeps me honest."
  • Focus on your end goal. "My biggest reward is seeing how much I didn't spend, because that extra money goes toward paying off my loans sooner and getting myself to Europe," Vendl says.
  • Set smaller, incremental goals, too. That way, you always have something you can be working toward to help keep you motivated. When you reach a benchmark, such as eliminating credit card debt, find a way to reward yourself.

Get started today.

Sit down and review your finances tonight—savings, spending and income.

Use our budgeting calculators.

A financial professional also can help you develop your long-term plan. What's important is that you take action and keep the plan moving forward.

Fast Fact: Fifty-six percent of Americans don't have a budget, according to the March 2011 Consumer Financial Literacy Survey from the National Foundation for Credit Counseling.


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