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Money Management: Creating a Budget, Part 3

July 5, 2007 - After getting a handle on your spending, reducing your debt, and making some moves to live within your means, you've still got some work to do with your budget. After all, making a budget is the first step in a process of greater money management.

What's next?

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Routine Management

Part of budgeting is making something you can stick to. That means your budget is not something set in stone, but a more fluid, dynamic idea.

To manage your budget, and ensure that it's meeting your needs and desires, get organized. Use a reliable tracking method that you feel comfortable with, and have ease in accessing. Whether that's an Excel spreadsheet, a ledger book, or software like Quicken or MS Money, find something that works best for you.

What to keep track of? In the first months of your budget, keep track of your money and money out. Log all your income and take care of the fixed bills first (rent, utilities, healthcare, etc.) Then use your system to keep track of your purchases.

Taking Stock

Are you staying within the amounts you budgeted? Are you finding it overly difficult to stick to the plan and priorities you set forth? You might have been too harsh in your budget-making process. Doing this only makes it easier to ditch the budget all together, and get back to habits that made your money fly out of your hands.

Here are some signs of “budget bombs”:

No fun stuff. If your budget doesn't allow for entertainment, you're setting yourself up for a fall. All effective budgets should include recreation – the key is determining how much. Many budget experts suggest 5-10 percent of your total household budget put towards fun.
Saving sporadically. When you've determined how much of your income can and should go towards savings, make it easier on yourself. Have that amount automatically deducted from your paycheck. Otherwise, it becomes much easier to spend that money earmarked for savings, and all your budget plans ditched.
Relying on debit cards. If you use debit consistently, it's easy to lose track of what you're actually spending. Instead, stick to your budget by spending with cash. Withdraw a weekly amount, and you'll find it much easier to stick to the budget.
Making minimum payments. Always pay more than the minimum for credit cards, and you'll wind up saving much more in the long run.
No emergency funds. Experts recommend that people have 3-6 months income set aside for emergencies. Without this, health, family and work problems can become crises quickly.

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For more information on budgeting and money management, visit bankrate.com, kiplinger.com, and personalbudgeting.com.

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