How to Create a Realistic Budget

A budget is only as useful as your ability to follow it. If you find that you constantly fudge the numbers or overextend yourself, it's time to create a more realistic budget--one that's more workable with your financial situation.

Instructions

1. Write down all fixed expenses, from your mortgage or loan payments to bills like cable and phone. Include each one on your list. When finished, go back through your check register and credit card statements to make sure you're not forgetting quarterly, semi-annual or annual fixed payments.

2. Track all variable expenses for a period of three months. Obtain receipts for every purchase, and keep them in one location. Keep a notebook handy and write down purchases that have no receipts such as vending machines or self-service car washes.

3. Give yourself a weekly allowance of cash. Keep the amount as low as possible. If preferred, you can keep track of the allowance as a whole, rather than individual cash purchases. However, use this option only for tiny purchases such as snacks. Account for larger expenses in the variable expense report.

4. Tally all expenses in three columns (Fixed, Variable, and Allowance). Compare the total expenses against your net income. This gives you a realistic look at your cash flow.

5. Look for areas where you can trim excess spending and implement the changes immediately. (For example, cut down to basic cable or pack lunches rather than buy them at work.) Use your cash flow model to create a realistic budget based on finances, rather than guesswork.

Tips & Warnings

• Remember to budget money specifically for savings. Homes and cars require maintenance, and occasionally an unexpected repair bill will crop up.

• Think of your budget as a constant work in progress. As your situation evolves, so will your cash flow. The trick is to stay on top of it.