Many people are wanting to start living within their means and living on a monthly budget. This is a very smart move considering the state of our economy. However, most people do not know where to begin when creating a budget.

When you begin taking control of your finances and working with a budget, you must first find out where you are now in your financial life. This is a very important step in creating a budget. Below are the three budget worksheets you can use to find out where you are financially today.

Budget Worksheet #1 – Income Tracking Worksheet- On the income tracking worksheet you will want to write down all your income and they dates they are receive. Do not record random monies on this worksheet. Only include regular income such as paychecks, child support and alimony.

Budget Worksheet #2 – Expenses Worksheet – On this expenses worksheet you will want to write down what you think you spend in each category. Categories should include utilities, food expenses, and insurance just to name a few. This is just an estimate of what you think you spend each month.

Budget Worksheet #3 – List of Creditors Worksheet – This worksheet is for you to list all the companies and people who you owe money. They should include any credit cards, pay day loans, and family and friends. You should list the creditor’s name, address, total amount due, and how many months you are in default (if any).

By filling out these three budget worksheets, you will get a visual picture of where you are in your financial life.

More and more people are trying to create a budget to live by these days with the state of the economy. However, many people have never creating a budget before and are doing so for the first time. When you are creating a budget there are three common mistakes that you will want to avoid and they are listed below.

Mistake #1 – Not Knowing Exactly What You Spend in Each Category – It is extremely difficult to create a working budget if you first don’t know how much you typically spend in each expense category. This is why it is very important to track your spending for 30 days before creating a monthly budget. You will be surprised by how much you actually spend in each expense area.

Mistake #2 – Not Tracking Your Spending and Expenses – It is impossible to keep to your monthly budget if you fail to track your spending. It is recommended that you fill out both a weekly expenses report and a monthly expense record worksheet to track your spending and monthly expenses. It you don’t track you spending you will not know what areas of your budget you need to adjust for next month.

Mistake #3 – Not Planning for Upcoming Expenses – When you are creating a monthly budget it is always helpful to save a certain amount of money for a given category even if you don’t have that expense for the given month. For example, let’s say you pay your car insurance every six month. It is important to take your payment and divide it by six. Then, each month you will want to save that amount so you have the insurance payment when it comes due instead of trying to come up with the whole amount in one given month. If you can do this for as many periodic expenses as possible, it will be easier to have a balanced budget each month.

So, as you can see, if you avoid these common mistakes when creating your monthly budget you will be well on your way to a balanced budget.

Budgeting money is easy, if you have a basic process to follow. By following a few simple steps, you can put one foot in front of the other and create a workable budget very quickly. Follow the steps below to create a basic budget to build on:

1. Ask yourself what you want to accomplish by creating a budget. Maybe you want to save money for a down payment on a house. Maybe you’re tired of paying a large portion of your paycheck towards credit card bills and want to get rid of them. Or, maybe you’re having trouble paying all your bills on time and you want to change that for the better. A budget is nothing more than a plan for how you want to spend your money. So, deciding what’s important for you will determine what your budget will be focused on. Get out a piece of paper and a pencil and write down in a single, positive sentence, what you most want to achieve with your budget.

2. On the same piece of paper that you wrote your budget goal on, list how much money you receive as income on a monthly basis. If you can get this exact, great. If not, estimate. This doesn’t have to be exact. For example, if you’re paid every other week, just list double the amount of your typical paycheck and mark it with an asterisk (if you get paid every other week, two months a year you get an extra paycheck. But, if this is your scenario, don’t worry about the extra paychecks – they’re gravy – move on.)

3. Now, list your expenses: Mortgage/rent, utilities, car payment, insurance, groceries, gas, credit card bills, etc. Include any items that will help you achieve your ultimate budgetary goal. A fast way to help you remember everything is to logon to your online checking account and review the past 60 days of activity. Don’t burn hours of your time worrying about getting everything perfect the first time out – no one is going to grade your work. Your first goal should be to get a roughly accurate ballpark estimate of where you’re at.

4. Do a little analysis. The odds are good that if you’ve followed the first three steps as described, you’ll actually have a little bit of leftover money showing when you subtract all your expenses from your income. If you’re scratching your head at this because you’re usually running behind every month, here is the aha moment you’ve been waiting for: coming up short means either an unexpected expense has run you awry and/or you have many small expenses that you underestimate on a daily basis that quickly add up to real (budget busting) money. Four dollar latte’s in the morning, magazines, happy hours, eating out one too many times and 500 channels on your television (10 of which you watch regularly) all contribute to this. Which leads us to step number five…

5. Weed out the unnecessary expense. If you think this is poverty consciousness, think again. Even rich people – especially rich people – don’t waste their money on things they truly don’t value. You can make finer coffee at home for much lesser expense, get your tabloid needs more than met on the Internet, have sinful barbeques and happy hours at home with your friends and family for a fraction of the price of going out and survive on less than the extreme deluxe satellite television package, all while having more fun for less money than you thought possible.

6. Keep your mind focused on a budget that leaves you with money left over at the end of the month. Repeat steps 2-5. That’s it. Keep refining the accuracy of listing your income and expenses, and keep weeding out the unnecessary expenses in your life. An extra-credit thing you can do to help you with your budget is to put as many fixed bills on auto-pilot as possible (auto-draft or automatic online bill pay) and withdraw a set amount of cash periodically to cover the miscellaneous expenses. That way, you won’t have handwritten checks, excessive debits or ATM withdrawals goofing up your budget.

Follow the above simple process for creating a budget that will meet your needs, making your life and your family’s life the best it can be.

You can use the Money program to create a budget. By using Money for budgeting purposes, you can compare your actual spending to your budgeted spending. You use Money’s Budget Planner tool to set up a budget.

1. Display the Budget Planner window.

Click the Planner link, and choose Budget Planner. Money then displays the Budget Planner window.

2. Use the Budget Planner Wizard.

The Budget Planner Wizard steps you through a very thorough process for creating a budget based on your exact income, your long-term savings plans and goals, the possibility of occasional extraordinary expenses, your contractual debt payments for car loans and mortgages, and your anticipated expenses. To step through this planning process, click hyperlinks in the Budget Planner window. Read the instructions inside the windows and, when prompted, provide data by filling in fields. After you finish with the Budget Planner Wizard, you have a complete and very detailed budget.

How do I create a personal financial plan?

Money supplies a Lifetime Planner tool that in effect creates a personal financial plan for you. The Lifetime Planner is a wizard that collects and then analyzes a large volume of personal financial data concerning you and your family, your current financial situation, and your future financial aspirations. The Lifetime Planner starts with a video. Just as with the Budget Planner, read the instructions inside the windows and, when prompted, provide data by filling in fields.

Personal financial planning sounds complex, but it consists of three basic tasks: First, you need to make sure that you manage your day-to-day finances in a way that keeps your financial affairs simple and hassle free. (If you use the Money program to keep your checkbook and other financial records, you are already doing this.)

Second, personal financial planning means identifying and then prudently preparing for long-term financial objectives, such as a comfortable retirement, sending a child to college, or making a major purchase, such as a house. You can spend an enormous amount of time planning for these sorts of major events, but you don’t have to because the planning process isn’t all that difficult. In most cases, you can figure out what you need to do to retire quite easily. Numerous books have been written on the subject.

The same is true of other financial objectives-if you take advantage of well known and popularly discussed tools, it is typically not that difficult to prepare.

The third element of personal financial planning is the mitigation of financial risks where possible. This is perhaps the least understood and most overlooked task of personal financial planning. In a nutshell, you need to make sure that a personal tragedy, such as loss of life of a breadwinner or a serious illness, doesn’t become a financial tragedy.

Obviously, you can’t prevent personal tragedies. Parents die, children get terrible illnesses, and catastrophic events, sometimes forces of nature, destroy property and wreak havoc on people’s lives. However, in all of these cases, you can usually buy insurance that lets you share the cost of these financial disasters with large groups of other people. Then if you happen to become the next unfortunate victim, you will at least receive a claim payment that minimizes or eliminates the financial costs.

How do I plan for a child’s college expenses?

The goal is to save enough money in the years before a child goes off to college to pay for four or five years of tuition.

The first step is to make an estimate about what the child’s college expenses will total. Every year, major U.S. news magazines, such as US News and World Report, provide comprehensive lists of college cost information. Obtain one of these magazines and estimate what college will cost when your son or daughter attends.

After you determine the cost, you then calculate the amount you need to save. The tricky part of saving for college is that you often can’t use investment choices that deliver high real rates of return. In fact, it’s common that you will be saving for college using investment choices that don’t deliver a positive after-tax real rate of return. What this means, unfortunately, is that in many cases you can produce a fairly accurate estimate of how much you need to save for college simply by looking at the total cost of college and dividing this amount by the number of months between now and the time your child attends.

NOTE If you are beginning to save money while your child is still an infant, you may feel comfortable investing in the stock market, which will return a positive after- tax real rate of return.

Creating a budget can be a very difficult task. Although we as consumers know that we need to pay our bills, buy our necessities, and put some money away for savings, we don’t really know how to start.

I know from personal experience how hard creating a budget can be. In the beginning stages of my road to financial freedom, I would write all my expenses down on paper and notice that I would have very little or sometimes nothing left over to save. I tell my clients that seeing everything on paper is only the first of many reality checks while starting the journey of getting their finances in order.

I think most Advisors in the financial world will agree that using budgeting categories will help you organized things tremendously. Everyone will not have the same categories thus making every budget unique.

A category simply is nothing more than a grouping mechanism. Instead of listing each credit card bill separately on my budget, I will give all of my credit cards a category, for example I will list it once as “debt”. Some other popular budgeting categories are housing, savings, utilities, charity, food, transportation, childcare, miscellaneous and income to name a few.

There are many budgeting software programs out there. I suggest however, that in the beginning stages of creating a budget you continue to track things manually. This way you’re constantly viewing how your money is being spent and staying connected to the whole budgeting process.

Another very important task of a successful budget is keeping up with your expenses and all of your receipts. Now, I know this is difficult especially when buying what we think are small insignificant items but believe me it is very important, especially for married couples. If one spouse is spending $4.00 a day per month on a Cappuccino, that one purchase is costing your household $120.00 a month. To help solve this difficult task, keep a “receipt” box in a common area and commit to tossing all of them daily. When you sit down to work on your budget pull out all of your receipts and categorize them. I suggest you do this weekly in the beginning. The box can fill up pretty quickly, especially when two people are contributing.

Last but not least give each category total a “category to income” percentage. For example look at your life though the eyes of a Lender. You should spend no more than 31% of your net income on rent or housing and that includes your mortgage payment, property taxes, insurance and in some cases homeowner association fees. If you’re spending more than 31% keep your true values. Once you tally-up all your actual category totals and convert them into percentages your “reality” picture is now painted. Hopefully you will not exceed 100%. However, if you’re over 100% seek professional help immediately because you are in big trouble and heading for a crash!

If the above process has you feeling overwhelmed don’t beat yourself up. Just make an appointment with a Counselor or Coach in your area they’ll be happy to assist you.