Establishing a Financial Budget

Setting up a personal finance budget is key to staying on target with your financial goals. Establishing a financial budget can perhaps increase your savings, help you pay off debt or simply live within your means. When you fail to budget monthly and spend frivolously, you can open the door to financial and debt issues. Know the importance of budgeting and learn tools to help manage your money.

Monthly Bills and Spending

Getting an ideal of how much you spend each month is the first key to setting up a personal financial budget. For 30 days, keep an accurate record of where every dollar goes. Track every expense from dropping off dry cleaning to buying lunch, then record the amount spent in a log. Open your bill statements or print paperless e-mail statements to have a record of your recurring monthly expenses. At the end of the month, calculate your recurring expenses and your other miscellaneous expenses to see how much you've spent.

Know Your Income

Once you have a record of how much you've spent during the previous month, take this amount and subtract it from your monthly income. Monthly income includes funds received from sources, such as an employer, retirement fund, unemployment, alimony or child support.

Decide How Much to Spend

If you spend more than you earn, your calculations will reveal a negative balance. If there's a surplus at the end of the month, you have disposable income. Make adjustments to your budget to create additional disposable income. After reviewing your receipts for the month, establish a new spending plan. Review a spending plan pie chart for an idea of how much you should be spending in various areas . For example, your housing expense should consume no more than 35 percent of your income, and your transportation costs should be no more than 15 percent of your income.

To live within your means and have more disposable income, this may require finding cheaper rent or amending driving habits to save (public transportation, carpool, bicycling, walking). Based on information on the spending pie chart, create a budget that includes saving money and limits extra spending (groceries, shopping and recreation). For example. If you earn $3,000 a month, make a goal of saving at least $300 a month (10 percent of income).

Review and Make Adjustments

Frequently review your budget to keep your goals in mind. You may have to rework your personal finance budget after a few weeks or months. For example, if you can't reduce your housing costs, you can perhaps reduce your extra spending to compensate for a higher rent or mortgage. The same holds true with transportation costs and debt payments. If more than 15 percent of your income goes toward transportation, but you have no debt payments, you can add extra cash to meeting this expense, and vice vera.

Shelley K. Schwartz, "Secrets to Creating a Budget," Bankrate.com
"Your 5-Minute Guide to Budgeting," MSN Money