Personal Finance Handbook

Creating a Budget

A tiny drip from your bathtub faucet can send thousands of gallons of water down the drain each year. Your money can dribble away, too.

An $8 pizza, a $12 pair of sunglasses, $20 at the movies—they don't seem like much at the time. But a lifetime pattern of careless spending can be painful, even ruinous. Money problems can cause stress, wreck personal relationships, and trap people in jobs they don't like just so they can pay their bills. What a way to live your life!

Start a better way. Budget your money.

Calculate Income Versus Spending

Budgeting begins simply with writing how much money you receive and how much you spend. Try these steps:

This record of your income and spending can be very revealing. Do you have a little money left over at the end of the month? Or do you spend more than you earn? Experts recommend that you put about 10 percent of your income into savings. If you have very little left over—or worse, if you spend more than you earn—it's time to create a budget.

Living Within Your Budget

Look at your expenditures and find areas in which you can cut spending. For instance, buy a frozen pizza from the grocery store instead of ordering take-out. Get together at friends' houses instead of at the mall. Shop end-of-season clothing sales. And be careful with automatic teller machines! ATMs make it too easy to drain your bank account.

Fill in the first two columns of a chart like the one on the next page. Then in the third column, enter the reduced amounts you think you can spend. Keep cutting until you can reserve 10 percent of your earnings as savings. This is your new budget, a plan for saving and spending.

If you have a difficult time staying within your budget, enlist a friend or family member to review your expenditures each week to help keep you on track. Distinguish between “needs” and “wants.” Try not to rationalize impulse buying. After all, you'll only be kidding yourself.

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