If you feel like you never know how much money is in your bank account – you need a basic budgeting system.  This system should let you track your expenses for the month against targets or limits in a variety of categories.  Using a budget system requires a little bit of work upfront but will provide you with greater financial security and the ability to make and meet financial goals.

There are several ways that you can choose to implement a budget – but the first step is determining what is the right budget for you.  Look at your income for four weeks – not including taxes, this is called your take-home pay.  If you have a fluctuating income which varies month by month try to determine an average income or average range you can reasonably expect.

The first step towards creating a budget is figuring out what cannot be changed.  This is your mandatory spending – usually items related to your household’s basic needs.  Items in this category can include mortgage, rent, insurance, utility bills, groceries, and transportation.

There is another category in your budget – the flexible, or discretionary items.  These are areas where you spend money every month but it is not required.  This category might include an online streaming service subscription, meals at restaurants, or shopping.

Not to worry – the purpose the budgeting is not to eliminate activities that you enjoy but to put a structure in your life so you can determine where you get the most joy and reduce the anxiety about your bank account balance.

Now that you know the basic tenets of budgeting it is important for you to consider a few principles.  First, make sure that no single expense is dominating your budget.  A standard recommendation is that if your mortgage or rent is more than 30% of what you’re taking home every month, you should consider a roommate or moving to a more affordable living situation.  Although this can vary between cities, in general your groceries should not cost more than $300 per person. 

To stick to your budget there are a few tools to consider.  First is an application or software which will help you track your spending.  Mint is a well known option which automates the process by analyzing information from your bank account or credit card.

Another option is using envelopes for different budget categories and only spending the cash you have in each envelop.  Once you know the amounts of money you want to spend in each category, you can create envelopes for each category which include the amount of cash you have in that category for the month.  Or, instead of carrying envelopes for every category it can be a good use an envelope only for categories where you frequently overspend.

Creating a budget and reducing expenses does not look the same for everyone, so do not be afraid if your budget looks different from your friends and family.  Do what works best for you.