Planning a monthly budget allows you to live a comfortable lifestyle without accumulating debt. If you are already in debt, a simple monthly budget is the most important step to regaining financial security.

Calculate Your Monthly Income

The first step in developing a monthly budget is calculating your monthly income. Start with the money that you earn each month after taxes are deducted. Next, add any other sources of income you may have, such as alimony, child support, etc. Add these numbers together. The result is your monthly income.

Determine Monthly Expenses

The next step in planning a budget is to make a list of all your monthly expenses.
You will not know the exact amount that you spend on each item. Don't worry, you have all month to calculate it. The easiest way to list expenses is by breaking them into categories. Some examples of categories might be housing, food, transportation (if you drive a car include gas, car insurance and maintenance), utilities (electric, water, gas, etc.), credit card payments, clothing, entertainment (movies, eating out, alcoholic drinks) and other (personal care products, books, insurance, health care, education). Feel free to break these into small categories. For example, you may want to list your car insurance separately from your other transportation expenses, since it is a fixed amount. Make the categories as small or large as you like. You may consider any subcategory in the "other", as a category of its own. For example, insurance could be listed separately.

Now that you are aware of the items you are spending money on, you can begin to keep track of how much money you actually spend. Take one month to record the amount of all your expenses. Although expenses in many categories will vary month-to-month, recording your expenses for one month will give you a good idea of how much you spend in each category.

Remember, your expenses are not limited to bills you pay by check. Don't forget to take a pad and pencil with you to the restaurant. Also, remember to record trips to the ATM or the bank in your notebook. Records of all the cash you withdraw provides a safety net in case you forget to jot down a meal out or an extra beer. If you have a record of the cash you withdrew, you can estimate which category it was spent under.

Remember: If you pay a bill early (or late), record it as an expense for the month that the bill was due, not as an expense for the date that you paid the bill.

Create A Monthly Budget

After you have logged all your expenses for the month, you can begin calculating your monthly budget. A simple way of looking at your budget is to add up all your monthly expenses, and subtract this number from your monthly income. You should have enough money left to deal with an emergency. If you do not have enough extra money left over, find a way to cut corners. Start by cutting back on nonessentials, such as entertainment and clothes. Next, look for bargains at the grocery store, buy generic personal items, and start car-pooling to save on gas.

Remember: Even if you do not feel that you are overspending, everyone can afford to save extra money. Therefore, cutting corners is never a bad idea.

Interpreting a Budget

In order to understand exactly where you are overspending, you may want to figure the percent of your expenditures that fall into each category. If you make $1,000 a month, and spend $400 on rent, divide 400 by 1000. The resulting .40 is the percentage of income going to housing (40%). This formula can be used for each category. Just divide the amount that you spend for the category by your monthly income. After you find each percent, make a chart showing your entire budget. This will give you an idea of the areas where you are overspending, and where to cut corners.

A typical monthly budget may be similar to the following.

Percentages will vary according to households. There are no absolute right or wrong answers when it comes to your household budget, only what works best for you. At the end of the exercise, you need to have enough cash left over to provide an adequate safety net.

Caution: Beware of debt counselors. While in some situations they may be necessary or helpful, counselors may also overcharge and add to your already existing money problems. By paying attention to spending, using simple math, and cutting corners, you may be able to solve your debt problems without a counselor. This will save money in the long run.

Additional Tips

• Plan to have enough money for an emergency.
• Allow room for last minute extras, such as gifts or late charges on videos.
  
• Put the money saved by using a budget into a savings account, money market, or stock.

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