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Budgeting 101: Create Your Plan

With all the focus on the national debt, it’s a great time to make sure your own household budget is in the black. Creating a budget plan may sound old-fashioned, but it’s a proven way to begin taking control of your own financial destiny. And it’s surprisingly simple.

Establish a budget baseline
Track all your household expenses for a month, down to every pizza and coffee. You may surprised by just how much you spend on things you could live without (e.g., that $4 at the donut shop every morning adds up to $1,456 a year!).

Sort expenses into three categories
“Fixed expenses,” including rent or mortgage, car payment, and other recurring fixed-cost bills; “variable expenses,” like food and clothing (don’t forget the cost of interest on credit cards); and “extras,” for non-essential expenses.

Add one more column to the list: Savings
Are you putting money aside each month for a “rainy day”? Personal finance experts recommend keeping at least three to six months’ worth of household expenses on hand for emergencies.

Add up all household monthly income, after taxes
If your income is below what you’re spending, time to do some cutting. Start by looking at the extras, but you should also review your fixed expenses: Could you live without those costly premium cable channels? On the other hand, don’t cut all the fun out of your budget. Dinner out and a movie every now and then is important too—just make sure it’s accounted for in your budget.

Once you’ve created your plan, stick to it
Keep track of your expenses to make sure you stay on course. Once you make living within your means a habit, you’ll be surprised how it helps relieve a lot of stress—for you and for your pocketbook.

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