A budget tells us what we can’t afford, but it doesn’t keep us from buying it (William Feather). It’s argued by many financial advisers that budgeting is the first step towards financial freedom, even if you are in debt. This is because budgeting helps you rally your financial forces and meet your goals. Budgeting is essential for all families and individuals and can be the fastest way to save money. You will instantly see your incomes and expenditures once you have a budget. You will not be able to save money unless you know how much of it is coming in and how much of it is going out. A carefully formulated budget will help you identify areas where you can save. Setting up a budget may take a little time, research and adjustment; all of which will be easier once you understand the process. Establishing and sticking to that budget of yours will require realism, motivation and a certain amount of discipline (Am sure you can manage all that). A long-term objective that you intend to meet often serves as a powerful motivator. It is important to note that everyone who will be affected by the budget have to make an input to the budget.

The best way to create your budget as a saving tool and not a form of punishment is to keep it as realistic as possible. Some degree of honesty and accuracy is also called for. Do not provide such a soft cushion that will enable you to easily overspend, but also don’t tie yourself down to impossible limitations that you’ll break every time, this would only demoralize you and make you not stick to your budget. If you have made your budget realistic and you are in a position to strongly identify with your financial goals, then you’ll most definitely need less discipline that you think.

The first step in formulating your budget is to set your goals. Make a list of all your financial goals then classify them into three categories:
• Short-term goals: These may cover things like getting out of debt or paying for an upcoming vacation. Short-term goals will let you see results within a matter of weeks or months.
• Medium-term goals: Now, these take a lil bit longer but also need planning in order for them to be realized. They may include things like collage/high school tuition for your kids or that extravagant vacation outside the country.
• Long-term goals: These include retirement and residential construction/buying. Due to the fact that these goals require the most money, they also require the most time and planning.

So calculate how much each goal is likely to cost and estimate the time frame within which you intend to realize them.

Here came’s the interesting part, assessing your income. How much money do you work with on a regular basis? Figuring this out can be as simple as checking your pay slips or it could be as complex as tallying your salary, any extra income you receive, and the returns on any investments you may hold. Don’t forget to deduct your income taxes to establish the net income from which your spending will come.

Now here comes the scary part, adding up your expenses. Well adding up and categorizing your expenses will give you a clearer picture of how you actually spend your money, and this may help you adjust your expenses accordingly.
We have identifies two types of expenses:
• Fixed expenses: Gather a month’s worth of your concurrent expenses, be it the house rent, utility bills, and any other records of regular expenses you might have. Add them up.
• Discretionary expenses: now you’ve got to be honest with yourself here. Record your variable expenses for one month. This includes your daily transportation costs, groceries, entertainment, clothing and the likes.

Next, use the totals arrived at for fixed and discretionary expenses to calculate your overall expenses for a calendar year. This broader picture will not only give you perspective, it will also help you decide where to adjust your budget if need be.

Use your fixed and discretionary totals to organize your spending into categories, organize your categories based on your spending habits and needs. For instance, some might split out a separate category from entertainment expenses and devote it to books and magazines while others might have a separate category dedicated to DVD’s.

Please! Please! Don’t forget emergencies and those unusual expenses. Plan to set aside a little each month for emergencies and unusual expenses.

With your goals firmly in mind, make an initial subtraction of your total expenses from your net income. How much are you left with? Apply this money to your goals. If you’re disappointed at how much is left, or you might need more to meet demanding goals such as paying off debt, it’s high time you tighten your belt a little and we are going to give you a few tips that might help you achieve this.
• Identify those dissatisfying spending, do you notice your money flowing in a direction that really isn’t all that important to you. Examples of common areas where people overspend include eating out, isn’t it cheaper to cook at home or bring lunch to work. Changing such habits may take some discipline, but surely won’t change the quality of your life.
• Cutting back is another way through which you can cut on costs. Do you spend too much on things that make your life easier or more fun but drain away your cash? Whatever you do, you don’t want to feel deprived, so don’t completely cut a category that’s important to you, rather see where you can cut without drawing blood.

With your goals and belt-tightening measures in mind, you can set up a realistic monthly budget using a budget books, spreadsheet or just some plain paper. You could even download budget forms online; simply type the words “personal budget” into a search engine such as google. Once the form is ready, here is how to proceed:
• List categories: list your different categories and take into account the amount you’ve budgeted to spend on each.
• Keep track: At least once a week, tally what you’ve spent and fill in your spreadsheet accordingly.
• Cash flow: At the end of the month, you should have money left over to apply to your goals. If you've met your budget, it will be the amount you expected. If you have more or less than that amount, re-examine your budget to see if this is a one-time shortfall. If not, adjust your budget accordingly.

With the help of a realistic budget, you can plan for security during emergencies, take the vacation you've always dreamed about, and prepare yourself for a comfortable retirement. A realistic budget is your ticket to financial freedom--and there's nothing limiting about that.