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Collect past bills, bank and credit card statements, and receipts that can allow you to put together an accurate estimate of how much money you spend every month. Personal finance software is quickly becoming the new trend in finance. These programs have built-in budget making tools that can help customize your budget, along with analytics that help you project cash-flow into the future and better understand your spending habits. Some popular personal finance software include: Mint Quicken AceMoney BudgetPulse If you choose not to use a budgeting software, you can determine your own budget by using a simple spreadsheet. Your goal is to chart all your expenses and income during the course of a year, so make a spreadsheet that shows all your information clearly, allowing you to quickly identify any areas where you can spend smarter. Label the row of cells across the top (starting with cell B1) with the 12 months of the year. Create a column of expenses and revenues in column A. You can list either revenues or expenses first, but try to group expenses together and revenues together to avoid confusion. You may want to group expense together with category headings. For example, you might have a category of "utilities" that includes your electric, gas, water, and telephone bills. Decide whether you want to include items that are deducted directly from your paycheck such as insurance, retirement savings, or taxes. If you do not include them on your spreadsheet, be sure that you list your net (post-deduction) income rather than your gross (total, pre-deduction) income under the "revenue" section. Add all of your expenses and revenues for the past 12 months, using data from your bank and credit card statements to provide an accurate representation of all of your revenues and expenses. Are you on a fixed salary where you know for certain how much you're taking home each week? Are you a freelancer whose salary varies each month? Documenting a year's history can help you get an accurate view of your average monthly revenue. If you are an independent contractor or freelancer, keep in mind what you bring home is not the same thing as what you earn. For example, you may bring home $2,500 every month, but that's pre-tax. Figure out how much you're likely to need to pay in taxes and subtract that from your monthly income to arrive at a more accurate number. If you are a salaried employee, don't factor in a possible tax refund into your overall income. Your monthly income should reflect only what you bring home after taxes. If you do get a tax refund, you'll get to do with it as you please; if you don't, you won't need to worry about it. What are the bills that you have to pay every month? How much do you spend every week on groceries and gasoline? Do you go out to dinner with friends every Friday night or to the movies once a week? How much money do you spend on shopping? Tracking a year of actual spending will help you develop an accurate view of your spending habits, since most people underestimate the amount they believe they spend every month. If your expenses are greater than your revenue, you are living way beyond your means. Your budget should be divided into two groups: Fixed Expenses. These include regular monthly expenses such as bills, insurance, loan debts, food, and necessary shopping items like clothing and household products. Discretionary Expenses. Discretionary expenses are unfixed expenses that may be "optional." Items that fall into this category include savings, entertainment, vacation funds, and other luxuries.
Gather what you need to start tracking your spending history. Consider using software to help you budget. Create a spreadsheet. Document your historical budget data for the last 12 months. Determine your overall monthly revenue history. List all of your monthly expenses on the spreadsheet. Analyze your revenue and expenses.