You want to start saving more money to build up your cash reserves.  Or, you are determined to pay cash for your next car purchase.  Whatever the reason may be, you have to know where your money is going before you can determine where to find that extra cash.

The first step is to establish a budget.  If you use software such as Quicken to balance your checkbook you can easily print a report showing your spending by categories.  If you don’t use software then pull out copies of your bank statements or credit card statements for the last three months.  Total up the dollar amounts spent in each category.  Categories for example could include dining out, groceries, utilities, entertainment, and medical expenses.  Once you have your totals divide that number by three and that will provide you with an average of what you spend each month.

Next you’ll want to put your preliminary budget on paper.  First write down how much income you have each month to spend.  Then subtract each category item from the income.  After subtracting expenses from your income the balance should equal zero.  If the number is negative, spending more than you brought in, then adjust how much is budgeted to each category until the balance equals zero.

Now you have created a monthly budget for your household.  It is important to spend your money on paper before the upcoming month, allocating so many dollars to each category.  As you actually spend your money for the month then keep track of the totals.  You can do this by totaling the amount spent at the end of the day from receipts kept or viewing your account online periodically.

At month end were you in line with the dollar amount you budgeted? Did you spend a lot more in one category or a lot less in another?  Make adjustments to the amounts budgeted to these categories for the next month keeping in mind that the balance needs to equal zero. If you have difficulty staying within an allotted amount when you spend consider using cash for certain categories.

If you found yourself surprised by an unexpected expense such as a doctor’s visit or car repair then begin to expect the unexpected.  Allocate a certain dollar amount each month for this purpose.  Deposit this money in a savings account that is easily available to tap when necessary.

To have a successful working budget you must plan to modify your preliminary one.  Anticipate that it will take three to six months of reworking the numbers to come up with a reliable working household budget.  But by determining where your money is going you will find you have more control of your spending.  This will allow you to set aside money each month to reach a certain goal – and also provide piece of mind.