A budget is a way of keeping track of the money you earn and what you plan on doing with it. Most people don't like creating or using a personal budget since it usually means having to do without. If you create a budget and follow-it, you can avoid some of the traps that others fall into such as: too much debt, too little savings, too much spending. We have a budget worksheet that you can use to create your budget or you can create your own.

You budget should include everything you spend money on, right down to toothpaste to your daily coffee. Some common routine expenses include: housing, debt, insurance, taxes, transportation, health care, entertainment, personal, children, giving, vacations, recreation, saving/investing.

Nondiscretionary expenses are things you MUST pay for or buy (food, rent or mortgage, car payments, utilities), while discretionary expenses are those that aren't necessary (vacations, entertainment, memberships).

When it comes to budgeting, and trying to find extra money, it is the discretionary expenses are the ones to curtail. It comes down to your choices. You can either control your discretionary expenses (skip the vacation this year) or limit your nondiscretionary expenses (move into a smaller place, cut back on the thermostat, etc.).

When it comes to figuring out where you need to cut expenses, you'll find spending ratios to be useful tools. A spending ratio is simply the percentage of money, as it relates to your disposible income (your total income minus income tax on that income), that you use for a particular area such as housing or entertainment. If one area of expense becomes too great, you'll see that ratio is too high and can begin to cut back.