Part 2 in a 3 part series

So, this is it. The year, the month, the moment you finally decide to get a handle on your finances. The first step is admitting you need a budget; the second is putting one together.

Are you starting to feel your noble intentions falter? Hang on – help is on the way.

“Unfortunately, we’ve made budgeting a bad word,” says Michael Gutter, an assistant professor of family financial management with the University of Florida’s Institute of Food and Agricultural Studies.

While many people believe that putting themselves on a budget might be constraining, in fact, it tends to have the opposite effect. Once you know where your money is going, says Gutter, you have better control of the whole situation. You can actively manage your finances to achieve long and short term goals, and can make better spending decisions.

Another reason many people avoid budgeting is because they feel they lack sufficient knowledge about money matters to really understand the process.

“It doesn’t really matter what you do as long as you do it correctly,” Gutter says. “It’s any organizational system at all that’s used to manage one’s cash inflows and cash outflows.”

There are many different tools available for personal budgeting from software programs to paper documentation. A bit of research and experimentation will help you find the system you are most comfortable with.

But before you actually begin budgeting, there are a couple of steps to complete.

The first is to track all income and spending. Gutter recommends carrying a single sheet of paper to record every single purchase for at least a month. Do the same thing for income. At the end of the month, you should have a good idea of your spending habits and potential savings opportunities.

This exercise can be eye-opening and create some awareness about your money management habits. Did you realize that a $3 latte five days a week totals $60 a month? Or that a family dinner at a nice restaurant is equal to what you spend on groceries each week? Or that paying your VISA late every other month accrues more than $200 in late fees annually?

“You have no idea of what you’re spending unless you have a budget,” Gutter says.

In addition to the data you’ve gathered about your monthly expenses, next compile a list of annual expenses. List the 12 months of the year and estimate expenses for each month such as car insurance, vacations, holiday spending, taxes and other routine costs: utilities, gas, vehicle maintenance, school tuition, day care, clothing, gifts, entertainment and so forth. Note that it is typical for expenses to fluctuate from month to month. A budget will give you the flexibility to anticipate upcoming expenses and plan for them.

Now that you have an idea of expenses, compare those figures to your routine income. If the input is greater than output, you’re in good share. If not, don’t panic.

According to Gutter, the average family owes about $8,500 on credit cards. The key to reducing debt is to find the spending leaks so you can plug them and redirect that money. Examine fixed expenses such as your cell phone or auto insurance and talk to the provider about options to cut costs. It may be easier to reduce flexible expenses such as groceries or driving your car. Creative menu planning can save dollars at the grocery store, while carpooling with a friend to work can save on gas.

Ideally, your budget should project monthly expenses and balance them against monthly income. If, like many Americans today, you are struggling with a job loss, credit card debt, illness or other financial hardship, a budget can still be helpful in that 1) you will feel more in control of the situation, and 2) you will be able to take proactive action to avoid further debt and make progress on paying off bills you have already incurred.

Even if you find yourself on solid financial ground, using a budget will enable you to make well-informed decisions and maximize savings and investments. There’s really no excuse not to budget.

Do you have specific questions about your personal or family budget? If so, email the Money Smarts Channel Editor and she will present your question to a budgeting expert for top tips and sound advice.

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