Tired of not knowing where all your money disappears to? Spending too much on things you really don’t need? These are some of the things that I have been trying to stop lately and creating a budget seems like a pretty good way to do it. How exactly does one go about creating a budget? Well, there are many guidelines out there so I’ve put together what I think to be a basic introduction.

First, you need to know how much you make on a monthly (or weekly) basis. Next, go through your bank and credit card statements over the past couple of months and find out just how much you’re spending–and what you’re spending on. How does your income compare to your expenses? Do you spend a lot of money on fast food? Paying too much for your cell phone plan? These are some of the things you want to look for during this process.

Once you have an idea of what you spend your money on, you can begin to set limits on your spending–this is what creating a budget is all about. Since everyone makes different amounts of income, there is a general guideline on how to split up your budget and it looks like this (source: Get Rich Slowly):

• 60% to Committed Expenses such as taxes, clothing, basic living expenses, insurance, charity (including tithe), and regular bills (including things like cable).
• 10% to Retirement.
• 10% to Irregular Expenses such as vacations, major repair bills, new appliances, etc.
• 10% to Long-Term Savings/Debt — money set aside for car purchases, home renovations, or to pay down substantial debt loads.
• 10% for Fun Money to be used for dining out, hobbies, indulgences, etc.

Of course, this is just a guideline. In my case I currently don’t have many committed expenses because I live at home so I would put more money into paying off my debt. It may be different in your case as well.

Now that we have a guideline on how to budget our money, the tough part is actually abiding by these limits. There are many ways to do this and, ultimately, you are the one who knows what will work best for your situation. One of the most basic ideas out there is the envelop system, where you put alloted amounts of cash into envelops each month (for example, there would be a “fast food” envelop with $50 in it and once the money in the envelop is gone–no more fast food for the month). Another method involves buying gift cards for places where you know you have to limit your spending (buy a $50 Starbucks card and allow yourself to buy coffee only with that card for the month). Or, you could just use plain ol’ discipline.

There are an infinite number of ways to create a budget since people and their lifestyles vary. However, the most important thing you can do is start tracking your finances and set guidelines to ensure that your expenses are lower than your income–anything else equals debt. For a list of great financial tools to help you track your finances and get a budget set up, see my post: 6 Reasons to Track Your Finances.