Surveys show people who use a formal budget to manage their monthly expenses either keep their finances in their head, or write down each income and expense.
Research also shows that people who carefully plan their expenses are those who had some kind of financial problems in the past.
Lot of people have cash flow problems, because they don't pay attention to the relation when they get their paychecks and when their bills are due.
A written budget will solve this problem, as it is easy to see when a paycheck will come and when bills must be paid.
Another advantage of a written budget is that whenever there is too much money left in your account, you can know you forgot to pay some bill.
With a written budget, you can keep track really easy of what you have, and it helps you decide what you want to keep and what you will have to get rid of.
It also helps you track your financial progress and estimate the time you need to reach your financial goals.
To set up a budget, first you will have to estimate your income.
It is best to include only your base income: this is what you can count on every month.
Don't include overtime pay and bonuses, because your budget must be based on what you will surely get every month.
An overestimated income leads to overestimated expenses, and this can cause you trouble.
But if your income is underestimated, the worst thing can happen is to have some extra money after you paid every bill.
As the next step, you should figure out your expenses.
Collect all your bills for one month, sort them to categories (loan, utilities, groceries, clothing, etc.
).
In case you don't have bills, your bank statements will help you to estimate your spending.
Or maybe you can keep all your receipts for a month, to have a clear picture about your expenses.
Budgets can be kept in a lot of ways, from a piece of paper with a series of rows and columns to Excel spreadsheets which contain information about which bill is due and also show how much money you have.
If you are planning to save, it is a good idea to treat this as any other monthly bill, so the cash you're left with after paying all the bills and funding the savings accounts is entirely yours, and you can do whatever you want with it.