In the strictest sense, negative cash flow can only be removed from your budget by increasing your income or reducing your expenses. Most commonly though, when a negative cash flow shows up in Quicken or Microsoft Money, it’s due to an error in one of your estimates. While overestimating your expenses is better then underestimating them, it can leave you with a projected negative cash flow even if your finances really would balance. Using the most accurate estimates possible and updating your budget as actual expenses become known is the best way to remedy this problem. Also look for obvious errors such as entering a budget item as a weekly expense rather than monthly or things of that nature. The downside of an apparent negative cash flow, if your budget actually should show a positive one is two-fold: First, you don’t have an accurate picture of your financial situation. Second, in order to balance your budget, you might cut back in some areas that you’d prefer not to. Making cuts that aren’t necessary, but only appear necessary because of an apparent negative cash flow, are the most painful.

Being frugal is a wonderful thing. It is at the foundation of a solid financial plan. Of course, there are other, more important things, than money in the world. It’s in this realm that I’ve found one of the few downsides of being frugal: spenders guilt.

I really do feel guilty spending money. I know that each dollar would be best saved or invested so that it might grow. That doesn’t mean that every dollar must be used as such. As with any endeavor that’s difficult, and living a frugal life is difficult, a small indulgence might make the end goal more achievable.

So be sure to allocate yourself some fun money that you can spend without feeling guilty. Doing so, as long as you keep it to a reasonably small amount, may give just the fix you need to keep living your frugal lifestyle.

A simple way to budget is to use the so called “60% Solution.” Try to keep all of your committed expenses at or below 60% of your income. Committed expenses include all of your bills, housing, taxes, insurance, food, clothing, charitable contributions, etc…everything that you have to pay for each month. Taxes will probably take the largest chunk of your allocation. Make sure you take the taxes taken out of your paycheck by your employer into account when calculating how you’re doing!

Split the remaining 40% of your income into four groups at 10% each for retirement, long term savings, short term savings, and fun money. If you can’t quite make 60%, take from fun money first, then short term, etc.

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I’ve always been a fan of the pay yourself first philosophy of savings. What it means is that you should consider saving a required monthly expense. Just as you wouldn’t skip a monthly bill payment you also shouldn’t you skip your monthly saving. There are always reasons to avoid saving on a regular basis. By making savings a priority in your financial plan, you’ll be less likely to skip it.

Using direct deposit is a great way to pay yourself first. You’ll be able to save more by saving first and then using what’s left over for other expenses and spending. Trying to save what’s left over after you’re done spending never seems to work as well.

In the Rich Dad series of books, Robert Kiyosaki went so far as to say that savings (or investing) should take even higher priority than your other bills. While not suggesting that you don’t pay your bills, his point was that if you save first, you’ll be forced to use your mind to create other ways to pay for the other expenses in your life.

When you come to the realization that you’d like to create a budget, it may be difficult to know where to start. For a classic budget, the best way to go is to write down all of your income and expenses over the course of a few months. You should try to capture where each and every penny goes. The more specific you can be, the better.

Once you have the raw data, you’ll need to decide how to organize it. You can use pen and paper, but using a computer is much easier. I use Microsoft Money, but there are many other comparable programs available.

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When people hear the word budget, they usually think of limits to their spending. While a good budget will allow you to set reasonable spending limits, its greatest value is the visibility into your finances that it affords you. By tracking where all of your money comes from and where it goes, you will gain perspective over your personal finance situation. This perspective will help you to optimize your spending habits in order to more easily meet your financial goals.

As an added bonus, having an accurate budget will allow you to set achievable savings goals. By knowing the amount of extra cash you have available each month, you will be able to earmark that money as you desire. You’ll know that you will be able to achieve your savings goals if your budget shows that it’s possible. In this way, you won’t be faced with the disappointment of not reaching a goal that isn’t possible.

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