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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