Putting coin in piggy bankA household budget can help you take command of your money. By following a budget, you become better able to spend within your means, lighten your debt load and save for your financial goals. You can also become more confident about your finances.

Budgeting gives you a clear, objective view of your spending and overall financial situation. And if you're not already in the habit of talking openly about money with anyone else you share your finances with, such as your spouse, partner or children, now may be a good time to start.

You can choose among several budgeting tools, including a paper ledger, an electronic spreadsheet, personal finance software or one of several free services on the Internet. Whichever tool you choose, the following four-step process can help ease you into the budgeting habit.

1. Set your goals

Establishing and documenting financial goals is an important first step, because you want to make sure your budget is targeted at helping you get what you want out of life. Decide on the financial goals you want to achieve either in the short term (within a year), intermediate term (one to five years) or long term (more than five years away). For example, maybe you want to get out of credit card debt within 12 months. Or buy a car or home in a few years. Maybe you hope to send your child to college or retire to a warmer climate farther down the road. You likely to have multiple goals. Once you've listed them all, set priorities on them.

2. Analyze your cash flow by tracking income and expenses

Track all your income and expenses for several months. Also document any amounts you pay toward debt or put into savings or investments. These amounts can go under the expenses column.

Cash flow: the movement of money in and out of your household. Also, a measurement of your financial health: your income minus expenses for a given time period equals your cash flow for that period.
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