1. First, you need to consider your entire income. You can choose to base your budget on your weekly or monthly earnings, although yearly income is not the best figure to base your budgeted amounts on.
2. Divide out the amounts you know you'll have to spend (your 'fixed expenses') - cable, rent or mortgage, car payment, electric bill, gas bill, etc... Transportation costs (gasoline, parking and train or bus fares) should be relatively stable and would also fit into this category of expenses. Having several months worth of bills in front of you is useful to calculate average amounts. When deciding on budgeted amounts, be liberal. If your electric bill averages out to $45 a month, you should budget $50 or $55 in order to cover any surprises.
3. Total your fixed expenses and then subtract this total from your income.
4. What is leftover after the above inflexible spending is your "discretionary income" or "variable expenses". Start out with the most important items when budgeting your discretionary expenses and work your way down. Groceries is a good place to start, followed by personal care (toothpaste, deoderant, soap and other necessities). Don't get too ambitious and not budget for entertainment: you'll only set yourself up for failure. Set reasonable amounts for your luxuries. You can always forgo these expenses several weeks to save up for a big splurge later on!
5. Only budget for savings if you have no credit card debt. Credit cards carry annual percentage rates on interest much higher than those accrued by car loans, mortgages, student loans or even personal loans. If you have existing balances on your credit cards, pay them off before beginning a strategy for saving. Saving while you owe on a car, home, or student loan is recommended however. You are doing yourself no good by stowing away money in a savings account when you have debt that is accruing much more interest than your savings could earn. Many people mistakenly believe that you should set aside savings for emergencies in order to not have to put yourself further into debt should surprises occur. If you were to take that 'savings' and apply it towards your credit card debt, less interest would be accrued monthly and your net cost would be less to pay your debts off in full. In short, pay off as much as you can every month towards debt until it is paid off in full. THEN, start a savings plan.
6. Don't forget to include less regular, but still necessary, expenses. You don't get an oil change for your car every month, but this expense will come up on a regular basis. If you get an oil change once every 3 months, figure 1/3 of the cost of your oil change into your monthly budget (BTW - this doesn't count as 'savings' - be sure not to spend this budgeted amount!).
7. You now have a completed personal budget! Use whatever method you prefer to track this budget, from a spreadsheet to some notes posted on your kitchen door.

If you don't carry any debt, you don't need to worry about the Time Value of Money (or TVM). If you have a mortgage, student loan, car payment or credit card debt this topic should be of interest to you though! Once you understand the Time Value of Money concept, you can bet you'll get your debts paid off in half the time!

Save yourself a lot of time by investing in a good financial calculator (we like and use the Texas Instruments BA II model).

The 'Time Value of Money' incorporates accrued interest into your equations through a built-in formula. All you need to do is plug in the values specific to your situation and take advantage of the pre-programming! TVM calculations involve variables. These variables are keys on the calculator and represent:

• PV - the 'present value' of your account or debt
• PMT - the amount of the payment
• FV - the 'future value' of your debt
• N - the number of payments to be made
• I/Y - your interest rate

The 'CPT' key stands for "compute" and you will use it to compute your answer. The '2nd' key acts as a shift key, allowing you to access the functions printed above the keys.

Your calculator's instruction booklet will provide instructions on how to perform TVM functions with your specific model. It is a very simple calculation to perform. There are 5 possible inputs: FV (future value), PV (present value), I/Y (interest rate), AMT (amount of payments) and N (number of payments). You will input 4 of these values in order to compute the 5th value. View a detailed eHow article of how to perform this calculation if you'd like.

Some people like to use a spreadsheet for their budget. Others are just fine with handwritten notes. Your personal budget does not have any requirements as to how formal it needs to be. You can use software like Microsoft's "Money" if you'd like. You can feel equally comfortable jotting down the figures on scratch paper. The most important thing about a budget is that you are able to follow it!

Don't feel overwhelmed if you're not ready to use all of the information presented in this article when deciding on your personal budget. A budget is a tool to simplify your life, not make it more confusing! Some people get along just fine without a budget at all - they just know how much they can and can't spend. If you want to set financial goals for yourself and have an action plan to accomplish these goals, a formal budget is a good start for you.