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In the past week I have gotten four different questions on budgets.  Budgets are a very important tool for improving your finances.  There are several different types of budgets out there, ranging from super strict budgets that control your spending to the penny, to more loose budgets that divide your spending into more broad categories.  Which one works best for you depends entirely on your situation.

With all the recent interest in them, we will spend the next few days discussing budgets.  Today we will highlight an article from CNN Money on the top ten things to know about budgeting.  The ten points are theirs, the recaps underneath are mine.

1. Budgets are a necessary evil.

In order to get control of your finances and spending, you need to make some form of budget.

2. Creating a budget generally requires three steps.

- Identify your current spending.

- Make goals to determine your future spending.

- Track your spending to make sure you are following through on your plans.

3. Use software to save grief.

Use software like Quicken, Microsoft Money, or even free internet software like Mint to track your spending and build budgets electronically.  This can actually make budgeting fun.  At least for dorks like me.

4. Don’t drive yourself nuts.

Don’t monitor your spending so closely that you are beating yourself up over every penny spent.  Make you budget, decide where to cut your expenses, but don’t forget to allow yourself a little bit of money for “free” spending.

5. Watch out for cash leakage.

This one rings particularly true for me.  On the rare occasions I carry cash, I am much more likely to spend it loosely.  I figure it is already out of my account, and therefore already money spent.

Treat the cash you carry around the same way you would treat money in your account.  Constant trips to the ATM are the fastest way to kill your budget.

6. Spending beyond your limits is dangerous.

If after tracking your expenses you realize you are bringing home less money than you spend most months, big changes need to be made.  I have said it countless times and will say it countless more times in the future, the biggest concept to master in order to build any form of wealth is spending less than you earn.  The wider the gap between your earnings and your spending, the better.

7. Beware of luxuries dressed up as necessities.

A lot of the things we try to tell ourselves are necessities are actually luxuries.  Do you really need more than basic cable?  Do you really need those three magazine subscriptions?  Be honest with yourself and determine what you can’t live without.

8. Tithe yourself.

Build your budget around 90 percent of your income.  You can use the other 10 percent as charity to yourself that can be used to buy your luxury items.

9. Don’t count on windfalls.

Don’t count anything as income that you have not yet received.  Tax refunds, year-end bonuses and investment gains are common causes of this.  Until you receive that bonus, or cash out that investment, it is not part of your income.

Counting on a windfall of money that you don’t end up receiving is an easy way to massively destroy your budget.

10. Beware of spending creep.

Also known as lifestyle inflation.  People have a tendency to increase their spending at the same rate their pay increases.

When you receive a raise or promotion at work, use the extra income to fund your savings or retirement before increasing your spending.

If you are new to budgeting, these ten thoughts are a good starting point on what to expect.  It’s important to figure out which budget will work for you.  Experiment from month to month, making tweaks along the way, until you find the style that works best for you.  Tomorrow I will go over the budget that I use.

Please continue sending any questions, suggestions and story tips to centsabilitytowealth@gmail.com.