Think of your budget as a planning device, a means of setting and reaching your goals. You project future expenditures (including savings), record them when they're made, and see whether your projections were any good. If they aren't, you adjust your planning or your spending, whichever is out of line.

Use the budget worksheet. There's space to enter a month's expenditures; we do the addition and subtraction for you.

Use your cash-flow worksheet results (a record of last year's spending) as the basis for the coming year's budget projections. Work only a couple of months ahead at first, until you get the hang of it. Then you can budget further ahead. After a while you'll want to apply the same principles to long-term goal setting by forecasting the growth of your net worth and all the little pieces that compose it. Then you can keep track of the progress you're making by comparing each year's projected growth with the actual results.

Fixed spending

Some of your projections will be easy: You know what your mortgage or rent payments will be in the months ahead. Same for car payments and the premiums coming due on insurance policies. So why budget for them? Because by recording these and other fixed expenditures as monthly outgo, you can see at a glance how much of your income is committed to current or future expenses. That should stop you from spending it on something else.

Variable spending

Here you'll keep track of the items over which you have some degree of control. This section is the place to test your cost-cutting skills. Watch for patterns that may signal trouble. If the "miscellaneous" line keeps growing bigger, for instance, your recordkeeping may be careless.

Next: Keep More Cash