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I’m not going to lie – budgeting isn’t fun. Spending money is fun. Budgeting is less fun. But do you know what is more fun than just spending money? Spending without regret. Without guilt.

A budget is work, but a budget allows you to spend your hard-earned money without feeling guilty about it. With a budget, you’re able to know where you money goes and ensure that you have enough left over to save for the important long-term goals in your life. A budget can show you that your spending is reasonable, that you’re saving enough each month towards a down payment for your home or to pay off credit card debt.

A budget is a valuable tool and an important money skill that can help you see into your spending future. It can help you prepare a plan of attack towards your savings goals in the event you fall short. Most importantly, a budget takes this nebulous part of your financial life and puts it into focus. It takes the unknown and makes it known. And best of all, it’s easy to establish. Let me show you how.

1. Leverage a Money Management Tool

The easiest way to create a budget is to start with what you have. You’re already spending money. If you’re using a credit card, you can take advantage of money management tools to help figure out where you’re spending that money. Mint is one of the most popular tools offering these services, but there are plenty competitors like Personal Capital and Power Wallet.

A money management tool will automatically download all of your transactions. Not only will it enter in transactions, it’ll categorize them too. You can modify these categories to fit the things you care about.

Mint, for example, has several food categories: Food & Dining, Restaurants, Groceries, and Alcohol & Bars. You may decide that you want to focus on two categories – food you prepare at home and food you consume in an establishment. You can train the money management tool to put Restaurants and Alcohol & Bars into the Food & Dining category while keeping Groceries separate.

Now you can manage your budget at a level you care about, not the one set by the software. Sophisticated money management tools make this step easy and remember your preferences.

2. Set Goals …

Now that you have a “current budget,” it’s time to look towards your goals. With an idea of what you spend each month, you now have a grasp on how much you’re saving. The big question is – are you saving enough? The answer will lie in your goals.

For example, if your goal is to save up a $1,000 emergency fund within a year, you’ll need to save $84 a month. Let’s say the difference between your after-tax income and your monthly expenses is only $50. It’s clear you won’t reach your goal. You need to find an additional $34 in savings somewhere.

3. Then Establish a Transition Plan

Use the base budget to find where those extra dollars could come from.

Are there spending categories you can reduce to help you reach your goal? Instead of just cutting back everywhere, which is hard to sustain in the long term, you can pick where you want to cut back and for how long.

Perhaps you’re going out to bars and restaurants too often? You could decide that this is the month you skip one Friday Happy Hour but next month you’ll skip one Friday lunch. Or maybe you brown bag lunch for the week this month, but skip something else the next. Making these types of cuts can stop your from going on a spending binge when your willpower runs out (and it will!).

Remember, to have fun with your budget. They do take work to maintain but through the use of tools you can get all of the benefits without nearly all of the work.

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Image: Ridofranz

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