When most of us think about budgeting, we usually picture it as personal deprivation and painful scrimping. But budgeting lets us spend more on the things we want to have and do, by helping us pay attention to our choices. Budgeting is not just paying bills. It's about viewing financial actions in a realistic light, and considering the short- and long-term costs and benefits of decisions.

Basically, it is a tool to help you to reach your personal financial goals. Intended to be an organised way to compare income and expenditures over a relatively short time frame (a week, month, or sometimes a year), it should allow you to forecast your income and expenses, monitor your progress and make changes as needed to achieve your goals.

Simple math - this is what a budget is. The amount of money you spend should always be less than the amount that's coming in. For most, the amount coming in is quite predictable - it's salary plus any earnings from investments and savings. If you're retired, then consider also your CPF savings, monthly annuity payments and pension cheques, if any.

Of course, the money that goes out is always harder to manage. You know what your basic monthly bills are going to be, but there are always "monkey wrenches" - and those tend to get us into trouble. But, plod on we must.

1. Draw up a wish list

Make a reasonable list of all the things you would like or need but think you can't afford. You'll discover that many of them will be possible once you operate on a sensible budget.

2. Write down your monthly income ("IN" column)

Paycheque

Freelance income

Part-time work

Interest on savings

Income from investments

Pension(s)

Others (e.g. Alimony/Child support)

3. Write down your major monthly expenses ("OUT" column)

Separate your expenses into categories and record the following dollar amounts on paper. For example,

FIXED EXPENSES
Rent or mortgage payments
Utilities (gas, oil, electric, water)
Property maintenance
Property taxes
Telephone (fixed line and mobile)
Transportation
Car loan payments
Car insurance and maintenance (fuel, repairs)
College loans
Insurance (health, disability, life and homeowner's)
Child care and day care Others

VARIABLE EXPENSES
Groceries
Household purchases
Household help
Home repairs and lawn care
Clothing
Laundry and dry cleaning
Furniture and appliances
Entertainment
Travel and vacations
Dining out
Charitable gifts
Books, periodicals, software, tapes, CDs
Holiday, anniversary, wedding, birthday presents
Savings and investments
Others


4. Now, add up the 'IN' and 'OUT' columns
If your income is greater than your expenses, you're in good financial shape. But, before you yell "Yippee!", there is another key category to look at - cash expenditures.


5. Start and keep a 'money diary'
To make a budget work, you need to have a record of your daily spending. Seeing expenses written down on paper, in your own handwriting, will help you make sound choices about your particular lifestyle. Write down every purchase you make, whether you pay with cash or credit card. Don't forget your newspaper, coffee and personal extras. This can help you to identify and list potential cutbacks. Write down areas where you feel you can spend less and then refer to this list whenever you have the urge to splurge.

When prepared and revised regularly, a budget helps you evaluate and monitor your financial status. They reveal your progress, or the lack of it, towards attaining your financial goals (and those items on your wish list!).