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Building Your Budget

Managing your income and finances can seem overwhelming, but it’s essential to get off to a smart start. Creating a “plan to spend” instead of spending without thinking is the key to long-term happiness and short-term calm.

To begin building your budget, list your income from all sources. Next, record your monthly and yearly expenditures, starting with your biggest items, like rent or mortgage, student loan payments, and car payments.

Be honest with yourself about the difference between needs and wants, and categorize them appropriately by listing your needs first when you budget. Elizabeth Warren, White House adviser and co-author of “All Your Worth,” advocates a 50-20-30 strategy to allocate income. Put 50% toward needs such as rent and transportation, 20% to savings for retirement and emergencies, and use 30% wants such as travel and entertainment.

While using resources like online websites Mint.com, FinanceWorks, or a spreadsheet can be helpful, they aren’t always necessary. It’s more important to keep the budget simple, to be realistic, and to adjust it regularly as needed. Allow for budget busters like car maintenance and fees that only need to be paid yearly instead of monthly.

Give your budget time to work. You might find it difficult to meet your saving goals immediately but, over time, you’ll make progress as you continue to track income and spending. Finally, keep your bigger financial goals in mind as you work to stick to your budget each month.