A budget allows you to chart out your income, monthly expenses, and debt. It will show you where your money is going, where you can afford to cut back, and help you avoid overspending.

The first step in creating a budget plan is to track what you are spending. To get an accurate idea of your expenditures, save your receipts and review your checkbook, bank account and credit card statements for one month. At the end of the month, record those costs in a budget spreadsheet.

Next, review your budget and see how much disposable income you have – that's the amount of money left over after all your expenses and bills are paid. A healthy budget is one in which disposable income is at least 5-10% of your total income. If your disposable income is less than 5%, take a look at where you're spending your money and decide which areas you can trim, e.g. entertainment, clothing, eating out. Then adjust those figures accordingly to make a revised budget plan.

If your expenses exceed your income, you may have to look into more dramatic ways of adjusting your income and expenses, such as getting a roommate or a second job, so that you don't get into serious debt.

Once you have your adjusted budget plan, keep track of your expenses as you incur them, noting how much you have spent in each area of the budget throughout the month and making sure you do not exceed the allotted amounts. So, for example, if you have a $100/month budget for entertainment, once you have spent that amount, you must promise yourself to refrain from additional entertainment spending until the following month.

Ways you can cut costs:

  • Whenever possible, use cash instead of credit cards. Research by MIT's Sloan School of Management found that not only did subjects pay more when instructed to use a credit card rather than cash, people were willing to pay up to 100 percent more with plastic.
  • Try to avoid charging anything to your credit card that you cannot afford to pay off in two months.
  • Avoid paying only the minimum on your charge cards.
  • Bring your lunch to work instead of eating out.
  • Do your clothes shopping at a thrift store.
  • Quit smoking. A $6.28 pack of cigarettes a day adds up to $2,292 in a year.
  • Turn your heat down to 65 degrees in the winter; set air conditioning to 78 degrees in the summer.
  • Turn off lights when you leave the room.
  • Unplugging appliances when not in use, instead of just turning them off, can save a lot of money.
  • Take public transportation or car pool to cut down on gasoline costs.
  • Slow down. Driving 55 mph burns 15% less gas per mile than driving 65.
  • Keep your car well-maintained. Changing the oil regularly and keeping the tires inflated improves fuel economy.
  • Reduce your cable TV service to basic coverage only.
  • Make a grocery list and stick to it.
  • Use coupons when you go grocery shopping.
  • Don't go grocery shopping when you're hungry or tired; you'll end up spending more.
  • Go to a matinee instead of a nighttime movie; the ticket price is lower. Bring a snack from home instead of buying expensive candy or popcorn at the theater.
  • Get books and movies from the library – it's free! If a book isn't available at the library consider buying it used instead of new.
  • Buy non-perishable items in bulk.
  • Try the generic brands instead of name brands. Often there is little or no difference in quality, but you can save a lot on price.
  • Avoid impulse buying. Sleep on it for a day or two and see if you still "have to have it".
  • Pay your bills on time to avoid late fees.
  • Price compare before buying something, especially if it's a big-ticket item.
  • Homemade presents and cards can not only save you money; they're often appreciated even more by the recipient. Also, giving your time or services is a wonderful gift!