When you live on a budget, you know penny for penny what you spent that $100 on. In fact you will find by spending less than you earn your debt disappears.

That’s because the first step to getting out of debt is setting a personal budget, and you start to set a budget by tracking your expenses.

Keep a daily log of everything you spend. Get a little notebook and carry it with you. Every time you buy something, write it down, penny for penny in your notebook.

For those who want something a little more high tech and savvy, use home budgeting software like Mvelopes. It tracks your spending electronically as it happens.

By writing down all your expenditures, you begin to see where your money goes, what you are spending it on and why.

You might discover you spend $5,000 annually on eating out. At which point you will have to make a decision. Do you want to continue spending money on eating out, or do you want that dream vacation. Living on a budget comes to decisions like this day by day — the leather jacket or the phone bill.

Once you track your spending habit, it’s time to track your income. How much money do you have coming in? What is your gross monthly income? This shouldn’t include a bonus or overtime pay, but include any source of income that you can rely on – your salary, a part time income or interest from a savings account.

Finding hidden savings

Now add up the cost of your basic needs. This includes anything from the light bill to gas money. The key is to see if your monthly expenditures are more than your monthly income. If it is, you have a problem, and it’s time to cut expenses. Go back to tracking your spending and look for luxuries you can cut back on or not do all together. Try buying store brands instead of name brand products, as well as used items. Also look at those credit cards. If you must use a credit card, choose that card wisely. Use a card that gives back to you, like a no-fee card with a rewards program.

Another important aspect of living on a budget is making sure to pay yourself first. Establish a savings account and have part of your paycheck automatically go into it. This could be used for unexpected emergencies. Also consider doing the same for a retirement account. The whole idea is take care of you first and being prepared should the worse happen.

Finally, the key and must important aspect to living on a budget is sticking to it. If you don’t have it, don’t spend it. A couple of tricks to staying true to the budget is only carry the amount of cash you would need and setting up a secondary account to pay those basic bills.

Once you get paid, immediately transfer the money for the bills into the secondary checking account. Don’t procrastinate. It could derail you. The idea is that once the money is into a separate account, you won’t see it and it will be easier to avoid spending it.

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