Managing your money can seem like a daunting task when trying to weigh out what must get paid versus buying things that you just want. The later is the troublemaker. All those incidental expenses for desires that you think you can’t live without adding up and if you don’t watch out those incidentals will have you in the poor house. Not a good look my friend. I want to live in the black and not the red. The best way to do that moving forward is to adopt some new financial habits. Priority number one in this process is creating and managing a budget.

Developing a Budget

Don’t make that face. One can budget, save money, and still indulge in some unnecessary spending. But like with most things, you have to put some parameters around it and be disciplined to follow the plan. Wells Fargo offers some great tips to make budgeting a snap in five easy steps.

Step 1 – Get organized. Gather all your financial paperwork, i.e. your paystubs, your household bills, and anything you pay on a monthly basis. Make two piles – one for the money coming in and the other for the money that is going out.

Step 2 – Start tracking your expenses. Financial advisors suggest tracking your expenses for a month to get to know your spending habits. And it is key to write down every single thing. Are you frugal or spending machine? You might get a real awakening of how you waste money once it is all in black and white and in your face. There are a number of ways to track your spending from the latest apps to the old fashion pen and paper.

Step 3 – Analyze your research. When your month of tracking is over make two columns – one that lists all sources of income and the second one that lists all your expenses. Add everything up to get the sum totals for each column. Subtract your total expenses from your total income. If your expenses are less than your income, congratulations you are on the right track. If your expenses are more than your income, then you have some work to do. Look at your expenses and ask yourself, “What can I do without?” and “What’s really important?” and make necessary adjustments to your spending.

Step 4 – Time to react. Now that your expenses are in plain sight, assign each one a category and set a budget for each, making adjustments if needed. This is also where you work out your saving plans. See which expenses you can cut back on and set that money aside to put in a saving account.

Step 5 – Review your plan. Plan at the end of every month to review your budget to make sure that you are being disciplined about your spending. If you are not, you make need to seek the help of a financial professional.

Reduce Your Debt

Following the above tips will put you on the path to reduce your debt. Wells Fargo offers three tips for lower debt – 1) organize your debt, 2) prioritize your payments, and 3) consolidate your debt.

Organize your debt - Not all types of debt affect your finances equally. To figure out what’s making the biggest impact on your budget, collect recent statements from all of your creditors. Write down the creditor, amount owed, monthly payment, and the interest rate on your accounts. Knowing which debts have the highest minimum monthly payments and interest rates will help you determine which debt is costing you the most.

Prioritize your payments - One strategy that will help you reduce your debt the fastest is to pay the minimum on all of your debts each month – except for the one with the highest rate. On that debt, pay as much as you can afford. This will save you money on interest payments and help you reduce that debt faster.

Consolidate your debt - If you’re dealing with multiple debts, you may want to consider debt consolidation, or combining all of your debts into a single loan. This allows you to pay off your debt with one monthly payment, which is often much lower than all of your previous monthly payments combined.

Wells Fargo was used as a resource for this article.