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20 questions, No. 6: How do I make a budget?

Updated: May 3, 2013 12:14PM

Q. How do I make a budget? A.When faced with the new economic realities you have two choices: Bury your head in the sand and just keep writing checks and charging purchases until the money runs out -- OR, take a close and accurate look at what's coming in, and where it is going out!

That close look is called a "budget." A budget is like a road map or onboard navigation system. You wouldn't drive without directions, simply hoping to get to your destination. In that same sense, a budget gives you both a starting point and guidance to help you get where you want to go.

So let's take a look at the two basic steps to making a budget -- and some tools and products that can make the job much easier.

Step 1: Where are you now? The first step is writing down what you owe.

Take a sheet of paper and draw a line down the middle. Make two columns -- one for the total amount you owe and the interest rate on the debt. Next to that make another column for the minimum monthly payment on everything you owe -- including your monthly mortgage payment.

Add up all those required monthly payments. Now you know where you stand. And now you can start to make your budget -- trying to stretch your income to cover those required payments, plus food, utilities, gasoline, and other necessary expenses.

Step 2: Make a plan: So far, all of your work has been done on paper. And you can continue making a paper budget, using some of the very helpful guides that are available. My favorite is The Budget Kit: The Common Cents Money Management Workbook by Judy Lawrence.

But if you have access to a computer -- anywhere -- there are several FREE online budgeting tools. They're absolutely secure, and constantly at your fingertips from any computer and most hand-held PDAs.

Quicken started the online banking and tracking craze years ago with its software programs. Now, like others, they've graduated to the Internet. You can go to www.Quicken and sign up, creating your own secure password. Then, using this secure site, you'll register the PIN and password to all your online accounts -- from checking to credit cards to mortgage payments.

Every time you sign in -- securely, from any computer -- you'll get the latest balances on all your accounts. But this is more than a money-tracking service; it is also a simple budgeting tool that allows you to set up a spending plan, and instantly, graphically see how close you are to your goals.

The program is so "smart" that it also reminds you of upcoming regular monthly bills -- so you aren't tempted to touch your cash balances. If you pay your rent or electric bill or car loan around the first of the month, it will remind you that the bill is coming due, and that you should reserve your cash to pay it.

Among the most popular free services for online tracking of personal finances is, with more than 1 million users. It's simple to securely register all your online banking and credit-card accounts, your mortgage and student loans, as well as your 40l(k), IRA, and other investments.

Based on your previous spending patterns, helps you create a budget. It even sends text or e-mail alerts when you're getting close to your budget category limits, or credit card limits. just launched Financial Fitness, a new feature that takes the site from information to action, creating a step-by-step plan. It becomes an "online financial adviser," expanding its advice beyond just tracking spending to encourage planning in various categories. The program awards "points" for following its advice, such as increasing your savings. Those points don't buy you anything, but they do serve as a psychic reward.

Other online budgeting sites such as and offer "social networking" so you can see how others in your age are doing with their spending plans, and commiserate with each other.

The most important thing in making a budget is not the tool or product you choose. The key ingredient is your own self-discipline in using the program on a regular basis, until the concept of focused spending becomes a habit. That's the only way to gain control over your money. And that's The Savage Truth.HOW YOU CAN PICK TERRY'S BRAIN

To celebrate the 20th anniversary of my Chicago Sun-Times column, I'll be responding to your most frequently asked questions on a regular basis. Of course, you always can submit individual questions on my Sun-Times blog, reached on the home page at

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