This might sound familiar:

  • On the 1st of the month, you buy that new cashmere sweater that you really need.

  • On the 5th of the month, you take all of your friends out to dinner to celebrate that it's the 5th of the month. (Do you need a better reason?)

  • On the 15th of the month, you realize that you already spent 60% of your paycheck, and you haven't paid any of your bills. So you pay your rent, phone bill, and electric bill. You now have $21.75 to last you for two weeks.

  • On the 20th of the month, you realize that you have to wait until your next paycheck to do your laundry.

  • On the 25th of the month, with only $3 left to get you through the next week, you start visiting friends "just to say hello" and you raid the refrigerator when they step out to use the bathroom.

  • On the 26th of the month, you spend your last three bucks to buy a large can of beans, which you proceed to eat for breakfast, lunch, and dinner, for the next 5 days.

  • On the 1st day of the next month, with your next paycheck in hand, you buy that leather jacket that you really need. And the cycle continues…

It sounds like you're in need of a good budget. Sure, it's not the most thrilling thing in the world, but a well-planned budget will save you a lot of stress, and will give you more money to have fun with instead of wasting. So read on (if for no other reason than to assure that you have those essential quarters for doing your laundry - you stink).

And just so you know, this SYW is generally directed toward a single-person budget. Of course, you can apply the principles to any number of people, but we're assuming you're flying solo for now.

1. ASSESS YOUR SPENDING HABITS

Contrary to what you may be thinking, the point of a budget is NOT to immediately squirrel away every single penny that comes into your possession. Life is unpredictable, and we're not recommending that if your toothbrush breaks and you haven't budgeted for "dental hygiene" that you're doomed to grubby, grimy teeth for a week. Rather, the main point of a budget is to make sure of two things:

  1. That your basic needs are taken care of each month.
  2. That you are completely aware of how much cash you have for those crazy splurges at the mall (or the Dollar Store).

So with that in mind, you first have to figure out what kind of spender you are:

The frugal type
The extravagant type

The frugal type

Being frugal doesn't necessarily mean you're a Scrooge-esque miser; it simply means that you bargain hunt, pass up wild spending sprees, and generally keep a fairly tight rein on your cash. For example, if the thought of a $20 sushi lunch has you gasping for air, then you may be just a tad frugal.

However, just because you put a tight $5 cap on your lunch expenditures (or flat-out refuse to eat anything but Cup O'Noodles) doesn't mean that you don't need a budget. In fact, you need a budget just as much as an extravagant spender, because you may be skimping on the pleasures of life when you could afford to live much more pleasantly. The good news, though, is that your inherent thriftiness will probably make it easier to stick to your budget and build your savings. And really, there is more to life than Ramen noodles.

The extravagant type

Hey big spender! If you find that you get your paycheck on Friday and you're grubbing for pennies in the mall fountain on Monday, you need some help. There's nothing wrong with having some fun, but you simply won't survive in the real world if you can't manage your money. If money does run through your fingers like water, we won't lie - it's gonna be tough to live on a budget. You'll have to give up some habits and you'll have to make some sacrifices (do you really need that third pair of platforms?).

Remember, we're not here to change your personality - leave that to your significant other. But if you can learn to understand your spending habits, you can make your budget as strict or lax as your wallet will allow.

2. DETERMINE YOUR GROSS MONTHLY INCOME

This is the good part - you get to see how much moolah you're pulling down each month. So put your reading glasses on (halfway down your nose to be authentic), and grab a calculator - you're ready to become a geek! Whoops… we meant to say "accountant." (Same diff.)

What you'll have to do is carefully figure out (as exactly as possible) how much money you have rolling in each month. To do this, think of EVERY single way you make money. Here's a list of possibilities to think about:
  • Net paycheck (meaning, "after taxes") from full-time job
  • Self-employment income
  • Part-time income
  • Freelance income
  • Overtime wages
  • Social Security benefits
  • Disability or Worker's Compensation payments
  • Allowance from parents
  • Birthday checks from grandma (hooray!)
  • Child support or alimony you receive
  • Coins tossed at you when playing ukulele on street (weirdo)
  • Bonuses
  • Interest from savings

Whew! Obviously not all of the above will apply to you. But figure out what does, and write down how much you get from that category.

Once you have that done, you have to start eliminating the less stable sources. Already? Yep. Short honeymoon, eh? Even though the world is in desperate need of more public ukulele playing, you have to figure out guaranteed income.

Here's what professionals say you should focus on:

  • Paycheck from full-time job - some experts say to use your gross (pre-tax) salary, but if your deductions are pretty much the same each week, use the net (post-tax) - it makes the calculation a lot simpler).
  • Part-time income
  • Self-employment income
  • Allowance from parents
  • Social security, pension, and child support/alimony
  • Interest from savings

That means no bonuses and no overtime salary, even if you're pretty sure you'll get them (you never know). But if you do get those, think of them as presents. Yipee.

Here's an example: suppose "Imelda" makes $36,000 net per year:

  • Full-time salary: $3000 (net)
  • Allowance: $150
  • Interest from savings account: $50
  • Bonus: $100 (total yearly bonus divided by twelve)
  • Ukulele donations: $10

  • Total Net Monthly Income = $3200 (everything but the bonus and ukulele money)

Got it? $3200 to play with… how will Imelda end up? Will she join the ranks of ukulele playing or the astute money-managers? Ooo, the suspense… We suspect that she'll blow it all on shoes.

3. DETERMINE YOUR BASIC NEEDS COSTS

If you're interested in eating every once in a while, this is a crucial step in the art of budget making. And yes, O Wise Philosopher, there's no such thing as a "basic need," but just think of this as stuff you really want. So sit down and really think about what you absolutely must have money for each month. No, that does not include weekly lobster dinners.

Here's a list of suggestions of things that you simply must spend money on every month (not just the things you really want, but the things that you are legally obliged to pay). As you read, try to calculate as precisely as possible how much you spend monthly on each one. (The number you see in brackets is Imelda's total, for way of example):

  • Rent/Mortgage [700]
  • Food (amount for meals at home, unless you never cook) [500]
  • Utilities (heat, air conditioning, water, electric, etc.) [100]
  • Phone Bill [100]
  • Cell Phone Bill (yep, she's one of 'em) [40]
  • Cable Bill (if applicable…but this is America, so it probably is) [40]
  • Car Payments [0 - she owns one]
  • Gas/Transportation Costs [200]
  • Health Insurance (if this is automatically taken out of your salary, don't include it) [0]
  • Car Insurance [160]
  • Student Loan Payments [200]
  • Other Loan Payments [0]
  • Credit Card Payments (we'll talk more about this in Step 5) [0]
  • Child Support/Alimony [0]

Feel free to include anything you else you think should be on the list. But the point is to budget for things you definitely have to put money aside for, so remove "signed memorabilia from cast of Full House."

Once you have the list, add up all the numbers, and then divide by four.

The Rule:
This is the amount that you must put aside from your paycheck EACH WEEK.

Do not take this lightly - this is the crux of your budget. If you have a checking account, a good strategy is to open a separate, "secondary" checking account (ask your bank). Then you can transfer the exact amount into that account as soon as you get your paycheck. When you pay the bills, you just write the checks from that account and you know you'll always have sufficient funds. Pretty neat, huh? Okay, we're dorks. Shut up.

If you discover that your costs exceed your income - we won't sugarcoat this: you've got a problem. You can find a part-time job or drop some needs, but sometimes that's not enough. Don't panic yet. Instead, before you start racking up the credit card bills, speak to your bank about your options - financial advisors may help you reduce your bills.

For Imelda:

  • Paycheck is $750 per week ($3000 divided by 4)
  • "Needs" costs tally $2040 per month. Divide by 4 = $510.
  • Subtract. $750 - $510 = $240 dollars left every month

Life is pretty expensive, huh? Betcha miss those annoying parents now. The good news now is that you can always dip into your bonus check from last year, or your check from grandma, or your interest, or the extra money you saved from living under your budget last month.

Before we move on, let us stress one more time to follow "The Rule." Okay, you've been warned - twice - so when you're foodless and MTV-less, don't you dare come crying to us.

4. ALLOCATE FUNDS FOR YOUR NEST EGG AND "WANTS" COSTS

So let's say that you get some of that allowance from your parents, you get a bonus at work, and you're left with $300 extra cash per month. Time to hit the casinos, right? Well, perhaps. Once you have your money set aside for the basic needs, the rest of the money is your "spending money." Obviously, there's no way we can fully detail all the things you'll have to spend money on, but think of your costs for entertainment, clothes, alcohol, a new stereo, cell phone, dinners out, strippers, vacations, and so on.

Because each week is different, it's hard to budget your spending money to the cent. But what you can do is keep track (preferably on paper) of your spending so that you pace yourself until the next payday. The best advice we can give you is to be aware of all your purchases, and think twice about a big splurge (do you really need a $400 pair of cashmere socks?).

Saving money

Maybe, just maybe, you want to save money. And if you're smart, you probably do - you never know what's going to happen. What if a dinosaur eats your car? Life is unpredictable and if you do lose your job, you'll need some money until you get back on your feet. Or maybe you're planning to get married and have kids - you'll be shelling out some major money for the bundle of drool (we mean, "kid"). Some people even start saving for their retirement (it's disgusting).

Hence, you may want to make "savings" a part of your "needs." If so, just add it in (after you pay the bills, you can transfer the remainder into an actual savings account) - and we commend you for your diligence. You can laugh at those working until they're 80 years old.

If you'd rather vary the amount you'll deposit into a savings account each week, that's fine too. The best strategy is to set up an actual savings account (separate from your checking account) with your bank. Then, each week, as soon as you get your paycheck, transfer however much you'd like right into that account. Some banks allow you to do this right over the Web. And don't forget, you'll get interest on your savings… hey, it does add up over time.

Example: Imelda's savings

Let's say Imelda decides to put $100 away for savings each week. This adds up to more than $5,000 every year, so in just 10 years, she'll have exactly $52,000 in the bank. And if interest is a conservative 1.16%, she will actually have over $60,000 in the bank. Not bad from just $100 a week, eh?

5. STICK TO YOUR BUDGET

By now you're probably thinking that this should have been named "SYW Become a Penny-Pinching Dork?" Perhaps everything we've explained so far seems anal, but if you really want to manage your money effectively and start building a savings account, you gotta do it. The good news is that after a few weeks of this, it'll become a habit and you'll realize that all your bills are being paid and you still have enough money left over for the Ginsu knives that somehow became essential to your happiness. You'll also realize that if you have a sudden unexpected cost (What?! My dog has manic-depression and needs a year's supply of lithium?!), you won't be caught with $0.

If you worry about your ability to manage this money, here we come to the rescue with your mantra:

IF YOU DON'T HAVE IT, YOU CAN'T SPEND IT

This applies to all aspects of your budget. So meditate, do yoga, use subliminal messages, whatever you have to do to get it through that noggin, but learn it. Fast.

Most importantly: always transfer your basic needs funds to the secondary checking account immediately after you're paid. Don't adopt the attitude that you'll do it at the end of week - if it's in a separate account, it'll be much easier to avoid spending it. Procrastination is a surefire way to kill your budget.

Cash

A good strategy is to carry only what you think you'll need (not exactly, but pretty close) - again, if the cash is there, burning a hole in your wallet/purse, you're gonna spend it, and it'll be spent on something you don't really want but looks good at that moment (like that t-shirt that says "Golfers Do It 'Til They're Green").

Credit cards

Get out of the habit of using credit cards. They're good to have for emergencies (ahem… an autographed Barbra Streisand handkerchief is not an emergency) and major purchases (an autographed Barbra Streisand handkerchief is a major purchase), but if you constantly charge it, you'll wind up spending double what you would have because the interest will pile up. If you already owe a ton, go to your bank to consolidate the debt - it'll save you interest charges. A good way to manage your credit card bill is to only use ONE credit card and cut up your others (it'll be a fun memory of your fake ID days).

If you're new to this whole budget thing, you'll probably go through a couple rocky weeks and have to be "scared straight." That's okay - but follow The Rule - it's one thing to not be able to put money away for savings for a week or two, or even to have to eat frugally for a little while - but you definitely don't want your heat or phone cut off, or have to deal with eviction.

If you live in a high-density area, (New York, LA, Chicago, Philly, etc.), there's such a tight market for living space that your landlord may boot you out in the cold if you miss even one payment. And delinquency in any bill payments may hurt your credit rating - remember, you're in the real world, where things like that actually matter.

There're tons of sites about budgets out there, but here are a few to get you started. You can even type in your costs and income and receive a personalized budget (though it's best to do it on your own the way we described):

If you're already the frugal, budget-minded type, most of this is probably old news. (Hey, you're the one who kept reading, sucker.) However, if most of this terrifies you, take heart that our job is not to suck the fun out of your life (leave that to your job) - it's just to make sure you can pay your bills and to help you cut down on waste. So good luck, financial warrior. And if you're wondering how Imelda turned out… well, she scoffed at this advice. So on your way to work, when you hear a ukulele playin' the blues, tell her we say "hello."