Preparing a household budget
By Andre Mayer • Bankrate.com

If you've never given much thought to where your monthly income goes, devising a household budget can be an eye-opening experience. Although the process -- and the financial picture that emerges -- may seem daunting, it can also be empowering.

"The most important thing is to take a powerful position when you're looking at a budget," says Lori Bamber, a Vancouver-based financial writer and consultant who operates Financialserenity.com. "For most people, 'budget' is a word that's a bit like 'diet.' It means deprivation and unpleasant things. When I work with my clients, I really focus on cash management."

Take the following steps and you'll not only get a synopsis of your spending, you'll become leaner and meaner -- fiscally speaking.

The goal is to have goals
"When people think about making a budget," says Laurie Campbell, program manager at Credit Counselling Service of Toronto, "it's because they have some goal in mind." That could be a new vehicle, a much-needed holiday or more cash to afford some of life's finer things. This objective will provide you with the motivation to stick to your plan.

"If you have goals," says Campbell, "make them visible: put them on your fridge, put them in your wallet. Put a nice little picture of the car you want on your Visa card. So when you take out your card, you'll go, 'Oh, you know what? I have a good reason not to use this.'"

Keep tabs on your expenses
Bamber advises people to keep track of their spending for a three-month period. Looking at receipts will immediately clue you into where your money is going, and whether there are mild fluctuations from month to month.

Lay it all out
Campbell advises people to divide their expenses into four categories: housing, work, living and personal. These expenditures range, in descending order, from fixed costs (e.g. house payments, utilities, etc.) to discretionary ones (booze and concert tickets). Be specific.

Tech-savvy budgeters are undoubtedly aware of software like Microsoft Money or Intuit's Quicken, which enable you to track your expenses to the nth degree. That said, an old-fashioned ledger or even a blank piece of paper and a calculator can be just as effective in getting your household in order.

Check national averages
You can put your monthly disbursements in perspective by seeing what your countrymen spend.

In 2002 (the most recent figures collected by Statistics Canada), the average Canadian family spent 18.6 percent of their budget on shelter, 14 percent on transportation, 11.1 percent on food, 5.9 percent on recreation and 4.1 percent on clothing.

In terms of raw annual dollars, families shelled out $11,200 for shelter, $8,430 for transportation, $6,680 for food, $3,540 for recreation and $2,450 for clothing.

Divide those numbers by 12, and you'll have an idea of how your budget stacks up.

Weed out unnecessary items
"Tracking your spending will allow you to quickly identify what things give you bang for your buck, in terms of pleasure, and what things are just black holes in your budget," says Bamber.

Many people don't realize they've unwittingly turned luxury items into fixed costs. Bamber cites The Latte Factor, regular expenditures, like that morning latte at Starbucks, that become perfunctory rather than enjoyable.

You might consider reducing your latte consumption to once a week. You might consider buying a bottle of wine only once a month. You might consider downgrading your cable package from premium to basic.

Parking fees are another inherently unpleasant disbursement that can be averted by either looking for free parking a few blocks from your destination or leaving the car at home in favour of public transit.

The 10-percent solution
You can never know when you might lose your job or when your wheezing furnace will finally let out its last gasp. For that, you need a contingency fund.

Most financial planners cite 10 percent as the portion of your monthly income you should squirrel away for savings or investments, but even two percent is good if, over the course of a few months or even years, you can work your way up to 10.

Use debit to stay out of debt
Credit cards are convenient, but they're an artificial cushion. Instead of charging monthly expenses to your Visa or MasterCard, use your bank debit card. That way, you're accessing funds you actually have, and you won't owe money at month's end. Plus, you can get an inventory of your withdrawals online.

But before you start unremittingly flashing your debit card, make sure you have a banking package in which you pay a set monthly fee and not for individual transactions.

Be firm with your disposable income
Sandra Dimitrakopoulos, a resident of Waterloo, Ontario, who claims to have a passion for budgeting, controls her day-to-day spending by withdrawing a fixed sum of cash every week.

She takes out $100 every Saturday, which becomes her discretionary allowance until the following Saturday. "If I want to do more on the weekend, then I can't go for dinner a couple of nights," she says. "I'm just going to have to be a bit more frugal that week."

Review, review, review
A budget forces you to look at where your funds go. If you overspent in one category, you'll be able to pinpoint it. Were you too optimistic about how much you could reduce your grocery bill? If so, do you need to cut back in another category so that you can spend a little bit more?

"The point," says Bamber, "is to be flexible and to revisit your budget at the end of every single month."