For some who have yet to realize its benefits, a personal budget could be seen in a sinister light: a fiscal straight jacket with the aim of securely restraining unruly, and irrational spending habits. It doesn't have to be that way.

With a more optimistic perspective, an accurate budget can be a helpful tool to point out excesses and inefficiencies, maximizing your ability to see your own situation better and reach your financial goals.

There are many reasons for creating a budget. From managing credit card debt to planning for a child's college expenses, to retirement and even buying a car, a budget can help the accountant - you - to make the right decisions down the road.

Budgets can be made easily in various ways. Your method can be as simple as using a pen and paper. You could also use a computer spreadsheet, or even personal finance software. There are advantages to each, but the bottom line is that you'll have a clear idea of your income and expenses after doing some due diligence in identifying and tracking all your financial decisions.

Tracking Income

Your source or sources of income should be listed in this category. From employer pay checks, to payments for side jobs or dividends from stocks, maintaining clear records is key. To see the bigger picture, you should keep track of yearly income while making sure to deduct any taxes. Then you can also keep track by dividing yearly income into monthly and weekly entries when necessary.

Tracking Expenses

It is best to keep track of every expense made. Later, similar expenses can be defined and categorized, letting you know clearly where the money is being spent. Basic expenses in your budget should include payments for your home, food, utilities, health, transportation, loans, and entertainment as well as other lesser expenses.

After doing this, essential expenses and non-essential expenses will be easily seen. With that, the opportunity to economize appears. You'll be able to compare your actual spending to where you want your budget to be.

Knowing Where to Cut

When it comes to making a budget there are usually some tradeoffs. If there is a goal, for example, saving up for a new car, or setting aside 10 or 20 percent every month for retirement, something has to give. Perhaps you'll cut back on the number of times you eat out. You may choose to take a vacation closer to home and make it a road trip instead of a cruise.

Whatever the case, if there is something you deem a frivolous expense but you thoroughly enjoy, it is not necessary to completely get rid of it. Moderation is the key. Keeping the the reason and purpose of that goal firmly in mind will also motivate you to keep within budget and persevere until that day you can declare the effort a success.