Budget. Ugh! The word itself turns many people off. To make the idea more palatable, some are now calling it a “spending plan” instead. But whatever you want to call it, the important thing is “just do it!”

If you want to really understand where your money is coming from, where it’s going and how to hold onto more of it, then it’s time to create a monthly budget. For more information, see our article called “A Plan for All Seasons”

To begin, use a sheet of paper or your favorite software to list all sources of monthly income: wages, gifts, bonuses, tax refunds, dividends, and interest.

Next, it’s time to examine where the money goes. Divide the money you pay out into three categories: fixed, variable and discretionary expenses.

Fixed expenses are those you can’t do much about. They are the same from month to month.

One big fixed expense is state and federal taxes, which are deducted from your salary or wages every time you are paid. If you are self-employed, you have to pay estimated taxes every quarter.

Another big fixed expense is your housing payment (mortgage or rent). Automobile payments and insurance premiums are another example of fixed expenses.

Your savings plan should fit right here as a fixed expense every month. Call it “paying yourself.” You can avoid living “paycheck to paycheck” if you set aside some money each pay period to cover fixed and variable expenses.

Your utility bills such as gas, electric, cable TV, telephone, and water bills are fixed expenses because you have to pay them every month. But they are also variable, because they change by season and depend on your usage. For example, your electric bills go up when you use air conditioning; gas heating bills go up in winter. You can figure your yearly cost then divide by 12 to get a monthly average to plug into your budget.

Variable expenses change from month to month. Families often spend more during the holiday season and when school starts, for example. Clothing, food, stationery, gifts, and routine car maintenance are things you may buy one month and not the other.

A variable expense can sometimes come as a big surprise, such as an accident, or the need to pay for a new roof or major car repair. It's good to budget for these kinds of disasters by taking the average spending over a period of years, figuring a yearly average and dividing by 12 to get a monthly figure. You could also take these expenses from an emergency savings account, and then build the account back up.

If you take your monthly income and subtract your monthly fixed and variable expenses (including savings), the money you have left is called “discretionary income." This is the money you have to spend after all the other bills are paid.

Discretionary spending is about things you don’t really have to buy, but you want to have. This includes entertainment, dining out, vacations, movies, CDs, books, DVDs, rental movies, games, magazine subscriptions, manicures, splurges on clothes and electronics and so forth. These are expenses that usually

See what you learned.

Check out "Budgeting: A Plan for All Seasons"