After you’ve been tracking your expenses for at least a month, you should take a hard look at your income, too.

This is the part that takes courage.  Many people will find out that their expenses exceed their income or that they are truly living paycheck to paycheck.  Don’t fret!  This is why you’re starting to budget.

There are two ways to address any budget deficit.  You either spend less, or you increase your income.  Both take a lot of courage.  You have to have the guts to make this change.

Now before you equate the word “Budget” with “Deprivation,” let’s do one more important thing.

You need to set a goal for your money.

Ask yourself what it is you are trying to do with your money.  Are you trying to become debt-free?  Are you saving for a down-payment on a house?  Are you looking ahead to retirement?

You must begin this process with a goal in mind.  If you don’t set a good goal for your money, any efforts you make to budget will feel very confining.

A good goal has the following characteristics:

• Challenging:  Your goal must be challenging. Otherwise, you’ll lose focus easily.
• Specific:  It’s not enough to say you want to have money.  You need to say how much money.
• Realistic:  You’re probably not going to pay off $50,000 of debt in one year.  Be real about what you can do.
• Measurable:  Your goal must be measurable.  When you’ve met your goal, you need to be able to see results (i.e. hold the title to the car you own free and clear, have $1,000 in the bank, etc.)
• Completion date:  You need to set a target for when you will accomplish your goal.  If you leave your goal open ended, there is nothing to push you to reach that goal.

An example of a good goal would be this:  I will pay off my car loan by June 30, 2011.

Note that I didn’t say “I want to pay off my car loan” or “I hope to pay off my car loan.”  Wanting and hoping won’t get you anywhere.  We all want and hope for things.  It’s the people who do things who get ahead.  Saying you will pay off your car loan is a much more powerful promise to yourself than saying you hope to pay off your loan.

If you are married, you must sit down with your spouse and come up with a joint goal.  You need to be on the same page with your new approach to better personal finances.

Once you’ve come up with a good goal, write it down.  Post reminders of it everywhere – on your fridge, in your wallet, on your mirror, to remind you of your goal.

Think of that goal as the umbrella over your entire budget. Start thinking about how you’re going to ensure you spend less than you make and how you could trim expenses.