We should spend less than we make. That seems like a simple concept, so why is it often so hard to do? Without a budget in place, it’s easy to overspend on the things we want and leave ourselves without enough money to cover the things we need.

Focus Your Spending on the Essentials

The goal of a budget is to help us earmark our money for the essentials, and keep us from overspending on lifestyle choices. But what’s an essential budget item? Your cable bill? A gym membership? Your mortgage? One of the biggest mistakes you can make when you draw up a budget is failing to separate the things you need from the things you want.

Setting priorities is the first step in coming up with a spending plan. Recognizing which expenses are essential and which ones are negotiable gives you a place to start.

Non-Negotiable Expenses First

At the top of your spending plan, list the expenses you absolutely must pay. For example, you need a place to live, so you have to pay your mortgage or rent each month. Utilities such as gas, electricity, phone service and insurance are other non-negotiable expenses. Food is in there, too, along with transportation. Include any personal or student loans in this category as well.

Now for the Negotiable Expenses

Nonessential expenses are items you want but don’t need. Premium cable service is one example. Restaurant meals and pricey vacations are others. If you need more cash to pay for essentials, areas like these are good places to look. Paring down nonessential expenses can make a big difference in your cash flow.

You Can Live Without…

Take a hard look at where your money goes each month. Do you really need 200 cable channels? Or a latte and lunch out each day? While the upgraded services may be nice, cutting back on some of them can free up money to pay down credit cards or add to your savings. By curbing your spending on extras, you’ll have more money for future goals, such as a new car, first home and your retirement.