Creating a budget in a tough economy may help you better understand where your money is going so you can properly manage your finances and plan for the future.

First, it is important to determine your short- and long-term goals.

Short-term goals include taking a special vacation or creating a cash reserve for unexpected expenses. Long-term goals (such as five years or more) should include building a retirement nest egg, achieving financial freedom and creating wealth to pass on to your heirs. Paying off debt is another important goal to consider.

Next, collect your pay stubs, cash receipts and tax, bank, credit-card and investment account statements and record your monthly income and expenses in two separate columns.

Your expenses can be categorized as fixed — unchanging expenses such as car payment and mortgage or rent; and variable — changing expenses such as groceries, utilities and gasoline.

Since your variable expenses differ each month, determine the average cost for each and insert the amount into your expenditures column.

Tally your income and expense columns to determine where you stand financially at the end of the month.

Do you have more in your expense column or income column? If the totals of your income column exceed those of your expense column, consider allocating the extra money toward the priorities you established when setting your goals. These may include reducing debt and saving more.

If your expenses exceed your income, review your spending habits with a more critical eye.

Determine which items are truly needs, versus those that may fall under the category of wants (entertainment, dining and gifts).

Trim the nonessentials until you can create a budget that incorporates your goals without leaving you in the red each month.

Once your budget is complete, consider these tips to help you maintain your goals:

•  Revisit your budget. Don’t hesitate to review your budget monthly to determine if your finances are in line with your financial goals and if you are spending more than anticipated.

If so, refine your budget and find new ways to cut costs. Reviewing your budget regularly will create a good habit that will also serve
you well during better times.

• Get creative. If you find you don’t have many wants that can be trimmed from your budget, consider getting creative with items that fall under the needs category. Consider saving on groceries with coupons, buying generic brands and bargain hunting for discounted necessity items.

• Be flexible. If your budgeting plan needs reworking, consider using personal-finance software specifically designed for budgeting — or consider consulting with a certified public accountant or a trusted financial advisor.   

Creating a budget can be a fun, empowering process that can help you crystallize your financial goals and help you stay on track to achieve them.   

Oscar Dominguez is vice president and branch manager of the Stevenson Ranch branch of Union Bank. His column represents his own views and not necessarily those of The Signal.