To give you plenty of flexibility, your housing payment (rent or mortgage) should be no more than 25 percent of your gross pay or 35 percent of your take-home pay. If you are spending more than this, you likely do not have enough money left in your budget to cover other necessary items, or even to afford any unnecessary ones. 

When you set up a budget or a spending plan, part of your process should be to prioritize your spending. You have a limited amount of money to spend each month and you need to make sure that, first and foremost, what you have covers everything you need to live. These are your "needs" and usually include housing, utilities, food and clothing. Once your needs are taken care of, any remaining money can go to unnecessary “wants.” Wants are those items that are nice to have but not required to live and usually include cable TV, DVDs, restaurant meals and cell phones with many features, among others. You need to be careful not to confuse wants and needs. For example, you need a place to live, but you don't need a 5,000-square-foot home. A home is a need; the extremely large home is a want. When people refer to wants vs. needs they mean that, if money is tight, needs have to come first when you spend your money and wants should only be bought once all the needs are taken care of.  

When you "live within your means" you spend what you earn. Your income equals your expenses. You are able to meet your short-term and long-term obligations and maybe have some frivolous fun as well. You are not creating debt for yourself every month, but you are not getting ahead either. Your goal instead should be to live "below your means." When you live below your means, your income is more than you spend. You are able to meet your obligations, pay for some fun perks, and save some money every month, too. When you live below your means you are on the path to creating your secure financial future.

People have different tastes and aptitudes when it comes to tracking spending. Some like to use computer programs like Quicken or a spreadsheet that they develop themselves. Others like old-fashioned pencil and paper. Still others use a combination of methods. Choose a method that you are comfortable with and that you will actually use. Tracking your spending consistently is vital, but the best method is what works for you.

When we spend money, that money doesn't just sit in a cash register drawer at the store. Part of the money goes back to the company that made the product you bought, paying salaries at that company and paying for the development of new products. Some of the money goes to local and federal governments in the form of taxes and some is used to pay for the programs and services that you and others will use. Some companies even donate a portion of your money to a charitable cause. Every dollar you spend has an impact on the world because it pays for labor, product development, services and, sometimes, charitable causes. This is why you need to carefully consider the stores you patronize and the goods you buy to ensure that your money is going to companies, people and causes that support your values. 

Anyone can give to charity, no matter your income level. As long as you don’t exceed your means, you can determine the amount of money you’d like to devote to investing in charities or causes you care about and want to support. Giving money – or time – can be for everyone.

A budget is a financial plan for forecasting your income and expenses. Simply put, it’s what you project you’re going to spend, be it for something specific (holiday budget) or a time period (2010). It is designed to help you manage your money over time.

A cash flow statement shows how much money you are bringing in, how much money you are spending and what you are spending it on. It differs from a net worth statement because it is dynamic (whereas a net worth statement is more like a snapshot). The important thing to pay attention to on a cash flow statement is that you are not spending more than you are bringing in.

A net worth statement, also known as a financial statement or a balance sheet, gives you a snapshot of your financial condition. It shows how much own as well as how much you owe and to whom you owe. In other words, assets minus liabilities determine your net worth. It is a good tool to track your progress by comparing to previous net worth statements.

The best way to plan for an event that’s recurring is to look at how much you spent in past years. That way you’ll have a sense of your spending patterns. If you don’t still have your receipts, look through your bank statements to see what you spent, both on presents and on any travel, decorations, cards, clothes and entertainment. Those all count, too. Consider contributing money — starting early in the year — into in a bank account you’ve designated just for holiday spending. Some banks even offer these, and they often come with higher rates.