In praise of budgeting: The purpose of a personal budget is to enhance, not diminish, your quality of life. (Money Management).

On financial matters, we consumers are becoming a well-educated bunch. We can quote daily stock prices, rhyme off the major world indices and recite the best financial sites on the Web. In addition, many of us management professionals encounter complex financial information on a daily basis through our work. However, when it comes to drawing up a basic personal budget, our education often eludes us.

Certainly, we may have a vague, mental idea of where our money is going, but the gap between our financial perception and reality is usually wider than we think. Until we register this financial reality in concrete terms, we tend to blithely overspend and overextend our financial resources to the brink of disaster.

This is why we should budget. As a personal financial planning tool, a budget serves many purposes: it gives us a precise snapshot of our financial situation, acts as a guideline to monitor our spending habits and shows us how to trim costs. Sadly, as handy as it is, budgeting is done by only a minority of the population.

Procrastination: Get over it

Though we know budgeting is good for us, we procrastinate and deny ourselves right out of our own financial security. Why? One reason, according to Pamela Dries-Smoley, senior investment advisor and certified financial planner with Charles Schwab in Toronto, is that "people don't have a reason to do it; they have not set any goals. Before doing a budget, one has to set financial goals such as buying a house, paying a mortgage or investing for retirement. Once you have a goal established, you need a plan to achieve it -- and this is where a budget comes in."

Another reason has to do with our human nature of turning a blind eye to what we don't want to face. The problem with this tactic is the more we ignore our financial situation, the worse it gets.

So, if you have been procrastinating on your budget, get over it and get to work! The following suggestions will help get you started:

* Start by thinking of budgeting in positive terms -- as a plan to get you out of debt, put more money in your pocket and free-up dollars for investing. Let it act as a spending plan to help you keep track of where you are spending your money. In becoming more conscious of where your money goes, you can make more conscious decisions about spending it.

* While there are numerous budgeting software programs on the market, for many of us, simplicity works best. All you need is a pen and paper. Start by drawing two columns, one for income and one for expenditures. Look at how much is coming in and how much is going out. If you have more going out than coming in, chances are you are living beyond your means and will need to make some adjustments.

* Next, record a very detailed spending history for a month. Compile this information into a cash flow statement to get a clearer picture of where your money is going and whether some of your expenses could be trimmed.

* At the end of the month, create a monthly budget allocation to redirect any portion of income that is currently slipping through your fingers. You might want to consider doubling-up on your mortgage payments, contributing extra to your RRSP or setting some aside for a child's education.

* Use an annual net worth statement to monitor your longer-term financial goals. Dries-Smoley advises that you review this at least once a year because "everyone wants to see debt decreasing and net worth increasing." Also, don't forget to work in an emergency fund for those unexpected things that come up, such as car repairs or replacement of a major appliance.

* Finally, create a reward system. Budgeting requires discipline, but it is not punishment. Once you have achieved a milestone, treat yourself to a small purchase or a night on the town to celebrate.

Big spending on small expenditures

It is important to watch out for those "small expenditures" or discretionary purchases. Over time, they can swallow up a sizeable chunk of your earnings. For example, that daily coffee or latte from a retail establishment can total up to $400 over one year. A two-pack-a-day cigarette habit can set you back between $3,000 and $3,325.00 a year.

Be careful of those lottery tickets as well. Says Dries-Smoley, "There is nothing wrong with buying them as long as they are in the budget. But if the lottery ticket is part of your retirement plan rather than an entertainment expense, the budget is not going to solve your fiscal problems."

Each time you have the urge to splurge on impulse, ask yourself whether you can live without this purchase and put the saved money aside. If so, Dries-Smoley suggests investing that saved money in yourself. "When people start to treat their savings as a monthly bill that has to be paid, they see more money in their savings accounts or RRSPs at the end of the year."

Not carved in stone

Remember that a budget is simply a guideline to give you an idea of how much money you have and where it is going. It does not have to be carved in stone, and if you diverge from it occasionally, forgive yourself and resolve to try better next time.

Most people, once they make a habit of budgeting, are pleasantly surprised to find it to their liking. "There is no reason why people can't enjoy life along the way. There are things like discounted movie nights and theatre tickets, and there is nothing wrong with clipping coupons," adds Dries-Smoley.

The purpose of a budget is to enhance, not diminish, your quality of life. If the chance to earn money motivates most of us to earn a living, why shouldn't the chance to save money motivate us to budget? It seems counterproductive to avoid something that contributes to our well-being and peace of mind.

Anne Papmehl, MA, is a former financial advisor, now working as an investment research consultant and freelance writer.

RELATED ARTICLE: Six Reasons to Budget:

1. Control: Money makes a good slave but a poor master. When it comes to money, you want to be in control. If you let your finances rule your life, you will always fall short of reaching your financial goats.

2. Knowledge: You know how much money you have and where it is going, right down to the last penny.

3. Opportunity: Having your financial life in order enables you to see opportunities that you might have otherwise missed.

4. Organization: Even the simplest of budgets systematizes and organizes your finances. Budgets also provide you with records of all your monetary transactions and form the basis of a filing system to organize bills, receipts and financial statements.

5. Stress Reduction: Money issues are the most common cause of marital discord and family tensions. By communicating openly about money, as budgeting forces one to do, there is less chance of money issues complicating human relationships.

6. Time: All your financial transactions are automatically organized well in advance of the tax season, or in the event of a tax audit, saving you precious time hunting down receipts and statements at the last minute.