The second step in creating an effective budget is generating a statement that accurately reflects your income and expenses for a month or for another specified period of time.

Certain methods of payment are easier to track than others. Checks and credit cards, for example, leave an automatic paper trail that is easy to examine at the end of a week or a month. Cash, on the other hand, is more difficult to track because an automatic physical record is not created each time it is used. To accurately track all expenses, you must keep a notebook in which you record all expenditures paid for in cash, or, better yet, record them electronically.

Budgeting software may also be helpful as you track your expenses. Software such as Intuit’s Quicken, www.mint.com, or Microsoft’s Money can cut down on the time necessary to follow your finances. Such software is especially useful if it is tied to your bank, credit card companies, or investment accounts through the Internet. Budgeting software is a great investment that can save you time if it is set up and run properly and in a timely manner, but it is not required to become financially self-reliant.