A budget is a crucial tool in managing your personal finances, and we highly recommend that you sit down to determine a reasonable and realistic budget. Creating a budget is a great way to make sure all expenses are covered and important financial activities – like saving for retirement – don't fall through the cracks. Any budget should include a breakdown of monthly expenses and income – with spending sections for necessities, savings and extras.

There are plenty of methods for budget creation:

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  • hand-written (better used for initial brainstorming than as the primary budgeting tool)
  • structured Excel spreadsheet
  • budgeting computer program or Web service involving detailed account tracking

If you are looking for guidance about the appropriate percentage-of-income to spend on each expense category, there is a helpful free calculator at Greenpath.com. And for people who like to keep budgeting as simple and clear as possible, Mint.com is an excellent – and free – online tool for tracking finances and setting realistic budgetary goals.

After creating a budget, the next step is to check the “retirement savings” budget line against a calculated retirement needs estimate. Smart401k.com has a simple calculator that is available to the public and a detailed Retirement Guidance tool for members. If the numbers are close, or you already are saving more than your retirement needs estimate, then you're already on-track. If you're not saving enough, you have two options:

    • re-evaluate your budget to bring your annual retirement savings to the level needed to reach retirement goals, or
      • revisit the assumptions made in calculating the retirement goal, and consider bringing your ideas about your retirement lifestyle more in-line with realistic savings capabilities.