Spend time to work out a budget that suits you

It may be tedious and boring but tracking spending habits pays divdends and creating a list can serve as a reality check.

The first step in budgeting is to track your expenses. Record your purchases over a one-month period. You may be surprised to find where all your money is going.

Keeping a budget has traditionally been the province of people who obsess about their cash. In an effort to tease out where every last dirham goes, they build up elaborate spreadsheets or track spending in programmes such as Quicken and Microsoft Money, where expenses can be broken down into pie charts and graphed over time. Most of us, though, just don't have the time to make such a forensic account of our finances. We'd rather go swimming, read the newspaper, have lunch, chat with friends, watch paint dry - anything but spend hours crunching numbers that only prove what bad boys and girls we've been with our money, which we knew already.

I've drawn up many a budget myself, only to violate the spending limits and then dismiss the whole enterprise as fruitless after a month or so. So there's nothing wrong with you if you don't feel like entering every financial transaction into your master table in Excel (actually, there might be something wrong with you if you do). But coming up with - and sticking to - a budget isn't a bad idea. It is what Jonathan Brookes, a Dubai-based financial planner, calls a financial "reality check." It can yield information you can act on, either by reducing spending, increasing savings or planning more intelligently in the future.

There is no need to be frightened about what you might find. It may be disturbing to discover that you are spending more than you earn, but you are certainly not alone: while there are no reliable statistics for personal debt levels in the UAE, anecdotes are rife of people with a free hand and an open wallet. In the glitzy world of the higher-end side of Dubai, it seems that everybody has heard of somebody who is living beyond their means - trying to impress people they don't like with money they don't have, as the saying goes.

"A lot of people don't even realise they are living beyond their means," Mr Brookes says. Keep in mind, too, that sorting out your spending might yield good news. Many people find duplicative outlays or realise they are paying for a service they no longer use. The first step in budgeting: track your expenses. For one month, vow to get and keep receipts for every cash purchase you make (your credit card and bank statements can serve as a record for other purchases). Where this isn't possible, make a note of the transaction on the back of a receipt you are ­carrying.

By the end of the month you should have a pretty clear picture of where your money is going - and where you can dial back spending. Many people are astounded to find that they spend Dh1,000 (US$272) a month on lunch (that's Dh50 a day) and forget about things like haircuts, manicures and other relatively mundane items. They add up. "Silly things like buying lunches and petty cash purchases catch people out," Mr Brookes says. "You get a haircut or get your nails done, and all of a sudden you are spending a lot of money without realising it."

With your spending record complete, note down your fixed expenses, either on paper or in a spreadsheet. These would be things like utilities, rent or a gym membership - anything you pay for on a regular basis and can't change. Then, using your spending record as a guide, lay out where you would like the rest of your money to go. Do not forget to make a monthly allocation for annual expenses such as holidays and subscriptions.

You need not be overly ambitious here - writing it out on a piece of paper or in one column of a spreadsheet is enough. The point is to formulate a general spending plan that prevents you from diving deep into credit card debt. A budget is also the first step in savings and retirement planning. If you aren't budgeting well, you have little chance of running a surplus to save and invest. The final step, of course, is sticking to your budget. Budgeting experts have devised a number of techniques over the years to help you do this (three examples are listed separately). Luckily, technology is also quickly catching up with laziness, allowing you to budget and monitor spending without even touching a spreadsheet.

There are now a handful of websites that use backdoor technology to get your spending information directly from your bank accounts and credit cards. They gather a list of transactions and aggregate all your data, often sorting out for you what you spent your money on, based on descriptions of the charges sent to them by merchants. You can usually arrange for automatic SMS messages when you go over spending limits, or if you consider that too intrusive, email alerts. Some offer weekly financial summaries and net worth statements. And best of all, they're free - at least, I presume, until they get enough people hooked.

The most robust of these budding websites are mint.com and moneycenter.yodlee.com. I recommend Mint for people who want a slick, straightforward interface and do not have an exceedingly complicated financial life. For those who want a little more functionality - but less prettiness - Yodlee ­delivers. You may run into trouble with these services in the UAE, because they were produced mainly for American consumers. But they're worth a shot, especially if you bank with a large international institution such as HSBC, Citibank, ABN Amro, Barclays or Standard Chartered. You will have to provide usernames and passwords connected to your various accounts, but both of these sites are reputable, and the probability of a breach is low.

I'll be the first to admit that budgeting is not a favourite pastime. I do not relish gazing at guilt-inducing spreadsheets or saving Starbucks receipts. Yet by using mint.com to keep a general eye on things, combined with the lump-sum budgeting method, I have managed to keep everything pretty much in order in the past year, with a minimum of hassle. What works for you depends on your personality, how much time you have and your willingness to undergo self-examination. But whether you prefer documenting every expense, or if you would rather have a website do everything for you, you can't be smart about the future without knowing where you stand, financially, right now.

? Finicky about your cash? Use a spreadsheet or a finance program that includes a budgeting tool such as Quicken or MSN Money. You'll get all the detail your obsessive mind craves. ? Want to stick to a budget, but aren't detail-crazed? Withdraw all your spending money from the bank at the beginning of the month and put it in envelopes marked according to their purposes. You'll have one envelope for groceries, one for gifts, one for eating out and so forth.

? Not very interested in metering every dirham? Withdraw all of your spending money at the beginning of the month. That is what you have to spend, and you must pay for everything in cash - no credit cards. This method forces you to stay within your limits without the hassle of categorising. Avoid it if you tend to spend all the cash in your wallet. What budgeting ­strategy works for you? Tell me at @Email:[e-mail]