You probably hate budgets. You probably also don’t know how to do one or why you’d want to do one.

Actually, a budget can help you figure out if and how you can make a debt consolidation loan work for you. It’s also a good tool to help you gain financial freedom.

There are all kinds of budgets, and some are more useful than others. Here are a few types.

THE PENNY BOOK. I call it that because your goal is to write down every single penny you spend every day for a month. This isn’t really about planning, it’s more about tracking. If you write checks, enter them in your Penny Book. If you pay cash for something, put it in the Penny Book. Write down the $4 you spend on a Starbucks coffee, the $2 for parking, the $12 for lunch, even the $1 you give to the bum who stands on the corner near where you work. Enter everything by date. Go day by day by day. Then at the end of the month, get your total. Start over.

THE PAYMENT TRACKER. I got this idea from my cousin. At the beginning of the year, she gets a spreadsheet (you can use a ledger book or just do it on your computer). She makes a column for each month. Then she lists the anticipated bills she’ll get that month as rows: Rent, Food, Water, Electricity, Natural Gas, Phone, Cell Phone, TV, Online Services, Visa, MasterCard, Car Note, Insurance, and so on.

When the bills come in, you go to the Tracker and fill in the amount. Not only does this give you a pretty clear overview of what’s going on in the course of the year, it’s a great way to be sure you never accidentally miss a payment. From time to time, bills can get lost in the mail, get improperly delivered, or get lost in the clutter of your own desk. Even if you never receive a bill, if you don't pay it on time, it still counts as late. That can hurt your credit report. This method makes sure you see what’s due, what’s paid, and you’ll know to call before a bill goes unpaid too long. At the end of the year, you have a great wrap-up and can plan for next year.

I actually got this idea when I was late on a water bill. I got a late notice and was sort of irritated and called the company that I never received the bill. About six months later, I found the bill wedged between the gear shift of my car and the seat. I must have picked up the mail and lost the bill between the car and the house. The problem was, I never missed the water bill till it was too late.

THE PLANNER. This is the most sophisticated type of budget and you need a little data (like from a Tracker) to do it in any useful way. Here you simply write out what you expect to spend in the coming year. You’re going to have your basics—food, rent, utilities, car—and you’re going to work in the things you’d like to do. You also write how much you expect to earn. The cool thing about a planner is that you can figure out objectively how to spend money, which means you’re likely to get better deals.

Here’s an example. Let’s say you just got a 4% raise. You put that in your planner. And let’s say you know your basic expenses and don’t see any big changes. But let’s also say your car will be paid off partway through the year, so you expect to have both raise and no car note for a while. Let’s just say for this example that you are going to have an extra $480 a month for last seven months of the year.

With a planner, you can figure out on paper different ways to play with that money. If you have some debt, you can use it to pay it off. Let’s say you have $3,000 on a high-interest department store card. You can literally divert the “extra money” to paying that off and have it paid off by the end of the year. That means you’ll approach next year without a car note, without a department store debt, and probably with another raise.

You can also decide to divert some of that into savings or an investment account. If you literally just socked away your car note savings and your raise, you’d have $3,360 in that account by the end of the year. But if you invested it well, you might even have earned a bit of interest on top of that. It’s not unreasonable to think that you could come out with $3,500 at the end of the year.

All of that is without changing your lifestyle.

But maybe you want to do some upgrades around your house or go to night school. You can start shopping around now and you can know whether or not you can make it happen financially. If you’d like to do $10,000 worth of renovations this year, your “found money” won’t cover it. On the other hand, if you’d like to start going to night school and would need about $1,600 for the first year, you actually have more than enough for that.

Once you start doing these budgets, here is what you can do with them.

PENNY BOOK. Some day when you’re feeling calm and disciplined, go through the book and really think about what you’re spending your money on. You may want to run some numbers. How much do you spend on fast food, coffee, drinks, and other “little items”? If you buy one $2 drink a day six days a week (or one $4 drink three times a week), you’re spending $624 in a year. Do you really like your coke or coffee that much? Many people I know spend more on soft drinks than they put into savings. This book is a mirror to show you what you’re doing.

PAYMENT TRACKER. Keep this for a couple of years and not only will you never miss a payment again, but you’ll also know pretty clearly what you spend on utilities, rent, credit cards, and so on. This book is really fun to keep when you start to whittle down your debts and trim your expenses. You may find that you can live just as well and twice as happily on less money. Another benefit of the tracker is that it really will cut down on late payments, which helps your credit score

PLANNER. This is more of an “exercise book” than a real budget but it helps you to figure out what you’re working with. Most of us just spend money as if it doesn’t matter. We don’t really think of money in terms of having a specific amount and being able to use it in different ways. Advanced planners can even make their dreams come true using a planner. Here you pick a project or a goal. Maybe you want to save $10,000 for a financial cushion; maybe you want to renovate your kitchen; maybe you’d like to go to Europe for two weeks. You figure out what you want and shop around to see what you’d need to make that dream come true. Then you start to think about how and where you’d get the money. You only need to put $193 away each week to save up $10,000 in a year. If you can give yourself two years to reach your goal, you can get there for $96.15 a week. Is that do-able? You may look over your budget and find that you spend more than that on restaurant meals. Are you willing to make the swap? Or maybe you think you can squeeze that money out of the budget by just watching yourself.

In another scenario, you may find that a luxury trip to Europe for two is going to end up costing you $7,000. You may also shop around and find out you could get all new hardwood floors for your home for under $5,000. And you may decide that while a trip to Europe would be nice, you’d be happier in the long run with new floors in your house. (This is very individual stuff! Another person might have the exact same data but figure that for her, the trip to Europe was the better deal!)

Then you can figure out what you need to make that happen.

People who get the most out of their money are not the ones who earn the most; they’re the ones who know the most about what they’re doing with their money!

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