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Making the most of your paycheck

Feeling the pinch on your wallet these days? A carefully planned budget can help you get the most bang for your buck.

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By Allan Chernoff, CNN Senior Correspondent

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Everyday folks tell their stories about hard economic times. Check back frequently for new stories.

NEW YORK (CNN) -- Actor Ryan Watkinson has a rare combination that very few 23-year olds possess: a role in a Broadway show - Xanadu - and an aunt who's a Certified Financial Planner.

His Aunt Erika Safran worked out a budget with Ryan so he'd have something else few people his age have: savings.

"I enjoy having the freedom to know exactly where my money is going at all times," said Watkinson. "I walk around knowing exactly how much I have, not wondering, not worrying about my financial situation."

How do you make a budget? Identify how you're spending your money, set realistic goals for yourself, and then track your spending to make sure you're sticking to it. More help is available in our Money 101 guide.

Ryan and his Aunt Erika began with his income, $7500 a month. Then, they identified spending on fixed expenses, including rent, taxes withheld, phone, utilities, cable, transportation, insurance and, in Ryan's case, an agent's fee which amounts to a 10% chunk of his income.

Next, Ryan tracked his variable expenses.

"Whenever I made a purchase I wrote it down, and at the end of the day I typed it up on my computer, and at the end of that month I knew exactly where my money went," said Watkinson.

Ryan tracked his spending on food, entertainment, clothing, and gifts, all variable expenses.

"Take your income, subtract your expenses and see what happens," said Safran, Principal with Financial Asset Management Corporation, a New York financial planning and investment firm that manages $160 million in assets. "If you have a deficit, and that's not unlikely, now you want to identify: Which are the areas that I can improve on? What are the expenses that I can reduce?"

Big ticket items may be most obvious: a flat-screen television, a fancy new car or gas-guzzling SUV. But, even for those who live modestly, there are items that can be cut if absolutely necessary, such as that cup of coffee at Starbucks, dinner at a restaurant or a new shirt. At the moment of purchase they may seem essential, but in truth they are targets for economizing.

Of course, in preparing a budget you may discover you're saving more than you realized.

"The purpose of a budget is to create wealth," said Safran.

She had targeted saving 19% of Ryan's salary on top of the automatic 10% that goes into a 401(k) plan invested in a diversified mix of domestic and international equity mutual funds. It turned out to be too tight of a squeeze on Ryan's wallet, as he enrolled in weekly acting, voice and dance lessons, and began feeling the pinch of inflation.

"Before the show every night I have a salad and it used to be $8 or $9. Now I'm paying $13 for the exact same salad," said Watkinson.

So, Erika and Ryan adjusted the budget. Now, Ryan is still saving $640 a month, about 9% of his earnings, in addition to his 401(k) contributions.

"Budgeting has to be flexible. Budgeting is not a punishment," said Safran. "If you create a situation that is so uncomfortable you're not going to meet it."

While not everyone has an Aunt Erika to help, do-it-yourself budgets are simple enough to put together. Just make sure it's one you'll be able to stick with for the long term.  To top of page

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