Those who are newly retired, unemployed or divorced often must adapt to new financial considerations

Major life changes such as unemployment, divorce, a prolonged illness or retirement can drastically change the way that you prioritize and spend your money. Living on a tight budget is not an ideal situation for anyone. Realistically, budgets are a necessary evil, and they need to be adjusted to account for new financial circumstances. Suddenly having to live off of one salary or no salary at all is enough to make anyone panic, but we will provide you with a few simple steps to create the right budget for you and help you stick to it. If you already have a budget prepared and simply need to adjust it because of a new lifestyle, you can skip the first few steps and focus on steps 4-6.

1. Determine what kind of system you want to use. Business Week highly suggests investing in a software program such as Quicken or Microsoft Money because all of the financial tracking can get pretty tedious. But a pencil and paper will also get the job done.

2. Gather all of your financial records and determine your income. Include salaries, wages, pensions, social security, unemployment, alimony, child support etc. Do not include income that you are not positive you will receive such as investment returns or bonuses.

3. Next track your expenses. This will be the most time consuming step, but it is where you can make most of your improvements. Investorguide.com recommends coming up with spending categories that make sense for you and your spending. Make sure you have enough categories to show where your money is going, but not too many to manage. The main categories will be:

• Fixed Committed Expenses- fixed costs you have to pay each month such as loans, taxes, mortgage payments, insurance, savings, education, etc.
• Variable Committed Expenses- costs that vary from month to month such as groceries, utilities, phone bills, professional services, etc.
• Discretionary Expenses- costs that are not necessary for basic survival such as entertainment, eating out, gifts, gym memberships, vacations, etc.

4. Compare your income and expenses. The key is to learn to live below your means. If your expenses are higher than your income, then you need to immediately cut back on your spending, or find a way to earn more. Determine where your money is going and prioritize your spending categories. Begin by placing vital expenses at the top of your list and more frivolous spending at the bottom. CNN Money suggests that 30% of your income should be spent on housing and debts, 25% on taxes, 4% on insurance, 15% on savings and investments, and 26% on living expenses. However, different circumstances can lead to different priorities. For example, a country club membership may seem frivolous to most, but if you are newly unemployed, it might be worthwhile to keep the membership to create more networking opportunities to find a new job.

5. After you understand where your money is going, it is time to be realistic about your current circumstances. Are you a newly single parent? You may need to set aside more money for day care or babysitters. Newly retired? You will need to set more money aside for medical expenses. Newly divorced? You may need to set aside money for alimony or child support payments. If you are now living far away from your children, you may need to set aside more money for travel to visit them.

6. Finally, it is time to make some changes to improve your situation. This will be the hardest step, but if you want to have a secure financial future it is necessary. Where are you spending too much? Look for luxuries that are disguised as necessities. You might not be able to afford private schools anymore. Could you possibly downsize your house or get a less luxurious car? Moving to an area with a lower cost of living, or to a newer house can save you lots of money in taxes and in energy bills. You have to come to terms with the reality of your situation and make those big changes.

Now that you have your new budget, you need to actually use it. Continue to track all of your purchases and make sure you are on the right path. You may need to reassess any goals that turn out to be too unrealistic. From now on be more conscious of your spending, shop during sales, buy second hand items and save your change; remember it all adds up in the end.

Here are some helpful online resources to use in your budget planning:
-Ideal budget calculator: http://cgi.money.cnn.com/tools/budget101/budget_101.jsp
-Retirement calculator: http://www.bloomberg.com/personal-finance/calculators/retirement/
-Budget worksheet: http://www.kiplinger.com/tools/budget/
-The 50/30/20 Budget: http://articles.moneycentral.msn.com/SavingandDebt/LearnToBudget/50-30-20-budget.aspx