After you've completed your basic monthly budget and followed it for at least a month, take a look at where your money went. Separate each time you spent your money into two categories: wants or needs.

What to Put in the Needs Category

Simply put, your needs are things you need to survive. This includes food and shelter. It also includes things like a car and gas to get to work. Here is a list of examples that go into your needs category:

• Mortgage or rent
• Oil or gas for heat
• Electric and other utilities
• Groceries
• Clothing
• Car

What to Put in the Wants Category

Define your wants items by saying asking this question: "Could I have lived without this?" Here is a list of examples that go into your wants category:

• Cell phones
• New cars
• Clothing - over and above what is needed
• Entertainment
• Dinners out
• Cable or Satellite
• Home computer
• Internet

Think about wants this way, you want them but you could live without them if you had to. This isn't a list for you to feel guilty about. Defining this list just helps when you need to see where to trim your expenses.

When Needs Become Wants and Wants Become Needs

Sometimes the line between being a want or being a need gets blurry. For instances, you need a car but if that car is an expensive luxury mobile, it then becomes a want. People become caught up in this more often than you think. Or the other way, like an internet connection becomes a need when you start working for a company that allows you to work from home via the internet.

Be diligent with your money. Being money smart will require that you watch out for needles wants and plan for new needs. After you get into the habit, it'll become second nature.