Though you avoid it like a smelly skunk, there’s absolutely nothing wrong with making a budget. In fact, after you’ve been living under a budget for a few months, you’ll find it helps relieve financial stress. With a budget, you make all your spending decisions upfront, so later on, there’s no question about where your money’s going. Here’s how to create a budget in 5 steps.
Step 1 – What’s Coming In

Start by totaling the amount of money you have coming in. Your total income includes things like net wages, tips, interest earnings, alimony, and child support. Use your pay stubs and bank statements to help figure out how much money you’re receiving each month.

Don’t include unreliable sources of income like gifts from family members.
Step 2 – What’s Going Out

Next, total your expenses. Write down all the things you spend money on each month. This includes things like rent or mortgage, utilities, transportation costs, child support or alimony, taxes, debt payments, and food costs.

At first, include everything you’re spending money on, you’ll adjust later.
Step 3 – Does it Add Up?

Ideally, your income will be greater than your expenses. If that’s not the case, then you have some work to do. Review your expenses and look for places to cut back. Entertainment costs, cable, phone, and clothing costs are typically some easy places to cut. Evaluating your wants vs. needs is key in this part of the budgeting process.

When you can’t reduce your expenses, you have to increase your income. Start by making sure your tax withholding is correct. If you typically get a tax refund, you are having too much money withheld from your check each month. Adjust your withholding to have the correct amount taken out. Be careful not to adjust too much or you could end up with a tax bill next April.

You can also increase your income by taking on a part-time job or asking for some overtime. Or, you can find ways to make money from hobbies.
Step 4 – Put It Into Action

Once your budget’s on paper, it’s time to start living by it. As you make spending decisions throughout the month refer to your budget to make sure you’re not spending too much. At the end of the month, write down the actual amount you spend in each budget category. Highlight any places where you went over budget.

Could you have avoided going over by being more disciplined? Or does your budget need adjusting to allow more spending in that category?

If you increase spending in one category, you’ll need to decrease spending in another.
Step 5 – Make Budgeting a Habit

Don’t give up if your budget doesn’t work the first month. It can take a few months of practice to get your budget to the perfect place. Continue recording your actual expenses and adjusting your budget as needed. Don’t forget to continuously look for places that you can cut spending.
Final Tips:

A good budget changes as you do. Adjust as your income increases or your family size changes.
Plan large purchases in your budget so you can save up and pay for them with cash.