Starting a budget is simple and can be done in three easy steps. Let’s get down to it:

Step One: Track Your Spending

We started this step last week, so congratulations on getting started. Since your expenses will vary, it’s a good idea to review your spending over several months. Stick with this step and you’ll be in great financial shape.

Step Two: Add Up Your Income

Counting your cash is a fun first step. If you’re like many people, your monthly income is earned as salary or wages from an employer. If you have investments, you may be earning income from dividends, interest, and other sources. For this step, collect your pay stubs and find your investment slips to add up all your gross (before tax) monthly income.

Is your income variable?
If you run your own home business, live on sales commissions, do freelance work, are self-employed, or work a moonlighting side-gig to make ends meet, then you know how planning your finances can be a big challenge when your income is neither regular nor predictable.

Use my Extra Income Spreadsheet to help take the mystery out non-salaried earnings.

Download: Extra Income Spreadsheet

All it takes is a bit of planning and a handy tracking tool to make life run a little more smoothly.

Step Three: Make Your Budget Balance

Grab your receipts, sort your bills, and check your bank accounts. It’s time to fill in the blanks and account for your cash by downloading the Free Budget Spreadsheet.

Download: Free Budget Spreadsheet

The last step is to take your income (cash inflow) and subtract your spending (cash outflow) to see if your budget balances. If you have money left over every month then you’re running a surplus. Yay! If you find a negative number then you have a deficit. The idea is to re-evaluate your spending habits and find the places where you can cut costs and save money.

Check out: 50 Ways to Save $1,000 a Year for many ideas!

Don’t worry if you’ve got ‘Budget Shock’ and need to trim a few costs. Budgeting is an iterative process for most people, and it may take a few tries before you can strike a balance. Budgeting gets easier over time, you just need to stick with it!


Next Steps: Check out Day 3: Find your net worth