Step 1: Note your net income. The first step in creating a budget is to identify the amount of money you have coming in. Keep in mind, however, that it's easy to overestimate what you can afford if you think of your total salary as what you have to spend. Remember to subtract your deductions for Social Security, taxes, 401(k) and flexible spending account allocations when creating a budget worksheet. Your final take_home pay is called net income, and that is the number you should use when creating a budget.Tip: If you have a hobby or a talent, you may be able to find a way to supplement your income. Having an extra source of income can also be helpful if you ever lose your job.
Step 2: Track your spending. It’s helpful to keep track of and categorize your spending so you know where you can make adjustments. Doing so will help you identify what you are spending the most money on and where it might be easiest to cut back. Begin by listing all your fixed expenses. These are regular monthly bills such as rent or mortgage, utilities or car payments. It’s unlikely you’ll be able to cut back on these, but knowing how much of your monthly income they take up can be helpful.