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.
If you're self_employed, your after_tax income equals your gross income less your business expenses, such as the cost of your laptop or airfare to conferences, as well as the amount you set aside for taxes. You're responsible for remitting your own quarterly estimated tax payments to the government because you don't have an employer to take care of it for you.