You might choose to break down your expenses even further, between things you need to have and things you want to have. For instance, if you drive to work every day, gasoline probably counts as a need. A monthly music subscription, however, may count as a want. This difference becomes important when it’s time to make adjustments.
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.