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Here is a step-by-step guide to creating a monthly budget. There's a simple worksheet in the Related Content section for help.

Step One

Determine your monthly net income. This amount is how much you make after taxes and will be the total amount of money you work with in your budget. Also include any additional income such as college scholarships if you are a student.

Step Two

Estimate how much you’ll spend each month on expenses. In general, there are two types of expenses.

  • Fixed expenses stay the same each month like rent and car insurance. These are bills that you expect to see from month to month.
  • Flexible expenses change each month. For example, you eat different amounts of food and use a different amount of gas from month to month.

We often don't realize how much we spend, whether it's grabbing a coffee every morning on our way to work or eating out a few times a week. To help determine where your money is going, maintain a spending log of everything you spend money on for a week, even if it's as little as a $.75 drink from the vending machine.

Next, categorize your expenses into things you need (i.e. rent, insurance) versus things you want (i.e. vacations, entertainment). Be honest about your wants. For example, while you need to eat, you don't have to eat out, which is generally more expensive than cooking at home. If your expenses exceed your income, reevaluate where your money is going and cut back on the items you want, but don't necessarily need.

As you estimate your expenses, it can also be a good idea to write the time of month that your fixed expenses are due. This way, you are less likely to miss a payment.

Step Three

Don’t forget to save! An important step in creating a budget and managing your finances is to set aside money for savings. In general, try to save about 10 percent of your budget each month.

Step Four

You can also invest in your future by contributing to a retirement plan or investing your money. Consider your long-term goals and risk tolerance level when figuring out what percent of your budget to allocate to investing.

It's a good idea to go through this process on a regular basis. If you consider your expenses each year, you'll see how your spending habits have changed and gain a new sense of control over your finances.