A budget is a self-made tool for directing and controlling your money. Good budgeting helps you to meet important goals, cover all expenses, live within your means, and experience the satisfaction that comes from having finances under control. A budget is a plan for how you will use your money.

Step 1. Estimate your income. In figuring income from your earnings, include only your take-home pay or net income. Your net income is what you have left after income taxes, Social Security, Medicare, insurance (health, life, disability, etc.), flexible spending plan contributions, retirement savings, and other items have been deducted.

Step 2. Estimate your expenses. Expenses may be classified as either fixed expenses or flexible expenses. Fixed expenses, like rent or mortgage payments and loan repayments, are the same each month, while flexible expenses differ each month. You should consider your special financial goals to be fixed expenses. When you do this, you are more likely to fund your future financial goals. This is the idea behind the concept — pay yourself first.

Step 3. Make adjustments to balance your budget. Is it realistic for you to increase your income? How? Get another job? Get a raise? Hold a garage sale? If you cannot increase your income, your other choice is to reduce your expenses to bring your budget into balance. Sharpening your consumer skills will make you a better shopper and will save money in the long run.

Step 4. Try living within your budget. It is important to track your spending so that you can compare it to what you had budgeted. Getting control of money through effective budgeting is a critically important step in overall financial planning. Live within your budget for a month or two to see if it works.

Step 5. Develop and use a financial record-keeping system that works for you. Another critical tool in the budgeting process is record keeping. There are many ways to keep financial records: by the receipt method, the checkbook method, the recordbook methods, and the computerized financial record-keeping systems. They all require you to summarize your monthly expenses so you can draw conclusions from the experience and know whether your budget really works.

Step 6. Adjust your budget to reflect your real life experience with it. After following your budget for a couple of months, you should be in a position to know if it “works” for you. Fine-tune your budget categories, and reallocate your income to meet your needs. A budget is a very flexible tool if you will make the necessary adjustments.