Perhaps you’re on your own for the first time. Perhaps you’re just starting a family. Or perhaps you just never thought much about budgeting before. No matter what your life-situation is right now, sitting down to work out your budget may seem intimidating. However, a simple budget is actually quite straightforward.

If the whole idea of creating a budget seems overwhelming to you, take it one step at a time. Don’t try to complete all the steps in a single sitting. Instead, set aside an hour for each activity and follow this step-by-step guide to generate a basic budget.

Gather your information.

Pull together all your paperwork, including paycheck stubs, checkbook, bank statements, credit card statements, bills, and any receipts you have. If you haven’t taken these items out of their envelopes, now is a great time to do so! Get everything you have together in one place. Don’t worry about sorting it now or making any sense of it. Just get those little pieces of paper altogether in one place.

See what’s coming in.

On a single sheet of paper, list all your income. This includes income from work, tips, house-sitting, babysitting, selling things on eBay, a part-time job, stock dividends, interest, etc. for an average month. List the amounts in gross (before taxes or any other deductions). If you have sporadic income because you don’t receive a regular paycheck, take your best conservative guess at what you earn in a normal month.

See what’s going out.

This list is usually much longer than the previous one, unfortunately! Using your paycheck stubs, bills, bank statements, and credit card statements, list your expenditures for a typical month in two columns: Fixed Expenses and Discretionary Expenses. Your fixed expenses normally include payroll deductions, rent or mortgage, property taxes, insurance, car payment, utility bills, credit card payments, and savings. Your discretionary expenses would normally include things like groceries, gasoline, eating out, clothing, hair care, memberships, and entertainment. Now you see where the money is going.

Time to re-think.

Compare your income to your expenses. Are you spending more money than you make each month? Are your credit card payments a large portion of your fixed expenses? Do you have “mystery” expenditures in your discretionary expenses side of the list? If so, make it a habit to start writing down ALL your spending. Chances are, you’ll find you’re frittering away $5 or $10 on lunch or at the drugstore on items you don’t even remember purchasing. If you’re out of balance (you’re spending more than you’re making), you have two choices: spend less or make more. Keep re-thinking your spending until you have a workable budget – one in which the “money in” side is AT LEAST equal to the “money out” side and you are paying down your debt.

Stick to the plan!

This step is often the hardest. It’s easy to write out a budget on paper, but it’s much tougher to say no when the office gang is heading out for margaritas after work on Friday and you’ve already spent your fun money for the week. Remind yourself that budgets are like diets: If you splurge in one place, you need to make up for it somewhere else, or you’ll have to suffer the consequences.

Once you know where your budget is leaking, you can turn off the faucet! When you are serious about developing a budget that sets you on the path to financial peace of mind, there are many good money management and budget sources available to use. Search the library or the internet for easy to follow, simple budgeting tools and put them to work for you.