Creating a budget is a great place to start if you want a better grasp of your finances. Tracking your expenses each month can help you become more organized and make it easier to save for your goals. It all starts with finding a budgeting system that works for you. To get started, here are some steps you can follow to create your budget.

Step 1: Calculate your net income.

Your net income is the basis for a practical budget. This is the amount you take home after subtracting deductions for taxes and employer-provided programs like retirement plans and health insurance. Considering your total salary instead of your net income can result in overspending, as you may think you have more money to spend than you do. If you are self-employed, freelance, work in the gig economy, or are a contractor, it is important to keep careful records of your pay and contracts to manage your irregular income.

Step 2: Track your spending.

After calculating your net income, it is important to start tracking your expenses. This will help you determine your most costly expenses and where it’ll be easier to save. Start by making a list of your fixed expenses, such as rent or mortgage, utilities, and car payments, which are regular monthly bills. Then, add in your variable expenses, which may vary monthly, such as groceries, gas, and entertainment. This is the perfect time to look for areas to reduce spending. To get a better idea of your monthly expenditures, examine your credit card and bank statements, which are likely to itemize or categorize your spending.

If you want to keep an eye on your finances, the first step is to record your daily spending. You can do this in a notebook, your smartphone, or budgeting spreadsheets or templates that you can find online. After you know how much money you have coming in, tracking and categorizing your expenses will help you find out what you’re spending the most on and where you could start saving.

Step 3: Set realistic goals.

Before you look through the data you have gathered, make a list of your short and long-term financial goals. These short-term goals should take one to three years to accomplish, such as setting up an emergency fund or paying off credit card debt. Long-term targets, such as saving for retirement or a college fund for your child, may take many years to accomplish. Your objectives need not be permanent, but recognizing them can help motivate you to stay on budget. For instance, it can be simpler to cut back on spending if you know you are saving for a holiday.

Step 4: Make a plan.

Create a plan, and you’ll be able to visualize how the pieces of your budget preparation fit together. Compare the variable and fixed expenses you listed to your net income and priorities. This should give you an idea of what you will spend in the coming months. To ensure that you stay within your budget, consider spending limits for each category of expenses that are both specific and realistic.

If you want to redirect money to your financial goals, it might be helpful to break down your expenses into two categories: needs and wants. For example, driving to work could be considered a need, whereas a monthly music subscription might be considered a want. Knowing the difference between the two can be useful when it comes to budgeting.

Step 5: Modify your spending to balance your budget.

After taking a record of your income and spending, it’s time to make any changes needed so that you don’t overspend. Begin by looking at your “wants” and evaluate if you can forgo these for something else, such as watching a movie at home instead of going to the cinema. If you have already adjusted your spending on wants, thoroughly assess your expenses on monthly payments, as sometimes a “need” may actually be just something hard to let go.

If the math isn’t working out, consider changing your fixed expenses. For example, you may be able to save money by shopping for better rates on car or home insurance. However, this will involve making a lot of tough choices, so make sure you think it through before committing. Don’t forget that even the most minor of savings can really add up! If you start making small changes, you’ll be amazed at how much extra money you’ll have in the end.

Step 6: Review your budget regularly.

It’s important to review your budget and spending habits on a regular basis to ensure you are staying within your financial goals. Although some aspects of your budget may be fixed, it is important to be aware that your income or expenses may change over time. To ensure you are on track with your budget, make it a priority to check in regularly using the steps you have outlined.