Think About Where You’re Going
Are you working to get out of debt?  Saving for retirement?  Supporting your close or extended family?  Looking to buy your first home?  Thinking about starting a business?  Or maybe you’re striving for one or more of those goals? Keep what’s most important to you in mind as you develop your budget.  You’ll be more likely to stick to a budget if it reflects your personal priorities.

Track Where You’ve Been
Once you’ve set a budget, it’s important to track your spending against it.  That way, when you stay under or go over, you will know how and why it happened. Keeping a budget and tracking spending against it reduces anxiety and uncertainty that can sometimes lead people to make bad financial decisions.

Know Your Limits
Integrity means being honest with yourself and other people.  When you draw up your budget, be honest about what makes you happy.  Also factor in what makes your family happy.  You may need to make some tough decisions, but cutting everything out can also have a negative effect.

Total Your Earnings
Add up all your household income for a given month.  Make sure you include any money from sources besides your regular paycheck.  This could be rental income, child or spousal support, or a seasonal job.

Assess Your Monthly Expenses
Add up everything you spend, and that means everything.  The cash you take out of the ATM and the stuff you buy online, as well as the rent and electric bill.  You can use a worksheet <link to worksheet in resources>, budgeting software, or paper and a calculator.

Don’t forget annual or semi-annual costs, like school fees, or house and car insurance.

Subtract Expenses from Earnings
The first concern is whether your expenses are less than your income.  If they’re not, you’ll need to seriously retool your budget.  However, even if you have money leftover every month, you should examine where it’s going and in what proportions, to make sure you’re building the kind of future you want.

Rethink Your Budget
This is when you make adjustments.  Maybe you have too much money tied up in basic expenses, and not enough for savings and fun.  Or maybe the opposite is true.  Make sure you build in money to pay down any debt that you may have.  Also, include savings, first for an emergency fund (8 months’ worth of expenses) and then for other goals like a down payment on a house or retirement.

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