The first step in creating a budget is to document all incoming funds. If you are married, this would include your spouse’s income as well as your income.
The second step to building a budget is to identify your monthly expenses. There are two types of expenses - fixed and variable. Fixed expenses include monthly expenses that are the same amount each month like rent and car payments. There are also expenses that fluctuate each month; these are variable expenses and could include things like clothing, gasoline, groceries, and some utility bills.
Once all income and expenses have been accounted for and properly subtracted, the remaining number is your discretionary funds, and this amount can be used for the extra things in life.
Be Prepared for Unexpected Expenses
Even the most financially prepared person should be aware of expenses that may randomly occur. Personal emergencies, change in family size, car maintenance, out of town travel and medical situations are some examples of these. Using your discretionary funds and starting a savings account is a good way to prepare for these types of expenses. In doing so, you are helping yourself not to use credit cards or borrow loans to cover those costs.