Are you living paycheck to paycheck? Or worse, are you going into debt because you haven't planned ahead on your personal finances? Do you want to know if you can save for a big purchase, your wedding, graduate school or retirement?

If you're looking for reasons why you need to know how to make a budget (and stick with it), there are countless. If you're facing a new personal finance life – graduating college or getting divorced – you need to know what you can comfortably afford within your income. By making a budget and sticking with it, you can move forward in your life knowing that you are prepared for the future.

Things You Will Need

Salary information
Information on your spending habits (receipts, utility bills, etc)
Account information if using an online budgeting tool

Step 1

Watch that money add up!

The basic principal of money management is that your income must be greater than your spending. It's simple, pure and sweet, but most Americans don't follow that rule. See: unmanageable debt.

First, write down your take-home pay for each month. That's the maximum amount you can spend. Second, track your expenses for one month. Save your receipts and write down expenses that don't have them.

Step 2

Break it out. Although each person is different, approximately 60% of your income should go towards your living expenses or essentials. This includes taxes, food, housing, utility bills, transportation, and everything else you need to live. The other 40% goes toward retirement savings, emergency funds, debt repayment and fun money.

If you're a recent graduate, 60% probably isn't enough. Your housing cost will be the highest expense, so consider living with a roommate, bunking up at home for a month or two to save money or finding an apartment in a cheaper, but still safe, area.

Step 3

Add it up

Round up your numbers. Write down all of the essential expenses that are set in stone (at least for now) like student loan payments, rent, car payments, and average utility bills. Then, divide up the amount you have left for food, clothing, entertainment, savings, etc.

Step 4

Now, do the math. When you calculate your essential spending, is it over 60%? Is it over 100%? If you're spending more than you make, you definitely need to make adjustments. Consider using public transportation, trading in your car for a cheaper one, eating out less or cutting the data plan on your cell phone.

Step 5

Take your budget seriously. If you use an online tool, it's easy to track day-to-day how you're keeping up with it. If you spend a lot more than you budgeted for one category, you will have to spend less in another that week.

Step 6

Sock that money away!

Watch the savings add up when you stick with your budget. Yes, it's hard to create a plan to live on. But when you do it, you're giving yourself a gift – no debt and a better future.

Don't beat yourself up if you make a mistake. Everyone does. Just adjust and move on – you're on the right track!

When you decide to make a budget, you're making a choice to improve your personal financial life. You'll never know if you're spending too much each month if you don't keep track of it. And once you put in the initial hard work, maintaining a budget can be easy and satisfying.

Tips & Warnings

One trick I like to play on myself is if you are paid bi-weekly, budget for two pay periods a month. There will be two months where you have an extra pay period – and that is extra money that you didn't budget for. Hello emergency fund!

If you're looking for an online budgeting tool, try It will automatically update the budgets you set every time you login.

If you like having your budget laid out in writing, try using a budget book like The Budget Kit: The Common Cents Money Management Workbook or Your Money: The Missing Manual.