Step 1:

In beginning your monthly budget you must first prepare before the budgeted month begins.  To begin with, on a piece of notebook paper or spreadsheet (whichever you prefer) you will first document your monthly income, preferably before and after taxes, so you can keep the numbers organized for tax and your personal accounting purposes.  You will record what you earn and take in for the month (I.E. paychecks or direct deposits, payment for services, etc.). 


Step 2:

Consider your monthly spending in the last month in the various categories that you spend money, for example, food, rent, charitable giving, etc. and set allotted amounts to be spent in each category for the month and write or type them into your monthly budget leaving several lines of space between them.  Now, some of these spending categories will be easy to determine as some are constant costs that do not change like rent for example, while others may vary from month to month and would require more educated guessing if you have never really tracked the spending before such as food and gasoline.  Include these amounts organized by category (I.E. food, rent, utilities, etc.) and keep track as a whole of the amount of money that comes in versus what goes out between different money mechanisms such as checking accounts, cash, savings accounts, etc.  Its best to keep things simple and use one checking account and just plain cash to receive money into and pay out of, otherwise documenting exactly where the money goes gets complicated.  For example, if you take your paycheck and receive it as cash and put some into your savings account and none into your checking account yet make all your monthly spending purchases and payments from your checking account (of course with money already in the account) you just lost track of your expenses relative to what you took in. 


Step 3:

Now that you have planned out your written budget, be sure to note the allotted amounts you have set for each spending category.  Once the month has begun, you will record in your budget each purchase or payment you make during the month and write it down  or type it with a minus sign next to the allotted amount in that spending category.  By the end of the month, your monthly budget sheet will be full and you will be already to reconcile the numbers.


Step 4:

Now that you have come to the end of the month, its time to run the numbers to see how well you did on your monthly budget.  Under each spending category in the previous steps, you wrote or typed your allotted amount to spend in each category and throughout the month as you spent money or made payments in each respective category, you wrote or typed that amount with a minus sign in front of it next to the allotted amount.  Now you will simply subtract those expenses from each allotted amount and ideally be left with a positive number or zero which means you did not go over budget in the spending category.  If you get a minus number in any spending category, it means you overspent in that category.


Step 5:

Since you have now completed your monthly budget for the individual spending categories, you can simply take the values that resulted in the previous step after subtracting expenses from allotments whether they are positive, zero or negative numbers and add them up.  This summation of values will once again leave you with a positive, zero or negative number.  This number tells you exactly how well your budget reflected your month.  If your result was a negative value you went over budget and spent more money than you took in.  If your value is zero you designed your budget perfectly, which is very difficult to achieve but possible.  If your value is positive, then you went under budget and spent less than you took in, which is very good.


Step 6:

Now is a time for reflection of your first monthly budget.  Was your final value a desirable zero, or did you get a negative or positive number?  Whatever your result, it’s okay, this is a starting point for lifetime of money management.  If you received a high negative value it means you have spent much more money than your income produced.  This is likely a result of not really being fully aware of your monthly spending habits prior to budgeting.  No one is truly aware of his or her spending habits until he or she tracks them on paper.  But now that you have been through the process once you have a place to work from.  If you over spent, take a look back at the spending categories that produced the negative numbers and see if in the future you might need to reducing your spending or perhaps increase your allotment in that category depending on its importance.  But remember if you increase allotment in one category it must decrease in another category.  This is of course unless you have an increase in income as the idea of a budget is to live with in and ideally well below your means.  If your final value was zero or positive, great job.  But be sure to constantly look for ways you can spend less for the future thus allowing you to increase you allotment in categories for paying off debt, building savings, giving more to charity, etc.  The main objective is to continually refine your monthly budget to most accurately reflect your spending habits and needs, it should therefore change as your life and priorities change.  Repeat the above steps for the next month and happy budgeting!