6-Step Guide to Create a Budget For Your Money

This article originally appeared on Entrepreneur website.

A budget to your money is what traffic rules are to control the flow of traffic on roads. Not following either can result in a disaster.

Creating a budget not only limits your spending but helps save for your goals in a disciplined manner. Here is a step by step guide to help you create a plan for your money.

Step 1: Note Your Net Income

Your net income is not just your monthly salary but also rental income, interest dividends or any other extra funds you get regularly.

This exercise will ensure that you don’t let your rent or any other income sit idle in a bank account or alternatively, frivolously spend it without realizing. By including all other incomes other than your salary in the overall budget, you will be able to put it to better use by streamlining it with your finances.

Take note to not include windfalls, like a yearly bonus or gifts, in this as it is unpredictable income and you don’t want to depend on it for your monthly budgeting.

Step 2: Track Spending

Next step is to find out how much are you spending each month. You can do this by checking three months’ of credit card bills, grocery bills, utility bills and bank statements.

Once you have past expenditure records, categorize them to know how much are you sending where. Broad categories could be utilities, emergency and discretionary.

Through this exercise you will know the areas where you might be overspending and where to make adjustments.

Step 3: Create Spending Categories

In this step, you will give each rupee in your pocket a name.

Start with how much do you want to save. Saving should always be done before spending and not with the leftover amount at the end of the month.

Next, list out fixed expenditures—bills, groceries, commute, rent, insurance premiums, loan installments—and