Anyone who has ever struggled with finances and looked for help has probably heard the advice: make a budget.

It’s the most basic, common step in figuring out how much money you have, how far it will stretch, and what you can do with it. It’s always the very first thing experts suggest when considering how to get out of debt

That’s why financial gurus, self-help books, and life coaches talk about how to budget and push the importance of it so much.

And the truth is that it doesn’t have to be scary.

Many people get the impression that budgeting is a dirty word, that it’s something that you do only if you’re bad with money and need help out of a hole, but that couldn’t be further from the truth.

The most successful people out there use budgets to assess their situation and spend responsibly.

There’s nothing scary about a budget at all, except when you don’t want to face the responsibility of good money management.

But how do you get started?

If this is such a crucial, basic step, then don’t you want to make sure that you’re doing it right?

The truth is that it’s not that hard once you sit down and take a frank look at your goals, expenses, and incomes. Budgeting is by far the most effective way to reach and maintain your financial stability.

How to Budget in Five Steps

Step One: Setting Your Goals

This is the first step because it will determine everything about your budget.

Are your goals to travel, entertain, and enjoy your time in the here and now?

Are your goals to retire early?

Are your goals to have children? 

To go from two incomes to only one?

Pay off your debts?

All of these things are essential when you’re thinking about what you want to do with your budget.

To determine your goals, it’s important to sit down with your spouse or partner (if you have one) and have a heart-to-heart talk.

Nothing will sink a budget faster than having one partner who doesn’t agree with the purpose of the plan.

Good communication is crucial.

Ideally, you want to have conversations about money and future goals before you settle down—it’s that important of a talk.

If you do have disagreements, find an arrangement you can both agree upon.

Being in sync is more important than forcing your will on someone else: no budget can survive that.

More: How to Stop Living Paycheck to Paycheck

Step Two: Calculate Expenses

Start your budget by making a list of everything that you’re going to be spending your money on, and we mean everything.

A good way to start this is to look through past bank statements or credit card statements and see exactly where your money is going.

You may think that you only spend so much on food, because you always spend a set amount at the grocery store, but your receipts may tell a different story of eating out, quick trips to the convenience store, and that daily soda you buy every day for the commute home from work—a two dollar soda every work day could be more than $40 a month.

You’ll also want to look at the big picture, the annual expenses that you may not pay every month: things like car registration or medical bills.

Just because you don’t pay for something once a month doesn’t mean it shouldn’t be in your budget.

A forgotten bill can really mess up a budget.

A good rule of thumb, when setting a monthly budget is to add an extra 10-15% for unexpected expenses.

So if you’ve determined you spend $2000 a month, you’ll want to pad the budget with an extra $200-300 for pesky unintended bills.

Essential items you may need to include in your expenses are housing, groceries, utilities, transportation, insurance, loan payments, child care, etc.

Non-essential items that you might want to add to your budget are gym memberships, entertainment allowances, gifts, clothing, and travel.

More: The Debt Settlement Guide – How to Settle Your Debts for Less Than You Owe

More: How to Get Out of Debt: The Step-by-step Guide

Step Three: Calculate Income

This may seem straightforward, but in today’s gig economy, income maybe a little more difficult to determine than just looking at a single paycheck for you and your partner.

First, you need to make sure that you’re looking at your after-tax income.

You want to look at your pay stubs to get the amounts, as you’ll want to add automatic deductions to your budget.

In other words, just because your 401k, health insurance and life insurance are automatically deducted, it’s useful to list them on your budget so you have an accurate and clear picture of exactly where every penny is going.

If you have side gigs that don’t have automatic deductions, then you’ll want to estimate taxes for those items and put that money into a separate savings account.

You’ll also want to be realistic about your income from these side gigs: if they’re not guaranteed every month then don’t include them as definite sources of income.

Once you have separated all these things and have a good, solid picture of what your after-tax income is, you can begin comparing your income to your expenses.

More: 3 Top Fun Ways to Make Money

More: How to Make an Extra $500 a Month

Step Four: Design Your Budget

Now comes the part where you combine the hard numbers with your goals.

The basic principle of a budget is to consciously spend less than you earn.

So once you have your income and expense on paper, and have done the math, we hope you’ll find that there’s money left over.

If this is the case, then now is the time to start applying that money to your goals.

If you have a goal to travel, put more money into that category.

If your plan is to pay for your kids’ college, then you’ll want to put some of your surplus into a college savings account. 

It’s also wise to have an emergency fund built into your budget to cover expenses in the event of a job loss or catastrophic loss.

This can be as little as $1000 to help cope with a car repair to 3-6 months salary to cover a lay off. 

Whatever you decide for your budget, go into it knowing that you’re going to have to live with it and that it will be your plan for the future.

If you know that you’re going to eat out for lunch a few times a week, then make sure you put that in the budget.

You have to live with it, so be honest with yourself up front.

Step Five: Look to the Future

A budget is not an eternal document.

It changes as your situation changes.

If you finish paying off a loan, then you’ll have extra money in your budget that you’ll want to apply to something else—such as paying down a different debt or putting it into savings.

A budget is a living document that helps guide your month-to-month spending, but ultimately is a tool you use to make wise decisions and it changes as your goals change, as your situation changes, as your income and expenses change. 

Learn More: How to Achieve Financial Freedom

Now that you know how to budget, get started!

There are many apps, spreadsheets and programs that are designed to help make the budgeting process easier.

We have put together a list of the best budgeting apps of all time to help make your life a little simpler.