If you’re spending significantly more money than you make, you’re doing something wrong. This is where budgeting comes into play. When you budget your money, you are better able to reduce frivolous spending, control where your money goes, and save for the future. The benefits of creating a budget will have a huge positive effect on your finance. If you’ve never budgeted before, or are interested in improving your existing budget, this article is for you.

Step 1: Get Into The Right Mindset
The first step to creating a budget is getting into the right mindset. If you haven’t been good with your money in the past, it might be very discouraging to start creating a budget. Why? Because budgeting makes you face the mistakes you’ve made in the past, and that isn’t always easy. But when you own up to these mistakes and learn from them, you will feel a deep sense of satisfaction afterwards. Plus, you’ll be more financially fit and will worry less about your financial situation. Keeping focused on the benefits of budgeting is the right mindset to be in when getting started.

Step 2: Analyze Past Spending
To analyze your spending, it is best to track how much you spend on a monthly basis. If you spend most of your money using a credit card, tracking where your money goes will be a lot easier. Just grab a statement for whatever month you are analyzing. If you spend most of your money using cash, start recording all of your spending in a notebook or on your computer. Once you have a month’s worth of spending data, put it into a spreadsheet and start grouping your spending into different categories (Food/drink, entertainment, car, house, misc, etc.). Dividing your spending into different categories will allow you to see where your money is being spent.

Look at each category and take note of any spending that isn’t completely necessary. Maybe you went out to eat three times in one day or maybe you splurged on an expensive toy. Add up all of the money you spent in this way and subtract if from the total amount of spending. This will give you a rough estimate of the bare minimum spending you will be doing in a given month. Compare this figure to your monthly salary, and the difference will give you a rough estimate on how much you can afford to spend in a given month. It’s pretty simple math. Once you figure out how much money you can spend beyond the necessities, you can move onto the next step.

Step 3: Set Limits
Knowing how much money you can spend outside of the necessities will give you your spending limit. Take this spending limit and start setting limits on how much money you can afford to spend in each category. You may find that you have a lot less money to spend than you may have thought. You will likely have to make sacrifices and changes to your spending habits to live within your limits.

Step 4: Track Your Progress
After you set a budget, keep a close eye on your spending to make sure you can stay within your spending limits. If you step outside of your limits, find out why and try to make an improvement over the next month. After going through this process for several months, your spending and saving habits will get into better shape. It does take a bit of effort, but creating a budget is one of the first steps to financial success.