Now we turn to the budget, the financial document with the most impact on your day-to-day life. The budget details how you spend the money you make.

We’ll start on the income side. For most people, this is pretty easy. Just look at your pay stubs and write down how much you bring home each pay period. If you are paid twice a month, just double that number and you have your monthly income. If you are paid biweekly, doubling one pay stub will actually underestimate the money available each month. Now, that’s not a bad thing as it will give you a little wiggle room when times get tough. Or you can multiply one pay stub by 26 and divide that number by 12 to get a more exact monthly income.

You may have other sources of income as well: a part-time job, alimony, child support, or investment income. Maybe you get rental income or commissions. You may have occasional income from odd jobs or seasonal bonuses. Write it all down.

Then turn to the expense side. Start with your savings. How much do you put away for retirement?(Note: don’t include retirement savings or other expenses that are deducted from your paycheck before you receive it. Since your income side starts from your net pay, including these things would double count them.) Then add the big things: mortgage or rent, utilities, food, debt payments, transportation, phone, etc. Add in all the other expenses you have each month: charitable contributions, yard maintenance, security, cable, subscriptions, gym membership, travel, shopping for clothes and household items, etc.

I suggest pulling out your bills and looking at them closely. Some bills vary widely during the year. My electricity bill is higher in the summer when I use my air conditioning more. My gas bill is higher in the winter because I have gas heat. To budget, I need to average the costs throughout the year. I also review my credit card bills. I am always surprised by how many expenses I forget and how easy it is to underestimate what I spend on eating out, groceries, and other shopping. Try to be as accurate as possible. The budget is only as good as the information in it.

Once you’ve listed your income and your expenses, add each column. Which column is higher? If it’s the income side, congratulations! You are solvent! But that doesn’t mean you can’t create a bit more breathing room and increase your savings.

If your expenses are higher, you have some tough work to do. You need to get the expenses below the income total — preferably without eliminating savings. So, what can you do? Can you cut discretionary expenses? Do you really use that gym membership? Can you cancel some subscriptions? Can you eat out less often, cooking at home or carrying your lunch to work? Can you cut out all nonessential shopping? Can you get a cheaper cable or cell phone plan? Even if your income is already higher than your expenses, you can still make cuts. It’s amazing how many possibilities you discover when you look seriously at your spending. Cutting savings should be your last option. If you can’t cut your expenses enough, then you need to find a way to increase your income: a part-time job, volunteering for overtime, getting a roommate, etc. If necessary, seek professional assistance from a non-profit agency that can assist you with debt and budgeting.

No matter what, keep a copy of your budget and check in at least quarterly. Pull your bills and make sure that you are staying on track. You can always move money between categories. A warm winter might leave extra money to replace household goods. Eating out less may allow you to be more generous to charity. Cutting out extras might free up money for travel. A budget is a flexible document, but it provides limits and guidelines to keep you on track.