To create a budget, you need to start by following these six steps.

Tracking your finances can be helpful in staying on top of your spending. There are a few different ways to do this, but the most important part is finding one that works for you. Some tips to follow include setting financial goals, tracking your income and expenses, and creating a budget.

Step 1: Calculate your net income

A budget is a plan for spending your money. The goal is to make sure that you have enough money to cover your costs, including things like rent, food, and bills. To make sure you have a good budget, you need to know your total income. This includes everything you earn, like your salary from a job, tips, or commissions from work minus taxes, benefits and any other contributions your employer is deducting. If you will base your calculations on your total salary instead of the actual money you’re receiving you’ll end up thinking you have more then you actually do and overspend. If you’re self-employed, you’ll need to keep track of your contracts and payments so you know how much money you have left over each month.

Step 2: Track your spending

When you know how much money you have coming in (from your paycheck, for example), the next step is to figure out where your money is going. This can be done by tracking your expenses and categorizing them by what you spend the most money on (food, clothing, transportation, etc.) or where you might be able to save the most money (by forgoing certain expenses, for example).

Your fixed expenses are things like rent or a mortgage, and your variable expenses can change from month to month, like groceries and gas. To save money, you might want to look at your credit or debit card and bank statements to see where you can cut back on your monthly expenses.

Every day, track your spending with whatever is handy—a pen and paper, an app, or a budgeting spreadsheet or template found online.

Step 3: Set realistic goals

Before you start sorting through all of your information, make a list of your short- and long-term financial goals. Short-term goals might include things like having enough money saved up so you don’t have to worry about an emergency, or paying down your credit card bills. Long-term goals, such as saving for retirement or your child’s education, might take a few years to achieve, but are worth doing in the long run.

Step 4: Make a plan

This is where you figure out how much money you’re actually spending, compared to how much you want to spend. You’ll use the information you gathered from your fixed and variable expenses to figure out how much you’ll spend in the coming months. Then you’ll compare that to your income and make sure your priorities are set correctly. You can set specific limits on how much you’ll spend in each category of expenses.

You can break down your expenses into things you need and things you want. For example, if you need to buy gas to drive to work, that counts as a need. But if you want to buy a monthly music subscription, that might count as a want. This difference is important when you’re trying to save money so you can reach your financial goals.

Step 5: Adjust your spending to stay on budget

Now that you’ve documented your income and spending, you can see if there are any adjustments you need to make so that you have enough money to spend on your goals. One way to save money is to skip movie night and watch a movie at home. If you’ve already adjusted your spending on things like movie nights, take a closer look at your spending on monthly payments. Maybe you need to cut back on a “need” that’s harder to let go of.

If you’re still having trouble figuring out how much money you’re spending, you can adjust for fixed expenses. For example, you might be able to save by shopping for a cheaper rate on auto or homeowners insurance. These decisions come with trade-offs, so make sure you think about all your options carefully before making a decision.

Savings can add up over time if you make small adjustments. For example, if you stop buying things you don’t need, you’ll save money.

Step 6: Review your budget regularly

When you create your budget, it’s important to check it regularly to make sure you’re spending within your limits. Sometimes things will change (like you might get a raise), other times you may reach a new spending goal. Regardless of why, it’s a good idea to get into the habit of checking in with your budget on a regular basis.