Making a personal budget is simple: determine your monthly income, determine your monthly expenses, and then decide what you want to do with any left-over money—pay off debts, save for a car, even go out to dinner a couple of extra times each month. Designing your budget to meet your obligations, prioritize your spending, and attain your short- and long-term financial goals takes a little effort, but you will find it works, and once it works your life becomes easier to manage.

Step 1: Identify Your Goals—Both Short Term and Long Term
What are your financial goals? Are you planning to buy your first house, or a car? Do you have children who will be going to college? How will you fund a comfortable retirement?

Step 2: Record Your Income
How much income do you or your family bring home in a month? Besides your paycheck, do you have any other income, such as stock dividends?

Step 3: Determine Your Expenses
What are your regular monthly bills?

Rent or mortgage
Car payments
Insurance
Childcare expenses
Credit card bills
Utilities-gas, electricity, oil

What other expenses do you incur during the month?

Household items
Groceries
Clothing and shoes
Medical and dental bills

Be sure to also list expenses that are paid quarterly and annually. Don't consider discretionary expenses yet (money you spend by choice on things like entertainment, music, or going out to eat). For right now, write down only the things you must spend money on each month. If your expenses are greater than your income, you will have to increase your income or reduce your expenses to be able to stay out of serious debt. Read some suggestions on how to stay out of debt.

Small savings add up. For example, you might be able to do without eating lunch out every day, buying lattes twice a day, and so forth.

Step 4: Develop a Savings Plan
Now that you know your income and your expenses, how much money is left over for savings? How much do you have to save to meet your goals by the time they come up? And what about emergencies? Even a small contribution will build up over time. Put aside a small amount for discretionary spending, too—movies or going out to dinner occasionally. You won't stick to a budget that doesn't let you have a little fun.

Step 5: Use the Plan
Use your budget every day to get used to watching your money. There will be a lot fewer surprises if you follow a budget, and the surprises you do experience are more likely to be pleasant ones.