Nothing could possibly be more important to financial discipline than a budget. A budget is a side-by-side list of income vs. expenditures. It gives you an idea of how much money you have available to spend and what you will spend it on. To some this may seem complicated, but I’ll walk you through some easy steps to making your own monthly budget.

Step 1: Income

Review your pay stubs from the past 30 days. If you are on salary, just divide your salary by 12 and you have your monthly income. Add in any outside work you’ve done on the side. DO NOT add any expected gifts, as these are far from stable sources of income. Gifts should always go straight to savings anyway. In a column on the left side of a paper, write down all the sources of income in your family, then add them up and get a sum total for your income.

Step 2: Expenses

First, make a list of all essential living expenses. This should include house or rent payments, car payments, gas, electric, phone, water, and sewage bills and a food allowance. Next, write down how much each of these expenses are in a given month. Most of these bills and payments are roughly the same from month to month. Add up this column next to the income column. You should have a total that is hopefully less than the income column.

Step 3: Surplus

If you aren’t living in poverty then your essential living expenses should be less than your income. So what do you do with the surplus? First, take 50% of what’s left over and put it straight into savings. There is no question here- nothing is more important than having something put away for tough times. Next, take the other 50% and see what you’ve got. In my monthly budget its somewhere around $200. Doesn’t sound like much, but having that money to spend freely is a key to living a relaxed, happy, stress free lifestyle. My wife and I spend $25 each on discretionary allowance towards whatever we see fit. Another $50 goes for eating out. The rest is in entertainment, such as movies, video games, new board games, house parties, etc. If you have less than $200, don’t worry. just spend less on the fun things. What’s important is that for your own sanity you have something to spend on the fun things.

Optional Step: Credit Card Debt

Some of you may have outstanding credit card payments. That’s ok, you can still make a budget. Follow the first two steps exactly. Then, instead of saving 50%, use that to pay off outstanding debt on credit cards. Use more than 50% if necessary. Never make the minimum monthly payment if you can pay more. Get out of debt as soon as possible. Then, once out of debt, start paying yourself the money you were paying the credit card company. Do this in the form of savings. Instead of paying off the credit card, you are paying into a savings account that could help pay for your child’s college, a new car, etc. Debt is so draining that it’s more important to get out of debt immediately than to save money.

Step 4: Post, Follow, Evaluate. Repeat

Once you have created your monthly budget, post it in a conspicuous place where you can see it. Do everything in your power to spend exactly what you planned to in each category. At the end of the month, see how well you did by putting in the actual figures next to the numbers you came up with at the beginning of the month. Could you stick to it? Was it too much? Too little? Adjust if necessary and repeat for next month.

A monthly budget will get you on the road to financial discipline and success. Even if you’re making minimum wage and feel like you don’t make enough to need to worry about budget, get in the habit now. Good habits lead to good results.