The word “budget” has a lot of people running for cover. It makes people think of sacrifice and counting pennies.

But creating and sticking to a budget doesn’t have to be painful! Follow this easy step-by-step budget tutorial to create a budget that you’ll actually keep.

1. Determine your after-tax monthly income

Your after-tax monthly income is the starting point for your budget.

Regular Salary

If you receive a regular salary, you can look at your most recent pay stubs or bank deposits to find your after-tax monthly income.

Irregular Salary

If you don’t receive a regular salary, take a look at the last 12 months of pay stubs or bank deposits. Find the month that had the lowest income out of all 12 months. You’ll use the after-tax income from that month as the starting point for your budget.

You want to use the lowest income amount so that you don’t spend more than you take in. If you make more than this amount, you can increase your budget as the extra money comes in.

2. Select your budget categories

Next, decide on your budget categories. Your budget categories are the different ways you’re going to save or spend your after-tax income during the month.

The goal is to be as thorough as possible and include every type of savings and spending category you have during the month. Include both your expenses (mortgage, food, clothing, etc.) and your financial goals (retirement, buying a new house, emergency fund, etc.).

To help you select your budget categories, I recommend looking at your purchase history. Your bank statements and credit card history will help you identify budget categories that meet your unique requirements. For instructions on how to use your purchase history to create budget categories, go to Easy Budgeting: How to Use Past Purchases to Create a Budget.

BONUS: To help you include those hard to remember budget categories, check out this article: Don’t Forget These 7 Budget Categories.

3. Divide after-tax monthly income between budget categories

First, take the after-tax monthly income from Step #1. Then divide all your income between your budget categories from Step #2 using the following tips:

• Start with the budget categories that are highest priority. These are the “must pay” items, like your mortgage, utilities, car payments, and loan payments.

• Then move on to budget categories that are important to you. This might be charitable giving or one of your financial goals. By including these items at the top of your budget list, you’ll allocate funds to these categories first. Then you can allocate the rest of your money to things that are less important to you.

• All of your income should be allocated across your budget categories. If you have extra funds after allocating everything, put these extra funds towards one of your financial goals so that you can reach it faster.

• Don’t exceed your after-tax income. This may seem basic, but this is tough – and the reason that many of us are budgeting! You might have to make some tough choices to spend less in certain categories so that you don’t exceed your after-tax income.

Your first few budgets will be a work in process, so you can make estimates about where to allocate your funds for your first budget.

If you’d like to be more precise, you can look at your purchase history to see how much you’ve spent in different budget categories during the past few months. For instructions on how to do this, check out Easy Budgeting: How to Use Past Purchases to Create a Budget.

4. Track your spending

After you’ve created a budget, it’s time to put it into practice!

To do this, you’ll need to track your spending against your budgeted amounts.

There are many great apps out there to track your spending. I use Mint.com. It interfaces with all your different accounts so that all your transactions (purchases, savings, investments, etc.) are tracked in one place. That way you can easily see if you’re within your budget for the month. Plus, it’s free – and I really, really like free!

EveryDollar is another spending tracker you can use. It costs $8.25 per month or $99 for an annual membership. It also offers a free budgeting app, which I find really helpful.

I use EveryDollar to create my budget and then use Mint.com to track my spending against my budget.

5. Keep it up!

Don’t give up if your budget doesn’t work out for the first (or second, or third) month!

It took me about six months before I felt comfortable with my budget. During the first few months, I had to make a number of changes – add categories, adjust the amounts in each category, and be more realistic about my financial goals.

It’ll take a little time and effort to get your budget right, but it’s worth it! A good budget reduces stress about money, helps you reach your financial goals, and gives you confidence about your financial future.