Creating, balancing, and maintaining a budget is one of the crucial life skills to learn as an adult. Without knowing how much you have from week to week or month to month, there is no realistic way to plan for a financial future or have the security of knowing your bills will be paid on time.

The first step towards creating a budget is understanding exactly how much income you have before all required bills need to be paid. Your expected income should include employer wages, investment income, self-employment income, and other sources. Be sure only to include your after-tax wages. Next, it’s time to examine expenses. A great tool is to turn to your previous credit card and bank statements. Your financial institution automatically provides many online tools, offering a handy breakdown of prior purchases into groupings. Within an instant, you can see what percentage of your income is spent on groceries vs. medical expenses, etc. With your expected income and your typical expenses now in-hand, it’s time to move forward with the two types of expenses to budget for needs vs. wants or non-discretionary vs. discretionary expenses.

To continue reading, please visit Robert Henderson Jr., CFP's personal finance blog.