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If you are reading about budgeting and just completely overwhelmed, you need to start at the beginning.

First, what is your revenue?  This is easy.  Everyone should know this.  How much do you bring in each month?  After you calculate your checks and your spouse’s checks, it is time to do the scary part of budgeting:  the expenses.

No one likes knowing what their expenses are.  A few weeks ago, I worked out a budget with a young woman and went down through all the basics with her.  We started adding up her revenue and expenses so we could come up with her first budget. Then, out of the blue, she says, “Do I need to add in Saturday lunches at Panera?” To which I replied, “Um yes, that would go under food costs.”  She then asked, “Oh, well then do I need to add in Sunday’s stops at Burger king for a soda?”  Again, I said, “Yes.”

It was then that I realized this woman, while incredibly smart, had no idea how much she spent and where.  If you are the person who has a million little expenses, but you chose to ignore them or if you aren’t sure if something should count toward your expenses — then this article is for you.

To find out what you spend, you need to keep an ongoing money journal.  This journal will go on for at least six months.  If you follow these steps, at the end of six months, you will have a working budget.

Month #1: Live as usual and just write down every penny you spend.  That includes the quarter at the bubble gum machine, the dollar to the Santa outside the mall, the five dollars to your mom for lunch, and the penny you lost down the drain.  Count it all.  If you don’t, you will always wonder why the budget and the actual never match up.

Month #2: Add up the first month’s expenses and see how you come out compared to your revenue.  Are you losing money?  Making money?  Now do exactly what you did with month one.  Do not worry if the amounts are different.  The goal is to get a real picture of who you are and what you do.  Believe it or not, you may have actually spent less during month one because you were more aware of your spending.

Month #3: Compare the first and second month expenses.  Did you come out close?  Why or why not?  Perhaps you had birthday or Christmas gifts to buy in one month and not the next.  If you are coming out with less expenses then revenue, you can begin to build a budget.  Add up each category such as food, utilities, rent/mortgage, television, cell phone, clothes, entertainment, gas, car, pet, job, etc.  Figure out how much you spend in each a month, break it down to a weekly budget for each item, and then try to stick to this budget for the third month.  If you came up with more expenses than revenue, you need to start cutting.  Put each expense into its own category.  Total them up and list them from greatest to smallest.  Adjust everything that you can until it all fits within your revenue.  It has to fit.  If it doesn’t, you haven’t cut enough.  Once it fits, live within these means for a whole month.

Months #4 through #6:  Compare the money journal and the weekly budget goals against your actual weekly expenses (do this in a spreadsheet or use a chalk board).  Make adjustments and create a real life style change.  If you skip months 4 to 6, you will find that all your work in months 1 to 3 didn’t matter.  The only way to have a real working budget is to change your lifestyle.  That takes you working on it each and every day.  If you haven’t talked about your expenses today, they have gotten away from you.

Month #7: Try it on your own.  You can lose the journal if you wish.  At this point, you should know how much you have to spend per day in each category and you will know when you cheat.  Just remember, you’re the only one that pays for your debt.

Anna Domzalski is a staff writer for the Financial Bin. Anna will soon begin her role as Dean of Financial Bin University and will conduct online budgeting classes beginning in February 2012. She can be reached via email at [email protected].

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