Make a list of all your variable expenses by writing down every expense for a month - even small purchases. Use a small note book or other informal method to track your spending. This is very important because it's best way to understand your current spending behaviour. Get receipts for all purchases - especially those you make with cash. You may be surprised at how much you spend in certain areas.

List your monthly income:

Now that you have figured out your expenses, write down your monthly income after all taxes and deductions. Write this under heading: Monthly Income. Make sure this figure reflects total take-home pay for your household after all taxes and deductions.

Now compare expenses to income: One of advantages of doing a comparison of expenses to income is that it provides a quick reality check. If you are spending more than you're bringing home every month in income, you have a deficit. If you're spending less than you're bringing home, you have a surplus.

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