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Budgeting is one of those rare art forms that a lot of people never learn how to master. And although vital to managing your money (or lack thereof), it’s become something of a lost relic when it comes to younger generations understanding and practicing budgeting at an early age.

Step 1. Figuring out your net income

The easiest way to do this is to look at your paycheck after taxes. If you are trying to gauge what your paycheck would look like after a potential pay increase or for a different salary, check out the paycheck calculator over at PaycheckCity.com and input all of your tax information for a good idea of your net wages.

Step 2. Calculating your total monthly expenses.

There are two common mistakes that people frequently make when adding up their expenses. The first is forgetting to add in “entertainment” spending this is money for movies, books, drinks after work – basically anything that doesn’t fall under your main living and eating expense categories. The second mistake is not accurately calculating your other expenses – mainly food. Before you make up a number for your monthly food spending, look back at your last month’s checking account statement and add up all of your food spending including groceries, lunches during the week, and meals at restaurants. This should give you a more comprehensive idea of where your expenses lie.

Your expense list should be extremely comprehensive – look over your last bank statement to make sure you have not forgotten a spending category and that you have estimated your costs correctly. Your expenses should include, but not be limited to: Rent/Mortgage, Utilities, Debt Repayment, Cell Phone, Car payment, Insurance Payments, Transportation Costs, Food, Savings, and Entertainment.

Step 3. Calculating your monthly savings.

Many people allocate their entire paycheck towards expenses and exclude important line items like savings and adequate debt repay. If you cannot afford to put back at least $200 a month away in savings and still have at least $100 leftover to sit in your account, then you are living above your means. In this case, you need to do a total re-haul over your expenses, starting with scrutinizing each expense and how you can cut your monthly overall costs.

Step 4. Cutting back on monthly expenses

So you’ve realized that you are over-budget (you’re spending more money than you’re making). How do you turn things around? The answer is to change your spending habits. Most people hate hearing this as it can mean completely changing your lifestyle and no one likes doing that. First things first,

• Figure out what percentage of your monthly pay goes towards rent. Use this formula: (Monthly Rent) divided by (Total Monthly Income). If the answer is over 40%, you need to find a cheaper place to live, and quick. Ideally, you should only spend around 30% of your monthly income on your rent, but finding an apartment in New York that fits those requirements can be almost impossible

• Cut your food spending by allocating a certain amount of cash each month and planning your meals ahead of time. Start bringing your lunch to work instead of spending $8 a day on a sandwich and chips, buy a thermos and brew your own coffee in the mornings. Buy “meal items” like fresh produce and fish. These items are healthy and by focusing on meals, you will cut out extra items and snack foods that are not only unnecessary, but probably high in fat as well.

• Scrutinize your cell phone bill. How many calls are you making each month? Can you switch your calling schedule to “off-peak hours” like after 7 or 9pm (whichever times your company designates as “off-peak”) and on weekends. Try to cut your plan down to the cheapest you can get away with. If work phone calls are running your bill up, try to get your employer to cover the phone costs or at the least, split them with you.

• Make sure you are getting the best deals on cable, internet and other utilities. Check for current specials and call to see if you qualify for them.

• Consider consolidating bills to a card with a lower interest rate or call creditors to get the best APR that you qualify for. To be able to negotiate this successfully, make sure you know what your credit score is and use that as leverage to get a better rate. NOTE: this may only work if you have a good credit score, if you don’t, and you need to get a hold on your debts a consolidation company may be the right choice. They can negotiate lower rates and help you get the best deal.

Step 5. Stick with your budget.

Each week, designate a specific day and time that you will set down and go over your past week’s spending. Check out your mid-month statements online and make sure you are staying within your budget constraints. If you find that you have overspent for the week, adjust your spending accordingly for the next few weeks so that you always break even or come in under budget. At the end of the month, track your spending again to make sure that you are still on track.

Related posts:

1. The Rules of Budgeting — Tailored to a New York LifeStyler
2. Real New Yorkers: Michael Naujunas on Saving Money While Unemployed
3. Need a Realistic Budget? Make One According to Your Spending Habits
4. 5 Financially Savvy Steps to Popping ‘The Question’