Working with money can seem downright scary. There’s weird vocabulary, a mind-boggling array of choices, practical math, and the most ominous part - figuring out how much you have and how much you owe.

It’s not that bad. Really. Take a deep breath, grab a pencil, and let us help you walk through the process. Remember how afraid you were of the first day of high school? Wasted worry, wasn’t it? Budgets are the same way: once you’ve done one, you’ll wonder what all the fuss was about.

There are six things that almost everyone has. These six things make up the big picture of your budget. We’ll look at them first, then dig into the details next, in What Everyone Should Have.

What Everyone Has

You have income. For most people, this means you have a job. You go to work and you get a check. If you’re like most people, you wish it was a bigger check, but you have to live on the check you get.

This is Courtney. Courtney is working at her first real job, living in her first apartment, and working on her first real budget. She’s not rich, but she’s smart, and she’s doing okay. Courtney’s monthly income is $1,920, which puts her at about $23,000 a year.

You have taxes. How much of your check is taken for taxes depends on a lot of things: how much you earn, whether you’re married, whether you have dependents, and what state you live in.

You have expenses. Most people have many of the same basic expenses. These are the things that you pay every month before you even think of spending or saving what’s left.

You have goals. Part of the reason we all wish our paychecks are bigger is that we all have bigger things we’d like to do with them. Maybe you want something as practical as more education. Or maybe you want something just for fun, like that big screen TV with full theater surround sound. Your goals might be big, like a trip to Europe. Or small, like having enough set aside at Christmas to buy presents without scrambling for the money.

Courtney’s goals are modest. With her new job, she needs to build up a wardrobe of business clothes to replace the jeans that she wore through college. Her computer’s also getting old and she’d like to upgrade to a newer, faster one.

You have unexpected expenses. Usually these are problems, but not always. Your car might break down on the way home and end up costing $300 to repair. You could need dental work or glasses or have other medical expenses not covered by your insurance. The problem with these expenses is that you can’t predict them. You need to be prepared for the unexpected.

Courtney’s best friend has just announced that she’s getting married and Courtney’s the maid of honor. While Courtney’s thrilled for her friend, she was not anticipating the cost of being in a wedding, let alone serving as maid of honor. So now she’s got to figure out how to pay for the dress, the shoes, a shower gift, a wedding gift, and a bachelorette party!

You have debt. Debt is not necessarily a bad thing. We use credit cards and we take out loans so that we can get things now that we won’t have the cash for until later. Debt is a problem if:

• You can’t pay it off in a reasonable period of time
• It accumulates for no apparent reason
• It continues to grow, rather than shrink, on a long-term basis

Courtney’s debt is under control right now. She has about $10,000 in student loans, but she has wisely planned her payments right into her monthly expenses. She has no credit card debt because she uses a debit card to pay for purchases, paying her expenses directly.

You may have noticed some things missing from Courtney’s monthly expense list. She hasn’t budgeted for entertainment, restaurants, magazines, haircuts… all the little things that add up. And she is not saving regularly for short-term or long-term goals. We’ll look at all of these things in the next section, What Everyone Should Have.

Suddenly that $588 doesn’t look like a lot of money. If she’s going to succeed, Courtney needs to spend some time looking at the things everyone should have. We’re going to leave her here and let her work through the next section on her own. She’s a smart cookie and she’ll do fine. So will you. Let’s go.

What Everyone Should Have
Money is like a headstrong horse: if you’re not in control of it, you’ll be in for a bumpy ride. There’s no telling where you’ll end up. What you need from the list below depends on where you are now and where you want to go. Each of these things is a tool for controlling your money, and not letting it control you.

A good idea of how much you make and where it goes | Clearly defined goals | No credit card debt
Money left over at the end of the month | A safety net | Savings for retirement | A will | Life insurance

When you’ve figured out what you need in each of these categories, go back to the budget tool and make any changes you think are necessary. You might want to build in more savings for a safety net or pay more on your credit card debt, for example.