Budgeting is the cornerstone of personal finance. You can't make a rational financial decision without knowing the state of your cash flow. But if you've never developed a budget, working up a detailed one can seem like a daunting task. So many people don't — and then get into trouble.
Fortunately, budgeting doesn't have to be complicated. If you are living within your means — with no debt or only low-interest debt that is easily serviced — then a simple budget can suffice for planning purposes.
How to build a basic budget
To develop a simple but accurate budget, assume for the moment you spend the “right” amounts on detailed subcategories like clothes, food, entertainment, etc. (I'll come back to the situation in which you may not be spending the “right” amounts.) Then ignore these detailed subcategories and build your budget at a coarser level based on your paychecks and bills.