The big bad B word… Don’t worry, it’s six letters.

Obviously, as a reader, you have an interest in improving your financial outlook in some form. The question is, what are you looking to change from? What are your goals?

My first proposition to anyone interested in improving their finances is to analyze where the money goes out, as well as where it comes in. Budget is a big, scary word and task that sends most people back into a hole they will continue to struggle to get out of for the rest of their lives. The best way to gather a solid picture of where you stand is to take an inventory of all expenses and income. Hopefully, the former is smaller than the latter. I used an amazingly simple Excel spreadsheet from the “Of Zen and Computing” blog when I did this, however it could easily be replicated in a free Google Docs spreadsheet. I recommend doing this task in the privacy of your home, but if you can’t, find a friend that will allow you to borrow the use of theirs. Normally, I would suggest the library for free internet usage, but in such a public place, you could potentially expose yourself financially to some less than honest people accidentally.

The first step in this scary task is to examine every penny of income, both your “take-home pay” and your gross earnings from all sources. Whether you are paid weekly, bi-weekly, twice monthly, or monthly, this task will give you a true idea of the value of your time.

• Take your most recent paystub and examine your gross pay against the amount written on the check. Excepting retirement savings plans, special employee programs, and health insurance (we will cover this later), find the difference between your gross pay and your paycheck. Take that difference and divide it by your gross pay. If the result is greater than .25, we may need to revisit your W-4 form with the company you work for at a later time.

• To truly grab your financial snapshot and accurately budget for a calendar month, you need to figure out how much you take home in revenue from your job in a month.

• If you receive a weekly paycheck, multiply your take home pay by 13 and divide by 3 (reducing the 52 paychecks/12 months fraction).

• If you receive a bi-weekly paycheck, multiply your take home pay 13 and divide by 6 (reducing the 26paychecks/12 months fraction).

• If you receive twice monthly paychecks, multiply your take home pay by 2.

• If you receive a monthly paycheck, use your take home pay for the paystub you dragged out to start this exercise.

• This figure is how much you bring home monthly to provide the necessities (shelter, food, and clothing) for your family. It also pays your utilities (electricity, gas, water, phone) to have a more comfortable situation. It pays for luxuries (car, cable/satellite TV, cell phone) as well. An attitude like this toward your expenses should help you prioritize your spending.

• Start your spreadsheet with the take-home pay figure, as well as any additional income in the form of interest, alimony, side business, etc.

Now that we have figured out how much revenue is brought in, we need to calculate how much is going out. THIS is the hard part.

• Gather your most recent statements for every account you have open. This includes your mortgage/rent, power, gas, water, car/insurance payments, cable, Internet, home/cell phone, credit cards (YUCK!), student loans, gym membership, shopping club memberships, etc. Also, pull up your online statement for your checking account. It is very important that you gather EVERYTHING, since you don’t want something to catch you off-guard once your financial plan is in place.

• Place your statements in stacks of necessities, utilities, or luxuries. Using your online bank statement, calculate all of the spending in restaurants, on fast food, and at the grocery and convenience stores. Obviously, food is a necessity, but if you are spending a lot of money here, it will certainly be a place to save later.

• Using the spreadsheet, compile your expenses starting with the necessities, moving to the utilities, and finally the luxuries.

• The calculations should be performed for you, making the potential for math error less likely and your task easier. Hopefully, you have a positive number in the “disposable income” cell at the end.

Congratulations! You have just completed the most arduous task in your financial success.