Most people don’t manage their income. They bank it and spend it. This is obviously crazy.

Some people do try to manage their income by budgeting. This typically means that you look at what your income is likely to be. You subtract mandatory expenses. Then you make spending decisions based on what’s left.

“Hmmm… I’ve got $2,800 coming in this month. The mortgage is $1,400. The utilities will be around $300. I’ve got to pay $200 for the minimum on my credit cards. That leaves $900. Oh, but I forgot the car payment. That’s another $250. So I’ve got $650 left. That should be okay.”

 But what about that grinding noise the dishwasher is making? Or the $200 you promised you’d lend to your brother? And wait! Isn’t your anniversary next Tuesday?

Making rough mental calculations is not a smart way to manage your money. If you do it very conservatively, you may keep up with expenses. But it’s unlikely you’ll ever have money left over for saving and investing. Which means you’ll have very little chance of increasing your wealth.

It doesn’t have to be that way. Creating a realistic budget should take only about an hour the first time you do it. Then a half-hour or so each month to keep it up to date.

How to Set Up a Realistic Monthly Budget