Next, record all your monthly expenses and sources of income. You can write these down on paper, make a spreadsheet using your computer, or invest in software like Quicken. The Budget Book suggests you determine "your household income, monthly and annually," as well as "how much do you spend? How much is left over for savings and other purposes? What are your debts?" You might look over your bank statement, receipts, bills, deposit slips, and check stubs to track down realistic figures to correspond with your expenses. In other words, rather than guess that you spend $35 a month on your electric bill, try to find out how much you actually paid for the last few months. Being realistic from the start will help you avoid making significant adjustments later.

Keep in mind that being realistic also means you should avoid being unreasonably strict. Setting strict goals that are difficult to meet is the downfall of many a budget. Says the Budget Book, "While there may be periods in your life when it will be necessary to watch every penny you spend, your normal budget - especially your first one - should be sufficiently generous that you are comfortable working with it." So if your goal is to spend $100 a month dining out, but your spending history indicates you actually spend closer to $200 a month, it may be safer to estimate $150 or so to start.

It's also a good idea to allow 5-10% of the budget for unexpected expenses. Maybe you are unexpectedly invited to a wedding and must buy a gift. Or perhaps your child needs money for a school trip. That extra cushion can help keep your budget on track, even when you have to shell out money you didn't plan to spend. If no unexpected expenses crop up in a given month, you can put that 5-10% in savings, roll it into the next month's budget, or use it to pay a little more toward any debts you might have, like credit card balances.

The following figure shows a sample spreadsheet used to keep track of a household budget

If after analyzing your budget, you find your family is spending more than your goal amount each month, "a correction needs to be made," says Household Budget Management. Change "the budgeted amount for the month ... to an amount that is closer to what is actually being spent." For example, the figure above shows that the household spent $29 more than they had planned that month. If they find themselves spending more than they planned again next month, they may want to revisit their goal amounts and adjust their budget accordingly.