What is typically the first step in creating a budget?

Calculating total income is typically the foundational step in the budgeting process. Understanding your total income provides a clear picture of the financial resources available for spending, saving, and investing. This step involves gathering all sources of income, including wages, bonuses, freelance earnings, and any other inflows of cash. By knowing exactly how much money is coming in, individuals can make informed decisions about how to allocate their funds.

Once total income is established, it becomes easier to analyze spending habits and set financial goals. The clarity around income also allows for more accurate budgeting, as it provides a basis for determining how much money can be allocated to various expenses and savings plans. This structured approach is critical for effective financial management and long-term financial well-being.