1. Gather information.

   Find all your bank statements, clothing accounts, investment documents, water and electricity bills, telephone, cell phone and internet service provider accounts, etc. If you've got internet banking it'll be easy to see exactly how your money exits your account.

   The more data the better, so any information about any expense or source of income is important. More is more!

2. Determine your income.

   This may include your after-tax salary or other earnings, interest on savings and investments, benefits, tax rebates, rental income, maintenance cheques, etc. Document this total as a monthly amount.

3. Determine your fixed expenses.

   These stay more or less the same every month and may include things such as repaying your mortgage or rent, car payments, internet, insurance, DSTV, tuition, child support, maintenance payments, garden services, maid, medical aid and magazine or newspaper subscriptions.

   Some of these expenses are essential and hard to cut back on, while slashing others will be easier. Try your best, because by cutting a fixed expense you'll continue to reap the benefits month after month.

   There are two ways to reduce your fixed expenses. The first is to eliminate everything you don't need. Do you really need satellite TV or FHM? Is your newspaper subscription worth it when you can get the news online, for free (click here to read 'Never pay for these')?

   The second method ? often overlooked, but equally important ? is to contact your service providers to negotiate paying less. You can, for example, compare quotes from various insurance companies and switch if your current insurer can't or won't match the best offer you found. Go to www.justmoney.co.za or www.thinkmoney.co.za to compare the costs of insurers and other service providers.

   When all else fails, you could also consider raising your excess payment to decrease your premium.

   I like to add 'savings' to my fixed expenses as 'saving what is left over' invariably means not saving at all (click here to read 'Pay yourself first').

4. Determine your variable expenses.

   These change from month to month and include things like groceries, toiletries, cigarettes, alcohol, petrol, restaurant meals, movies, clubbing, etc.

   This is a very important expense category as it's often easier to cut back on these than those that are fixed.

• On page three: How to budget (continued)

• On page four: A guideline for how much you should be spending

• On page five: More budgeting tips

Do you have any advice on how to stick to a budget? Leave a comment below...