<prompt> Human: Youre in dire straits. Youre just graduated college, and youre 100k in debt. You got a big promotion. You lost your job and took a pay cut to work retail. Youre expecting a kid. You want to save up for a house. No matter how you preface it, this is the first thing I will say back when you ask me for advice: show me your monthly budget.Budgets. Not only do they make finance nerds happy, but its essential to your financial health. They allow you to keep a modicum of self-control on your spending. They will show you, clear as day, where you can start saving money. In fact, I would go as far to say that trying to make ends meet without a budget is like trying to drive a car without a brake pedal. And heres the wildest thing about them: they only take mintues to set up; shorter than the time it takes to read this post. If you havent started yet, youd be crazy not to.The biggest rule to balancing the books is to live below your means. Youre living in a world where basic arithmetic makes sense; you earn an income and subtract your spending. Times where your income minus your spending is positive, you have savings. Times where income minus spending is negative, you have debt. Its literally that simple. Since we want to avoid debt, and since your income is probably set in stone, regulating your spending is key. So lets get started, in five easy steps:STEP 1: Pick Your PoisonThere are three flavors of software I often recommend.First pick of the litter Mint Its my personal favorite, and its free. Mint automatically tracks your spending and updates all of your accounts by downloading all of your online transactions. It does this in a completely safe and read-only manner. My only gripe is that the Categories can sometimes be a hassle, but free is as free does.There is also You Need a Budget which is a favorite of those who want something more hands-on than Mint. Its a free trial for the first month, and 60 for the full suite. YNAB requires that you manually enter your spending, which some claim as annoying, but others claim that it helps with self-control.Finally, there is always the simple spreadsheet, or even a piece of paper. Everything is manual, but you will have control over tracking your own spending in your own way. For those of you who dont have Excel, there is always free office software out there.STEP 2: Monthly IncomeFirst thing you want to do is budget out for four weeks of take-home after-tax pay. This means if youre paid weekly, your monthly income is based on four paychecks. If youre bi-monthly, you might want to grab your February pay stubs or a calculator and see what 10 workdays of pay looks like, then multiply by two.You probably noticed that youre missing a couple of checks, or at least part of your checks. In fact, you just calculated a year to be only 48 weeks long. This is a good thing. You are assuming the worst-case scenario, which will happen at least once a year: February. Only base your monthly income off of your minimum, guaranteed income.So what does this mean? If youre bi-monthly, you get paid a little more than you expect a month. If youre weekly, you get four bonus checks spread throughout the year. Bi-weekly, you get two or three bonus checks per year.Using this methodwhether youre bi-monthly, weekly, or bi-weeklyyoure earning on thirteen months, while spending on twelve. All of your bonus money should go toward Step 4.STEP 3: Mandatory SpendingThe next step you should take is to subtract all of your spending that you cant cut. This includes: Mortgage or rent, Home insurance Electric, Natural Gas, WaterSewer, Internet Gasoline, and Car insurance GroceriesNotice the items that I did not include: Cable TV Dining out, bars, and clubs Travel expenses ShoppingThese items are discretionary, and belong in Step 4. Anything that is not related to safety or survival is discretionary. This means if you cant afford it, cut it.Now while youre coming up with your mandatory spending list, keep in mind that there are rules of thumb. You should consider making a major change to your lifestyle if one of the following scenarios is happening: Your monthly mortgagerent is more than 30 of your take home pay. You might want to consider getting a roommate, or moving to some place cheaper. Your monthly expenses on your car is more than 15 of your take home pay. You might want to consider carpooling to work, traveling less, or taking the bus or a bike. You may also want to consider moving closer or selling your car, if eithers an option. Your groceries cost more than 300 per person. If youre trying to cut costs, you might want to look at more frugal options for buying groceries, such as buying in bulk, going for store-brand foods, or frequenting less expensive grocery stores.STEP 4: Debts, Goals, and RetirementNow that you have your framework, its time to paint the picture. These next set of steps are subjective, since they all depend on what you want to do with your life. However, I would strongly consider the following: You want to pay debt down fast especially debts with high interest rates, so you pay as little interest as possible. There are tools to help you, and Mint has a paydown calculator if you chose their service. Some investors would advise you to pay low interest debt, like debts that are only a few percentage points above inflation, more slowly. You can instead invest in retirement and get higher returns. More on this later. You want to save up for an emergency to cover 3-6 months of expenses in case something goes horribly wrong. You will need this money available to you in a separate, liquid savings account, not an investment fund. I will elaborate why in next weeks post. You want to invest as early as you can into retirement, so you can take advantage of compound interest and live a wealthy lifestyle.Your ultimate goal in this section is taking steps toward total, financial independence. This can take years or even decades, but dont fret about the timeline. The point is that this should be your biggest financial focus, and the more you put toward this step, the more your money compounds. Your money can work harder than you do.Those who understand compound interest earn it. Those who dont, pay itAlbert EinsteinSTEP 5: Discretionary SpendingAnything else thats left over from your goals go here. Shopping, hobbies, sports, cable, gym membership, coffee, fast food, dining, and so on and so forth to infinity and beyond. Just remember: always live within your means, and try to save up for capital expenses before buying.Special Note: Dining out is more expensive than a lot of people think. Its easy to blow 250 in a month just eating by yourself, or going to the bar with friends. If youre looking to cut back on this, consider making food at home, or inviting friends over for beer and homemade wings over a football game instead of going out.  <response>: Youre in dire straits. Youre just graduated college, and youre 100k in debt. You got a big promotion. You lost your job and took a pay cut to work retail. Youre expecting a kid. You want to save up for a house.I read this as being one person. They definitely would have needed a budget. 