Few things strike more fear into the hearts of people than setting up a budget. We all know we need one, a few of us actually have one, and fewer still manage to live within it. Why is it so intimidating?

Maybe it seems like such an overwhelming task that you don't even want to start thinking about it. Maybe you don't actually know where to start. Maybe you think that it will require hours and hours to do.

Maybe you're afraid of your money; after all, it seems to pretty much rule your life-you may get up thinking about it and go to bed thinking about it. Whatever your reason, now is the time to start!

Step 1: Where to Start

There are two essential things that you need to know when preparing a budget: what comes in and what goes out. Now that's an oversimplification, of course, but that's all a budget is-income and expenses.

Start by assembling past paycheck stubs, dividend receipts, etc., to determine your income. A survey of the previous three months is usually good enough to establish this.

Next assemble two to three months worth of expenses. Get all of your bills together, your checkbook register, receipts, etc.

Step 2: Determine the Time Frame

Decide if you want to budget weekly, by the paycheck, monthly, quarterly, etc. How often you get paid may heavily influence this decision. Most people just budget by the month. Remember that you may have some expenses that happen quarterly, semi-annually, or even annually, things like insurance or car registration. You'll need to plan accordingly (see Step 5).

Step 3: Choose a Tracking Method

Choose a method for tracking expenses (and income, if desired). Simple Joe offers the Expense Tracker PC software as an easy and user-friendly way to track expenses (see http://www.simplejoe.com/expensetracker/index.htm).

Quicken and MS Money are also good tools if you are pretty computer literate. You can also set up a spreadsheet program, if that's something you enjoy doing.

You can even use good old pencil and paper. Do whatever will be easiest for you to maintain.

Step 4: Establish Categories

Select categories that fit your needs. Some people like just a few categories, some use a multitude of categories, others use subcategories. It really depends on how detail-oriented you want to be. General categories might include: auto, house, food, medical, insurance, utilities, etc. Specific categories (usually best as subcategories) could include: auto-insurance, fuel, maintenance; food-groceries, takeout, dining out; etc. You can always add or remove categories or subcategories later.

Step 5: Establish Spending Amounts

Review the income and expenses that you gathered. Put the expenses into the categories you have established so you can see where you've been spending. Total them and compare them to your income. How have you been doing? If you're overspending, determine where you can cut.

Establish new budget amounts for the time period you have chosen based on past expenses. Remember also to budget for quarterly, semi-annual, or annual expenses. (Example: you pay your car insurance every 6 months; divide that payment by 6 and budget that amount every month; put it aside where it won't be spent!)

Try to be flexible in your budgeting. Budgeting every last penny you earn may not be the best course because there are always unpredictable expenses that pop up. Be sure to budget some savings, even if all you can save is $5 a month. It's great to get into the habit of paying yourself first.

Step 6: Track Your Income And Expenses

Whether it's daily or weekly, or just every few days, you need sit down and enter your expenses into your tracking method. If you put it off too long it will become too overwhelming and you'll give up.

Devoting just a few minutes a day is a lot better than three hours at the end of the month! Keeping close track of your expenses will also help you to stay in line with your budget. You'll be more aware of your money and more careful not to spend what you don't have.

Remember to collect receipts for everything, especially things you buy with cash. This will make tracking a lot easier. If a receipt has purchases that fall into more than one category, divide them up accordingly.

Step 7: Revisit the Budget Often

Revisit your budget periodically. Review your expenses. See what's working and what isn't. Rework the numbers as necessary. If you are single, this should be pretty easy. However, if you are married, you may have one or two incomes in your household; both people should know where the money is going, regardless of who is earning it.

Finally, remember that budgets are not set in stone. You are in control, not your money. Make it a goal to live within your budget. You can do it!