How to create a budget in 5 steps

Creating a budget is a great way to track where your money goes each month and an important step to getting your finances in order. A budget can make it easier for you to achieve financial milestones, such as building an emergency fund or saving for a down payment on a home.

While the task may seem daunting, it's not that difficult to create a budget. Plus once you have one, the bulk of the work is done and you can make minor tweaks as your spending habits or income change. There are many websites and budgeting apps that you can use to get started, or you can create your own spreadsheet.

Below, CNBC Select reviews how to create a budget using a spreadsheet, but many of the steps are the same as other budgeting methods. Feel free to get creative with it — you can download templates online through Google Sheets, Microsoft Excel and other sites or start from scratch.

Here's how to create a budget in five steps.

1. Calculate your net income
2. List monthly expenses
3. Label fixed and variable expenses
4. Determine average monthly costs for each expense
5. Make adjustments

The first step is to find out how much money you make each month. You'll want to calculate your net income, which is the amount of money you earn less taxes.

If you receive a regular paycheck through your employer, regardless if you're part-time or full-time, the amount listed is likely your net income.

Keep in mind that if you're enrolled in a health insurance plan, flexible spending account (FSA) and/or a retirement account through your employer, the money is often automatically withdrawn from your paycheck. You'll want to subtract those deductions to make sure you have a clear picture of your take-home pay.

If you freelance, are self employed or simply don't receive a regular paycheck, you'll need to subtract taxes from your income amount. The self-employment tax rate is 15.3%, according to the IRS. You can use this TaxAct calculator to estimate how much taxes you're required to pay in a year. Then you can divide by 12 to get a monthly estimate.

Next, you'll want to put together a list of your monthly expenses.

Here are some common expenses:

• Rent or mortgage payments
• Loan payments (such as student, auto and personal)
• Insurance (such as health, home and auto)
• Utilities (such as electricity, water and gas)
• Phone, internet, cable and monthly streaming subscriptions
• Child care
• Groceries
• Transportation (such as, gas, train tickets and bus fares)
• Household goods
• Dining
• Travel
• Gym memberships
• Miscellaneous (such as, gifts, entertainment and apparel)

It's also good to include details on how much you're saving each month, whether that's into traditional or high-yield savings accounts or a personal retirement account, such as a Roth IRA.

Once you've compiled a list of your monthly expenses, label whether they're fixed or variable. Fixed expenses are bills you can't avoid: rent, utilities, transportation, insurance, food and debt repayment. Variable expenses tend to be more flexible — your gym membership, for instance, or how much you spend on dining out.

If money was tight, you could always drop your gym membership and curtail your dining out spending, but you are likely always going to have to pay rent or your mortgage. 

After you separate fixed and variable expenses, list how much you spend on each expense per month. You can look up your spending on bank and credit card statements.

Fixed expenses are easier to list on your budget than variable expenses since the cost is generally the same month-to-month. For example, debt repayment on a mortgage or auto loan will cost the same each month. But fixed utilities, such as electric and gas, and variable costs, such as dining and household goods, often fluctuate month-to-month, so you'll need to do some math to find the average.

For these categories and any where you spending changes from month-to-month, determine the average monthly cost by looking at three months worth of spending. To calculate the average amount you spend on groceries, for example, add up all of your grocery spending during the past three months and divide by three.

If you find that the average you spend on groceries each month is $433, you may want to round up and set the spending limit to $450.

The last step in creating a budget is to compare your net income to your monthly expenses. If you notice that your expenses are higher than your income, you'll need to make some adjustments.

For instance, let's say your expenses cost $300 more than your monthly net pay. You should review your variable expenses to find ways to cut costs in the amount of $300. This may include reevaluating how much you spend on groceries, household goods, streaming subscriptions and other flexible costs.

It's a good idea to reduce these costs and regularly make adjustments to the amount of money you spend so you can avoid debt.

On the other hand, if you have more income leftover after listing your expenses, you can increase certain areas of your budget. Ideally, you'd use this extra money to increase your savings, especially if you don't have an emergency fund. But you could also use the money on non-essential things like dining out or traveling.

If you don't yet have a high-yield savings account consider opening one, such as Marcus by Goldman Sachs High Yield Online Savings, and earning 16 times more interest than traditional accounts.

After you finish creating a budget, the next step is to stick to it. You can hold yourself accountable in a variety of ways. For starters, you can set reminders with your credit card and bank accounts when you reach a preset spending amount. You should also try tracking all of your expenses into your spreadsheet or budgeting app right after you make a purchase. And if you share expenses with someone else, make sure you're both on the same page with the budget and keep each other on track.