The best way to budget is the way that works for you, and that is (relatively) painless for you to stick with. And it all depends on your situation and goals. If you're trying to get rid of a chunk of debt, you'll probably have to suck it up and be really strict for a while. If you're just trying to be more organized and maybe save a bit more, then you will approach the numbers a bit differently.
Here's what I have found works for me, I hope you find it useful too:
- Know where your money is, and where it goes/needs to go: You can't budget if you don't know exactly how much money you have coming in and how much needs to go out. Lots of people say you need to track your expenses for a few months before you budget, but I disagree. I feel it's better to jump in where you're at, start as you mean to go on, and tweak things along the way if it doesn't work right from the start. So, get your bank statement, your pay stubbs, your utilities & other bill copies, and your debt payments.
- Fixed vs. Variable: Fixed expenses are the ones that HAVE to have a certain amount paid each month. Mortgage, loans, utilities, etc ... you get the picture. Put those in a pile or write them down on a piece of paper or in a spreadsheet. Variable, well that's other stuff like food, clothing, personal care, entertainment, etc.
- Total up what your income is, and total up what your expenses are. Got a positive number after that? Right on, you're off to a good start. Negative? Well, we will fix that soon enough.
That's a good enough start for now ... I'll continue this later. :) You're doing great so far!