Contrary to common belief, budgeting isn’t about what you can’t have–instead, it’s about what you can have… with a little careful planning.

Whether you’re saving for a new car, hoping to buy a house, looking to start a new business or just really like the newest Coach bag, you have to have money in order to spend it. But most people are never truly taught how to create a budget.

Well, when you really break it down, all budgeting actually means is figuring out how much money you have coming in and where it is going to go.

But … How?

The first step in doing that is to figure out what you are actually taking home each month. A common error new “budgeteers” make is creating a budget based on their income before taxes are taken out. You can’t simply divide your salary by the number of weeks in a year; instead, look at how much each paycheck actually deposits into your account.

Once you know how much money you’re making, you need to figure out where it is currently going. You may want to save all your receipts for a month, sign up for a Mint.com account or, if you purchase most things with a debt card, review your monthly statement.

Consider how much of your income is currently going to basic living expenses (rent or mortgage, electricity and food), regular bills (loan payments, car payments, cable, internet, etc.) and everything else (cup of coffee, lunch with the girls).

Cut the Good Stuff Last

After you have an accurate picture of where your paycheck goes each month, you can begin to think about where you want it to go. Unless just making more money is an option, this will likely mean changing some of your spending habits.

Most people assume that means cutting things out of the “everything else” category and re-routing those funds to a savings account. But that’s actually not the most effective way of saving. The majority of your money probably goes toward “living expenses” and “regular bills;” so it makes much more sense to start there.

Making changes in things you pay monthly or in things that already control a large portion of your budget will affect your overall cash flow much more dramatically than just cutting out a few extra Starbucks coffees.

Almost every bill you pay can be negotiated. Is your lease almost up? Consider renegotiating your rent or even looking for a new place; in today’s housing market, it’s easier to get more for less.

And you may even be able to get ride of some of those “regular bills.” Call your cable and internet service providers and ask to speak to a customer retention specialist (aka the person they’ll put on the phone with you if you try to close your account). See if they can get you a better deal than the one you currently have, or consider actually eliminating your cable bill, and using sites like Hulu and Netflix instead.

Dealing with “Everything Else”

Once you’re confident you’ve cut back regular expenses as much as possible, it’s time to look again at the items in your “everything else” category. The trick here is not to cut too much at once or to sacrifice things that you feel really add to your quality of life. If your weekly after-work cocktails with the ladies make life worth living, leave that money alone.

Instead, look for things that aren’t really important to you, but that regularly spending money on. These are good places to cut back. Be honest–if you’ve been paying for a gym membership for three years but have only gone twice, either start going or cancel the membership. If you pick up take out almost every night because you’re too tired to cook at the end of the day, consider investing in a 30 Minute Meals cookbook (or stay tuned for Moxy’s cookbook next month–sign up to get it free here). Or consider bringing lunch instead of buying it each day.

Once you’ve chosen where you’ll be cutting back, stick with it.

Make sure you don’t just spend those funds willy nilly–stick them in a savings account or set them aside each payday. Before long, they’ll begin adding up. And then it’s only a matter of time till you’re in control and have the cash on hand to make that big purchase that inspired you to plan a budget to begin with.

Article by Melissa Breau for Moxy Magazine, April 2011. Front page image courtesy of Flickr user PhotoSteve101; post image courtesy of flickr user fabbio.