What is likely the first step in creating a budget?

Calculating total income is a crucial first step in creating a budget because it provides a comprehensive understanding of the money available to work with. This total income includes various sources such as salary, bonuses, rental income, and any side incomes. By knowing the total income, individuals can better assess their financial situation and determine how much they can allocate towards fixed expenses, variable expenses, and savings goals.

Without a clear picture of total income, it would be challenging to set realistic spending limits or estimate savings goals, as individuals might overlook necessary resources or overestimate their financial capabilities. Establishing a budget starts with understanding the financial parameters one is working with, which makes this step foundational to building an effective and realistic budget.