Determining your net income is the initial step in establishing an annual budget.

According to research from BMO Financial Group, 68% of Americans do not have written financial plans at any point in the year, while 40% do not make financial resolutions for the new year.

Setting a budget is crucial for managing personal finances effectively.

Kamila Elliott, a certified financial planner at Collective Wealth Partners, stated that many individuals prioritize their personal goals when making New Year's resolutions. However, she emphasized the importance of creating an annual budget to focus on financial goals and achieving financial success in the year.

The first step is to figure out your income.

Elliott explained that it's crucial to know your income because it allows you to determine how much money you have available for deployment. For his clients, he typically reviews their pay stubs and examines their net pay.

Your net pay is calculated by subtracting taxes, withholdings, and deductions, including Social Security, Medicare, and employee benefits like your health plan, from your gross pay.

Elliott, a member of CNBC's Financial Advisor Council, stated that he reviews it monthly.

She explained that she usually multiplies someone's biweekly paycheck by 26 and then divides it by 12, or if they are paid bimonthly, which is 24 pay periods divided by 12.

Calculating expenses typically involves categorizing them into fixed and variable types.

Elliott stated that fixed expenses, such as rent, mortgage, and car payments, are predictable and can be planned for accordingly.

Some variable expenses are manageable, while others are beyond your control, she pointed out.

To get a comprehensive view of your monthly expenses, you should calculate the average of what you spend on groceries, eating out, and clothing.

The final step is setting a goal.

Experts often suggest the 50-30-20 budget rule, which involves allocating 50% of your after-tax income to necessities, 30% to desires, and 20% to savings for your financial security.

To learn more about how to set an annual budget for the New Year, watch the video.