Begin by finding the starting conditions--Income and Expenses

Like any experiment or design study, you need to know the starting conditions.  Looking at the expenses vs. income equation, you need to know where you are to make a model to help you plan for where you want to be.

Step 1:  What's my income.  I create a spreadsheet with all my income sources at the top.  I split it out by paycheck, and then sum it up to see what it is each month.  I don't include any investment income (dividends, interest, etc) because at this point I reinvest that.  If your income varies by month, estimate at whatever time period you're most confident in--I'd look back at my last 2 years of paychecks and take the average.  You could also take the standard deviation, to get a sense of how much income may vary.

• Income before or after taxes?  I use after tax income and deal with taxes separately.  I find it gives me a better sense of what I have to work with.  If you prefer, or if you have a more complicated tax situation (paying estimated taxes for instance), you might want to handle this differently.
• P.S., If you checked out that IRS link on estimated taxes, did you notice the language options: Chinese, Korean, Vietnamese, and Russian?--interesting what that might say about the demographics of small business owners or independent contractors 

Step 2:  Determine expenses categories:  What do you want to track?  It should be in enough detail to let you to understand and make meaningful decisions about where your money goes, but not overly detailed that it become too difficult to track it.  I like broad categories, but drill down in a couple of instance (i.e. utilities), because I address those if they are too high:  rent/mortgage, utilities:electric, utilities:telephone; groceries, dining out, auto:fuel, etc.

Step 3:  Track your spending over the last year if you have records that let you do so.  If not, start tracking it over the next 1-3 months.

• Don't be surprised if simply by tracking what you spend, you spend less in certain categories (i.e. did we really spend that much on going out to eat!).  Knowing what you're spending and really feeling your money is a key part of this.  
• You've traded your finite time for this money--you should feel something when you spend it; mindless spending likely means overspending on things that aren't meaningful to you.
• Feel free to adjust your categories as you go.  The level of detail depends on how closely you want to track/model/control spending in a particular category. 

Tools:  I use Quicken to track spending, but not for budgeting (I use a simple spreadsheet for that, see here).

• I like Quicken, but don't love it.  It's gotten slower over the years, but it automates a substantial portion of my financial tracking and I have a lot of data captured with it, so I stick with the software.  
• There are other options out there than many people recommend--I haven't tried them myself, but they might be useful.  Your bank's website might also have useful tracking tools.  Here are some ideas in no particular order:   
• Lifehacker: Five Best Personal Finance Tools
• Mint.com
• Personal Capital
• You Need a Budget