Final answer:
The initial step in budgeting is determining one's net annual income to establish the monetary baseline for managing expenses and savings.
Step-by-step explanation:
The first step in setting up a budget is D) Determine your net income for the year. Knowing your net income is essential as it represents the amount of money you have available after taxes and deductions, which establishes the foundation of your budgeting process. From this starting point, you can deduct your fixed expenses and then calculate variable expenses to understand what you have left for savings or discretionary spending.