There is only one place to begin to manage your money and that is to learn how to use a budget. Budgets let you define your financial goals. They allow you to plan for the unexpected, and to know just exactly where your money is going. While most people are familiar with a monthly budget, an annual budget should also be developed to take into account seasonal fluctuations as well.
How to Set up an Annual Budget:
Keep track of what money you have coming in from all sources to begin planning your budget. You will also need to know where you are spending your money. There are three sources of expenses to consider. Flexible expenses are those such as groceries, dining out and clothing. These expenses can be different from month-to-month and it is here where you will be able to cut the most fat from your budget for things you really need and want.
The set expenses include your mortgage, rent and car payments. These are generally the same from month to month and are necessary to keep a roof over your head. Utility bills and transportation costs will change slightly from month-to-month but are necessary expenditures. Heating bills go up in the winter and cooling bills go up in the summer. By using your records from the last 12 months, you can work out a spreadsheet that will show you which month’s utilities increase and how much they increase by.
Begin Populating Your Annual income on your Budget Spreadsheet or Software
Once you have gathered as much information as you can, begin to populate your spreadsheet or software. Quicken, MS Money and other software have budgeting tools built in that you can use to list your income by month. Be sure to include any income from unique sources such as your anticipated income tax return and Christmas Bonus to get the most accurate income report possible for your annual budget.
Add Your Expenses by Month to Your Annual Budget Spreadsheet or Software.
There are some expenses that occur annually, semi-annually and quarterly. These items should be estimated based on previous amounts and put into your spreadsheet. For example, your car’s registration is due in March. Be sure to list that has an expense for March. You may pay insurance or property taxes on an annual or semi-annual basis. These amounts need to be budgeted in the proper month so that you do not receive a nasty surprise when they come due. Also include your monthly expenses, no matter how small or insignificant they may seem. When you are trying to manage your money, the more information you place in your budget, the better decisions you can make based on the information provided.
Begin to Make Changes to Your Annual Spending Habits.
One goal of your budget should be to increase your savings. You should have a minimum of three months worth of living expenses on hand in case of an accident or loss of income. If you do not have the funds in the bank, begin to manage your money by building this emergency fund. Even if you save a few dollars a month, it will begin to build up for an emergency. One way to do this is to save your annual expense in a savings account. It is easier to save $20 a month for a $240 bill than to come up with the entire amount at once. By putting the $20 into a savings account, you will earn a few cents per month in interest that can continue to grow as you add other funds to your savings.
Pay Yourself First in Your Annual Budget:
With the tight economy, it is nearly impossible to set up any type of savings plan. However, if you find you receive a windfall, consider paying off a credit card or a small loan. The payment that is scheduled in your budget can instead be moved into savings. You will save not only the interest on the credit card or loan, but will instead be paying yourself that same interest without hurting your overall budget.
By keeping an eye on your annual budget while paying your monthly bills, you will be able to make informed decisions on how to spend an unexpected windfall. Make goals for your money management. Whether your goal is to just make it through the year without overspending, or to save for an emergency or have a loftier goal of paying for a child’s education, you have to plan and the annual budget is the tool that lets you make plans and stick to them.