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The words wants vs needs written on sticky colored paper over cork board
Planning a yearly budget is often the difference between adopting healthy spending habits and wasting money on things that you don’t require. Creating a yearly budget is a great way to motivate yourself and set up financial goals, which is a major factor in leading a prosperous life. Before you can proceed with real budgeting, you need to have a basic understanding of how a budget works. If you have put aside $100 for your groceries and are continuously spending more than that, you would have to reallocate that money to groceries from some other expense to offset the difference. Obviously, you can increase the grocery budget for the next cycle but for this one, you would have to deal with what’s in hand.

Planning a Yearly Budget

Planning a budget requires a onetime effort and, once you get it right, you can always alter it a bit and plan for the next year. For someone who is looking to create a yearly budget, there are a number of methods to go about doing it.

  • Paper budget
  • Use a spreadsheet program like Microsoft Excel
  • Online budgeting software that is free of charge
  • Optimized budgeting software used by businesses

However, for a personal budget, you do not need professional software and keeping a simple excel sheet will do the job. It requires only minimal bookkeeping tactics. What matters is your ability to make sense out of past information and accurately predict your future expenses. Gather all your previous credit card statements, utility bills, bank statements, receipts and everything else from the past year and before, which will assist you in figuring out your past earnings and spending trails. The more information you have, the better your future projecting for a yearly budget will be.

Forecasting Expenses

If you are unsure about where and how to spend your money, there is a simple rule to follow. The 50/30/20 rule was developed by researchers and it has been found to be quite effective in its use. 50% of your income should go to your needs, 30% to your wants, while the remaining 20% should be saved. Of course, you can save a lot more than that or change the percentages to suit your needs but the main idea is to follow a certain plan and stick to it.

Controlling and managing your expenses is a critical element of budgeting. Forecast your fixed and variable expenses for your yearly budget. Some of the fixed expenses will be the same for each month such as mortgage payments or any loan payments. Make unique expense categories in planning a yearly budget to place each expense so that you are able to identify the exact reason for the occurred expense. You may need to create subcategories as well depending on the nature of the expense. Therefore, be prepared to innovate and create sections based on your ease. Some of the most common expenses are listed below.

  • Mortgage, rent, maintenance
  • Car loans, student loans
  • Food and groceries
  • Insurance
  • Personal
  • Utilities
  • Transportation

List all fixed expenses, variable expenses, and miscellaneous in separate columns. Any outstanding payments on your credit card are also counted as debt and need to be entered as a debt expense.

Scrutinize the Cash Flow and Balance the Budget

Subtract all expenses from the income and see how much cash you are left with. Once you know the exact amount you are left with, you can decide to spend, save, or invest it. Examine if your income is covering all expenses and, if it is not, you will have to rework your yearly budget. There are only two options in such a scenario. You can either earn more or decrease your spending. It is more convenient to decrease spending and most people will choose that, but there is always an option to earn more.

This is probably the right time to go back to the 50/30/20 rule. You cannot live without your needs, however, you are spending an enormous 30% on your wants which, if cut down, would most likely balance the income and expenses. Planning a yearly budget requires you to make adjustments in your lifestyle as well in order to balance things out. You can probably go a little longer between haircuts, cut down on the days you eat out, and even take public transport for work on some days. With a little creativity, you can come up with a number of ways to reduce your expenses and carefully balance things out.

Some of the variable expenses can easily be cut down. However, fixed expenses are harder as it’s easier to not buy a new fragrance than to shift your living to a lower rent or mortgage. The basic idea of a yearly budget is to bring your income and expenses to an optimum level where they balance out and leave you with enough cash to save or pay off your debts.

Planning for the Next Year

Planning a yearly budget is a work in progress and it would be wrong to perfectly place all of the categories according to your lifestyle and spending. You will learn from previous experiences and make suitable adjustments for the next year as you are now better prepared to face the challenge.

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About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

Concept of Financial Goal for 2018.

Why The Need For Making A Budget?

A budget provides a realistic view of your finances for a defined period of time. It gives a clear snapshot of your finances (revenue and expenditures) that encourages you to set financial goals and achieve certain financial targets. Moreover, it helps you to spend less and save more which is why having a sound budget is absolutely necessary for every household or commercial firm. Whether you make monthly or yearly budget, it requires your time, mental effort, and focused energy. Allocation of monthly paychecks throughout the year is no easy feat. Only a proper finance budget can serve you well which means you need to set your priorities in order to keep things going for you.

The Significance of Creating a Budget

Budgeting money is critically important for maintaining a healthy financial life cycle. People often consider creating a budget a mere burden on their shoulders as most don’t have the mental capacity to handle money-related stress. Creating a monthly budget helps you to track your spending habits which ultimately encourages you to spend less and save more for your future needs. Moreover, a budget helps you to prepare for emergencies and uncertainties, it leads to a happy retirement, it sheds light on awful spending habits, and, hence, it helps you to fulfill your dreams and desires.

According to studies, nearly 80% of Americans exceed their budget limits for the month. This indicates that creating a financial budget may be easy but following it strictly is pretty hard. Overspending is a bad habit which may lead to a future disaster. Therefore, creating a budget plan allows you to know your spending patterns as it reveals crucial insights that encourage and motivate you to save more for uncertain and unknown needs in the future.

Creating a balance between your expenses and income may be hard but there are ways in which they can be planned and handled well. You need to create monthly budgets throughout the year in order to ensure that you will always have money in reserves to buy things that are important to you.

Budget Forecasting and Planning

On the other hand, creating a yearly budget is quite different than making a monthly one. Most people use a traditional approach to making a yearly budget. What they do is simply add up their total income and expenses for the entire year and divide each category by 12 to know their monthly average. This approach may feel right but it has certain limitations and can never reveal the true picture of the story. In other words, monthly budgets serve basic needs and a yearly budget can enable you to achieve long-term financial goals.

Creating a budget for the year requires budget forecasting and planning. Almost everyone has to deal with tight finances, however, making the best use of resources is all that is needed. You need to look for ways that you can save money. Budget forecasting and planning are the secret tools that can assist you to spend less for the month and achieve certain financial goals and targets as intended. For example, when looking at your monthly revenue or income status, you can decide when you can buy a car, house, afford to repay debts, file taxes and deal with other similar important financial matters. It only requires simple bookkeeping to achieve a healthy, easy to follow budget.

Step By Step Guide In Making Your Own Yearly Budget

Gather Your Tools

Whether you are creating a monthly or yearly budget, you need to choose your own budgeting tool. This can either be done on a piece of paper using a calculator or on a spreadsheet such a Microsoft Excel. Moreover, you can also download a free budgeting software for creating a more accurate budget for the year. Click HERE to see some of our favorite apps for managing your money.

Collect Income and Spending Receipts

To know how much money you earn throughout the year and how much you spend, you need to collect your credit card statements, past bank statements, utility bills, paycheck stubs, canceled checks, and receipts then examine your monthly patterns to know your exact income and spending status. This will allow you to make better projections about the coming year.

Make Income and Expense Projections

You need to examine your expected annual income or revenues from all sources such as salaries, social security, interests, dividends, child support, bonuses, rents and royalties, retirement allowances, etc. Similarly, you need to figure out your expected annual expenses and make projections on where you are going to spend your monthly paychecks for the year such as expenses on food, utilities, transportation, clothing, home maintenance, medical expenses, debt repayments. etc. Making income and expense projections when creating monthly budgets is a lot easier than making projections for the entire year. Therefore, you need to be very careful in sorting things out!

Evaluate Your Cash Flow

By subtracting total expenses from total income, you will know whether your financial condition is favorable for you or not. If you have made a surplus, then you can plan to spend or invest it in a project. If you haven’t, then you need to change your spending habits.

Conclusion

Creating a monthly budget is a lot easier than creating a yearly one. When creating a yearly budget, look at the bigger picture for getting things right—the first time. You have to set your priorities and allocate resources optimally in order to achieve intended outcomes.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.