Author: Tyler Nolan, freelance writer. Twitter: @T_Nol_
Making a budget to last an entire year seems like a daunting task. There are a plethora of factors to consider, and even with the most careful planning and painstaking attention to detail something can go awry and throw a monkey wrench into the whole thing. With this being said, it is very important to know why you are making a budget. Naturally, the goal of a budget is to help you spend less than you earn and find areas of spending weakness. Though those ideas are simple in principle, it can become overwhelming to sit down and try to map out an entire year of earning and spending. By following this simple guide, the enormous task of setting up that yearly budget can become nothing more than crunching some numbers and a bit of forward thinking.
The biggest problem when it comes to annual budgets is the commitment, or lack thereof. This starts with knowing exactly why you’re budgeting. You shouldn’t just randomly start a budget because it sounds like a good idea or because a friend or relative told you to. Starting and sticking to a budget requires a long-term commitment, and it helps to have long-term goals in mind. Budgets are designed to help spend a proportionate amount of yearly earnings. Keeping that in mind, an inherent part of a budget is the money left over. Generally, money left over should be saved and untouched, and put to use achieving the long-term goals you’ve set.
Budgets can be hard to stick to, and even one slip-up can convince you that it isn’t working and to give up. The stress of this can be overwhelming, but setting short-term goals that are relatively easy to attain within the confines of your budget can be exactly the type confidence booster needed to propel yourself through the doldrums of financial responsibility and frugal-mindedness. Small savings goals can be extremely exciting and easy to achieve, and the results are always visible.
One of the most important parts of setting up a budget is knowing exactly how much income you are expecting to have. This does not mean your annual salary, but your take-home money. In other words, make sure to account for taxes that will be taken out and other deductions from initial pay such as health insurance, retirement funds, etc. It is important to be conservative with estimates if you are unsure exactly what your paychecks will add up to as the year goes on. Taking a conservative approach will allow you to ensure you have enough to cover all expenses while possibly having unexpected money left over.
Naturally, budgets are simply a guide to spending. These guides can be as simple or complex as you want or need them to be. There are great software options such as Quicken or Microsoft Money that are designed to help create budgets. If you have a strong grasp on how these tools work, then either one is a great option to create a budget. If you are not as well versed on these software options, something as simple as pencil and paper can be an effective tool. As long as all of the requisite material is on your budget, it does not matter how fancy or simple it looks.
Budgets, similar to life, are fluid. Changes and adjustments are not necessarily bad things. If life calls for a shift in your budget, whether negative or positive, you need to accommodate for whatever caused the change. Car troubles, family emergencies and household maintenance are just a few of the infinite things that life can throw your direction. A good budget will have an emergency fund to cover some of these expenditures, but sometimes it may not be enough. Likewise, if an unforeseen pay-raise or otherwise increase in income occurs, your budget should adjust accordingly. Of course, a frugal approach would be to take whatever extra you’re making and simply put it away and leave your budget as is.
It can be as simple as a sheet on a legal pad or an entire spreadsheet allocating money to various things, but any form of a budget you set up will help you spend wisely and save more than you would if you had no guidance towards your spending. Being too detailed and precise can have disadvantages, and generally keeping it relatively simple will work out with the best outcomes. Separating into general categories such as food, bills, gas and other daily, weekly or monthly expenditures will generally be more beneficial than trying to nail every dollar to every purchase. Without too much painstaking work, you can have a working budget that will help you learn about your spending habits and fixing your weaknesses, and also save you money.