What is a yearly budget and how can it help?

Discovering the idea of writing a yearly budget was literally my Aha! moment. I had just started budgeting but on a monthly basis a couple months prior. I felt like it was going well when an unexpected annual expense came up and I wasn’t sure how to handle it within the monthly budget. At this point I’d thought budgeting was beyond me and I was never going to understand it. So I began researching ideas on how to process these one time expenses, keep in mind I’d never budgeted a complete year before so I had no reference of my actual expenses. So it was the Fall of 2019 when I came across the idea of a yearly budget. Almost perfect timing given I was already thinking about my 2020 spending.

How did I create my yearly budget?

The first thing I did was seriously think about all my expenses. I had a good list already started so I added to it. I added our yearly auto insurance and umbrella insurance. Then once I had the list of all the expenses including those yearly ones I could think of, it was time to come up with the dollar amounts for each. Since I had been budgeting for a few months I’d decided to use those actual amounts and average them out. At this point let me reassure you, your first couple years of budgeting will not be perfect so go ahead and relax knowing you’ll get better over time.

Let me give you some tips that I wish I had done with my 2020 Budget. I wish I’d separated our rental property expenses and our savings/extra principal payment line items. The reason for this is I wanted to know what our actual living costs were for a given year. I wanted to be able to better estimate costs when we stepped away from work because at that point the extra savings would stop. Plus the rental property is treated like a business so including those property expenses with our household expenses didn’t make sense for us. My second tip is try not to group too many items together if you want to better know how much your spending on them. An example of this is we created a category for medicine/fitness/personal care but at the end of 2020 when I was deciding health care options I wasn’t sure how much I’d actually spent on health care and medicine. These two tips are the only thing I changed going into 2021.

Overall my 2020 budget was a success! I mean seriously I named this blog as a result of discovering the yearly budget. It made a huge impact on me.

I created the yearly budget in an Excel spreadsheet because for me it is easier to adjust and keep track of monthly spending all in one. My first column lists the expense I am tracking; second column is the yearly budget total for that expense; the third column is the yearly actual amount to date; and the forth column is the percentage year to date. For me adding the forth column with the YTD percentage just helps me know where I stand. As you’ll see below after those four columns I begin the monthly budgeting. I do it all in one spreadsheet just to keep it manageable for me, you can check out my 2021 budget below.

How can it help?

Once I created the yearly budget I was able to see how all my spending fit together. I was able to see those one time expenses in relation to the overall budget. This helped me analyze where my priorities lay in my spending. I then soul searched to determine if my budgets priorities matched those of my goals. If my budget didn’t match my goals, I adjusted those categories. An example of this was around our food budget, we were spending closer to $1,200.00 per month but once we really thought about what we enjoyed and what was best for our health we decided to separate the food budget into groceries and dining out and at the same time reduced our food spending to $900.00 per month just by realizing that dining out all the time out of convenience was not important to us. We also adjusted our budget toward living a more heathy lifestyle. Honestly, I think that is the whole point of creating a budget to increase our quality of life and save us money!

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