7 Easy Steps for Building Your Yearly Budget

by Lisa
7 Easy Steps for Building Your Yearly Budget

The new year presents a great opportunity to spend a few days planning and preparing our goals for the year ahead. Financial planning is often a great feature in new year’s plans and resolutions. One way to be even more targeted in fulfilling this dream is by creating a yearly budget – that’s right, creating a budget for the full year!

Why is this important? A lot of the time, expenses pop up that we were either not planning on or that we had forgotten about and these can be easily overlooked in a monthly budget. These can come in the form of tax bills, car and home repairs, travel, important life events such as birthday, wedding and holiday gifts among others. December gifts did a number on my personal budget goals so this year I am looking to approach my finances differently in 2018 by creating a yearly budget.

Creating a financial plan for the year doesn’t have to be as painful as going to the dentist. With commitment and quality time put into the planning process, you will be well on your way to a smooth and successful financial year.

Here are my seven tips for creating your yearly budget.

Decide on the system you will use

It is important to decide on whether you will stick good old pen and paper, or if you will use an electronic system such as Microsoft Excel. There are also numerous budgeting software alternatives which are included at the end of this post. Whatever the case, you will need to find a system that works best for you and that allows you to stay on top of your budgeting process.

Spend some time evaluating your past income and expenses

This is an important step. Examine your past bills to see if you are overspending in any category. Are you eating out more than you had budgeted for? (Guilty here…). Did you “accidentally” make make an impulse buy when perusing Amazon? Are you overpaying on your cellphone plan or for cable that you don’t use? Knowing where to make reductions will greatly help with your budget.

Determine your income for the year

In addition to the base pay, include other expected income sources such as tips, bonuses or any other applicable sources of income.

If you use pre-tax income for your budget, be sure to include a line for taxes under expenses in the next step as this can be a sizable line item that is not to be overlooked!

Determine your expenses for the year

In this crucial step, it is important to take a look at all of your bills from the prior year from bank statements and receipts you may have kept. Next, list all your expenses in your spreadsheet noting key factors such as their due date, and if debt repayment, noting the minimum due (hopefully you manage to pay off any balances in full). Common expenses include the following:

  • Rent / mortgage
  • Food
  • Utilities
  • Transport
  • Insurance (medical, auto, renters / home etc.)
  • Debt repayment (credit cards, student loans)
  • Savings
  • Personal grooming (gym, hair, clothes)

Be sure to include non-recurring expenses such as gifts for birthdays, weddings, certain taxes.

Create a provision for unexpected or emergency expenses. Many experts advise on having at least $1,000 set aside for emergency funds.

Subtract expenses from income

A positive balance on this calculation gives you extra dollars to spend at your discretion and can be used to beef up savings or to help fund that long overdue trip.

A negative balance on this calculation means that your expenses exceed your income so some adjustments need to be made to lower the expenses category.

Within this category, are different types of expenses. The bulk of expenses will be “fixed” and there will be no room to make changes at our discretion on these e.g. rent or mortgage payment. However, other expenses will be “variable” and can be adjusted to allow for a more balanced budget. This includes expenses such as groceries, cable and internet options, or cellphone plans.

Calculate your monthly budget

Now that you’ve finalized your yearly budget, you can work out your monthly budget by dividing each line item by 12.

While this process takes slightly longer to map out, it pays dividends as it takes care of the leg work upfront and allows you to accommodate some of the non-recurring expenses well in advance.

Review, refresh and record

You’ve done some number crunching and created a masterpiece – now what?

Follow-through! Creating the budget is just one piece of the pie, the rest is following through.

Some key ways to doing this successfully include:

Periodically logging expenses either once a week or monthly.

Setting up calendar reminders on your phone and blocking out a few minutes each week to review your budget progress and trouble-shoot any inconsistencies.

Use budgeting software such as You Need a Budget, Mint or Mvelopes if you prefer electronic systems to make calculations easier. I currently use pen and paper and have not yet had a chance to try any of these out personally.

Each year presents a new opportunity to reset your financial goals and to make more responsible decisions. If you fail to hit your monthly targets, don’t let that discourage you. A budget is a work in progress and there are plenty of opportunities to readjust and refine as needed. The key is to avoid living blindly month to month in your finances.

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1 comment

Natasha January 15, 2018 - 5:34 am

Helpful info, thanks!


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