List all of your income sources for the year. Start with your main source of income and use it as the base number for your budget. Add in other money sources: income from rental properties, child support, alimony, investment income or end-of-year bonuses, for example. If you have income sources that vary, such as tips or commissions, make a low estimate based on past years; it is better to assume you will have less money to avoid going over budget.
While monthly budgets are a common part of financial planning, annual budgets are often overlooked. Both types have advantages; when used together, they can help provide you with a realistic, accurate financial planning tool. Where a monthly budget focuses on smaller, regular expenses, an annual budget can help guide the overall financial plan for the year, plan for periodic payments and help you get closer to long-term goals. Once you have an idea of both short- and long-term costs, you can better manage your finances at the monthly level to ensure that everything will be covered.
Create a section for monthly expenses like rent, food, entertainment, utilities, car payments and cell phone bills, for example. If you have created a monthly budget, use your final number as the basis for this section. Don't go into much detail at this level; aim for a high estimate of your monthly costs with a bit extra built in to account for changes in monthly payments.
List the periodic expenses you will have during the year. Include costs for quarterly tax payments, insurance plans and dues for professional or personal memberships. If you have a personal website, include domain and hosting renewal costs, which often happen only once or twice a year. List seasonal costs like vacations, Christmas gifts, birthday gifts and books for college. To make your budget more accurate, go through a calendar and look at the special events that will occur: graduations, weddings, births and life milestones that you will celebrate with gifts, travel or financial support.
Add a section that anticipates unexpected expenses that are likely to come up throughout the year. Make an estimate for the money you will spend on car repairs, home repairs and health emergencies; the numbers will vary based on your situation and personal history. Consider your lifestyle when planning costs: if you travel frequently, for example, you might plan in a dollar amount to account for lost luggage or a missed flight.
Plan for your long-term goals. List the goals and the approximate time frame; if you want to buy a house in five years, add one-fifth of the down payment to your annual budget. Include goals like savings, retirement accounts, college tuition or reducing debt. If you will struggle to meet all of your goals, include only the top one or two to make some progress without sacrificing financial health.
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