A budget is an important personal financial planning tool. It can help individuals plan their finances over the course of a year. Creating an annual budget with a spreadsheet program can make adjustments easier if expectations change. This flexibility can help you better manage personal expenses throughout the year.
Create columns for each month. A basic annual budget spreadsheet has a column for each month, with the end of one month's balance flowing into the beginning balance for the next month. This allows for income and expenses to be calculated on a monthly basis over the course of the year, so that shortfalls can better be predicted.
Identify income and expense categories. Since a budget is only as good as its inputs, it's important to carefully consider various sources of income, all categories of expenses, and the expected timing of each to build into the annual budget spreadsheet. Common sources of income for an individual include wages or salary, and common expense categories include rent, utilities, car payment, food, insurance and entertainment, among other things.
Build in a buffer. No budget can be perfect, since the future can be hard to predict. Thus, despite best efforts in planning, reality may ultimately differ from the original expectations. Accordingly, to be prudent, in preparing an annual budget spreadsheet, one should not be overly optimistic about income levels or underestimate the amount of recurring expenses. Emergencies do happen, and sometimes discretionary expenses overrun budgeted amounts for various reasons.
Verify formulas. Simple spreadsheet formulas project a running cash balance over the course of a month as income is received and expenses are paid. By definition, the amount of cash on hand at the end of one month will automatically equal the beginning balance for the next month. Since these formulas and relationships are key to the use of a budget spreadsheet, be sure to test the validity of the formulas and their cell references by plugging in sample data and verifying that the various dependent cells change to reflect the expected balances.