How to Compile & Coordinate an Annual Budget


Budgeting is a key component of the financial planning process; therefore, you benefit from compiling an coordinating an an annual budget. Create an annual budget by applying the six steps of financial planning: establish the relationship, gather data, analyze the data, develop a plan, implement the plan and monitor the plan.

Things You'll Need

  • Work pay stubs
  • Recent tax returns
  • Bank statements (if applicable)
  • Credit card statements (if applicable)
  • Purchase receipts
  • Establish the relationship. You may wonder, "If I'm creating my own budget, why do I need to establish a relationship with myself?" Budgeting begins with self-awareness. Popular New Year's resolutions include creating a budget and going on a diet, and most of those resolutions fail within weeks. While budgets and diets commonly fail because of poor planning and/or execution, the reason for poor planning and/or execution is a lack of self-awareness, which begins with making a few personal observations. Know the reason for creating the budget, how much time to give yourself to establish and maintain the budget successfully and what obstacles might prevent your success.

  • Gather data. Collect all information that documents how much money comes in (in-flow) and how much goes out (out-flow). Document in-flow with pay stubs and/or recent tax returns. It is wise to begin an annual budget by breaking it into months. Find in-flow by averaging monthly net income (take-home pay after taxes and payroll deductions). Document out-flow with bank and credit card statements or online resources that capture all of your spending. Also include purchase receipts.

  • Analyze the data. This task takes three to six months of tracking and observing the data sources--in-flow and out-flow. Organize the expenses into two primary categories: non-discretionary and discretionary, each of which will have subcategories. The non-discretionary subcategories include essential items, such as mortgage/rent, utilities and food. The discretionary subcategory items are those you possibly could live without. Once your data is organized, look for areas of spending that are out of control.

  • Develop a plan. Once you have a firm grasp of average monthly in-flow and out-flow, you are armed with information to develop the annual budget. If you spend more money than you bring home, reduce or remove some or all discretionary spending before you develop the budget. Depending upon your personal finances, you may want to prioritize funding an emergency fund (three to six months of expenses), debt reduction, retirement savings, education savings and rewards, such as travel and entertainment--possibly in that order.

  • Implement the plan. Carry out the plan you developed.

  • Monitor the plan. This may be the most crucial task in the compilation and formation of an annual budget. It takes you back to where you asked some crucial questions for the purpose of observation and self-awareness. Identify what worked in the budget, what did not work and whether or not are you can implement the budget without creating too much stress on yourself or loved ones. It is also important to leave yourself a small amount for life's little pleasures.

Tips & Warnings

  • If you are able to keep your spending under control, a good tool for budgeting is a credit card that provides statements that organize purchases into categories.
  • The information in this article is only for educational purposes. It does not constitute advice. You may wish to seek the help of a licensed financial planner or tax adviser.
  • Photo Credit Jupiterimages/BananaStock/Getty Images
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