What Is Needed to Put an Annual Budget Together?
Households should plan annual budgets just as they would expect any business or government to do. Households budgets do not have to be complicated and may only take a few hours to complete, as long as you have valid and accurate information. This can serve as a guide to help steer you through the year in a fiscally sound and responsible way.
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Annual Income
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Determine how much money you plan on making throughout the year. If you plan on making at least the same as you did last year, then use your last year's salary as your basis for income. You do not want to get yourself in trouble by assuming bonuses, overtime or any other additional income. Keep it simple with your base salary. If you are set on using your bonuses and overtime, the best bet is to average your last few years of these income additions, so as to mitigate the risk of overestimating this income.
Household Expenses
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Calculate the cost of your household expenses. These are the costs associated with operating your house, and include your mortgage or rent, electricity and/or gas, water, sewage, trash disposal, recycling fees and any other expenses incurred during the normal operation of your house. This may also include cable/satellite/Internet fees and phone expenses whether they be cellular or land-line charges.
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Entertainment Expenses
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If your current entertainment expenses are reasonable and are sustainable, then determine how much you currently spend by analyzing your last few bank statements. You want to ensure that you do not budget yourself out of some enjoyment of your hard earned paycheck. Any outing, whether it be large or small, is deserved once in awhile.
Automotive and Travel Expense
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If you are making car payments or plan on purchasing a vehicle in the upcoming year, be sure to put this in your budget so you can be confident you can afford the payments. Include the direct and indirect costs associated with vehicle ownership. These consist of, but are not limited to, car insurance, fuel, cleaning supplies and basic vehicle maintenance charges. Depending on the vehicle you have, or will be buying, these costs differ, so being aware of these costs and recording them in an honest and thoughtful way helps ensure that you have the necessary funds to take care of your vehicle in the manner that allows it to be used long-term.
Health Care Costs
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Being aware of your annual health care costs allows you to budget for everyday health care, as well as any emergencies you may have. Determine how much you may spend on your health care by determining how much you have spent each of the last few years, and use the average.
Food Costs
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Many people forget to budget for food, and just buy what they want, this could bust your budget quick if you do not pay attention. Most banks allow you to download your statements into excel or other financial software. Using this information, determine how much you spent at your grocery store during the last year, if you think this will allow you to eat well during the next year, and is a good amount to budget for. If you feel you wasted a significant amount of money, challenge yourself a bit by lowering this amount by 10 percent.
How to Record and Use This Information
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Record this information monthly so you know how much your expected monthly income and expenses will be. This way it accomplishes two things, you will be able to determine your yearly estimated expenses and income, but you will also be able to see how it is broken down by month. By doing this by month, you can quickly determine if you are on budget each month, and make any necessary changes for the next month. Balancing your budget each month, or more often if you would like, is crucial to determining if you have a budget surplus or deficit during the year.
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