The Benefits of a Yearly Budget

We're on the count down to 2015 and I have been preparing my goals for the New Year, both financial and personal. One of the tools I used to prepare my 2015 financial goals was a yearly budget.

What is a yearly budget?

A yearly budget is a method of forecasting your income and expenditures over the next year.
First estimate what will be your net income and once you have that figure, write down every expense that you will incur over the next year.
In this case instead of tallying your bills on a monthly basis, you take a mean number for each and multiply it by twelve.
Include any vacations, or major purchases, repairs or upgrades you plan to do over the next year.
It is also a good time to check-up on any debt that you have, seeing if any will be paid off in the upcoming year, and where those funds can be put to use.

The Benefits of a Yearly Budget

1) It is a Reality Check

Often we dismiss how much our lifestyle costs us when we think of it on a monthly basis. After all it is just 80 dollars a month for cable. When you have to face that you are paying 960 a year to the cable company, that number may illicit a different reaction from you.

2)It Puts Things into Perspective

Being able to compare expenses in their totality allows you to clearly see where most of your money is going. If you spend close to 2000 dollars a year on eating-out but struggle to find money for travel, doing a yearly budget will bring that disparity into sharp focus.

3)It Protects you From Sticker Shock

Your yearly budget will include bills that come only once a year such as car insurance, road tax, home owner's insurance etc. If you wait until the bill is nearly due to try to put together funds for it, you will feel the strain of trying to squeeze water out of a stone. Planning for the payment ahead of time, will give you an advantage and save you from that crunch time stress.

4)It Allows You to Save Ahead

If you know you do your medical check-ups in the middle of the year, and as stated above have a yearly insurance bill coming due in November, a yearly budget will help you to save ahead for these events. This also goes for vacations and any major purchases.

Do the opposite of what you did with the monthly bills, and divide these payments where possible into twelve instalments, or the amount of months you have remaining. Ideally, when you pay these bills, you should immediately start saving for the next year so you can split that cost neatly into twelve parts.

5)It Gives You Focus

A yearly budget will give you a sense of direction. If you followed my advice in this post on life's pleasures, your yearly plan will include doing what makes you happy and brings you value. When we pick a destination, we can fully prepare for that journey and put all of our energy into getting there.

6)You Get to Play with a Calculator

I don't know about you, but there is nothing I like more than pulling out my calculator and a blank piece of paper and filling it with numbers. Hm? Oh this is only me? Okay carry on...

7)It Puts You in the Driver's Seat

Big businesses devote entire departments of their organisations to preparing budgets for the upcoming year. My philosophy has always been that anything good enough for big business, can have some merit in the managing of my own money.

Life changes rapidly, and you may do a budget and then have to change it throughout the year as things crop up. The benefit of putting in the work to look ahead is that you can use that information to make quick decisions on what to delay, cut out or set aside to deal with the challenges that you are currently facing.

Without this valuable information, you  may make a rushed decision and let something slide that will cause you greater problems in the future.

My Yearly Budget

Without boring you to tears with too many numbers, I will briefly explain a few major conclusions I drew from my own yearly budget.

• I wanted to go on a retreat in March, but the deadline for payment was Jan 31st. In order to meet this deadline, I would have to float the expense for at least a month and then 'pay myself back' over the upcoming months. I still haven't decided if I will do this, but I am aware of what will be needed.
  
• Similarly, I was able to work out how much money I would need to save over the upcoming month to fund my vacation to Philadelphia later in the year and in order to meet my savings goals for my Retirement Plan.
  
• I was able to work out that for this season of my life, my basic living expenses inclusive of out of pocket medical costs, come up to rough 12000 dollars per year. This information helps me to be realistic when planning other expenses in my life.
  
• I know how much to set aside upfront each month and I set this amount aside even if all isn't used, as this allows me to handle unexpected larger expenses, such as needing a medical test or having to buy staples for my pantry in bulk.

I hope that you consider doing up a yearly budget if you find you normally get surprised or off track in the middle of the year. It can significantly reduce your stress and give you a sense of being in control of your finances.