Tuesday, January 9, 2018

Yearly - vs - Monthly Budget

Do you need a yearly budget or a monthly budget?  The answer is: 


Have both, use both, and keep both!  

Monthly Budget

A monthly budget gives you great control over regularly occurring expenses.  You are not going to stick $6000 for a year's worth of food in an envelope.  But, on a monthly basis, it is easy to put $500 in an envelope and spend until the envelope is empty.  You can even use paper clips to put $125 in four stacks, put all the bills back in the envelope, and allot one stack per week. Alternatively, you can put $100 in five stacks - $100 for each week's groceries and $100 for stocking up on items which you find at a fantastic price.  Canned no-salt green beans and corn were recently on sale for $.39 a can at HyVee.  I bought 40 cans.  I think we can all agree that this was an unusual purchase. But, we'll be eating from this stash of veggies for several months to come.  This is an example of a purchase which would be made from the "stock up" grocery money stack.  It's also an example of how tracking regularly occurring expenses on a monthly basis, rather than a yearly basis, works very well. 

Yearly Budget 

A yearly budget allows you to look at all aspects of your income and expenses simultaneously.  You can easily view expenses which occur once, twice, or four times a year and plan ahead for them.  My property taxes occur once a year. It appears on my yearly budget sheet at the full amount and on my monthly budget sheet at 1/12th that amount.  Each month I set aside 1/12th of the property tax bill in a special account.  That way, when it is due in May, all the money is already accounted for and ready to write that big check.  It's the same with the life insurance, car insurance, and house insurance bills.

 If you look at only a monthly budget, it's easy to forget periodic expenses and be uncomfortably surprised.  Also, if your income is variable, using a yearly outlook in order to set up your monthly budget categories will insure that you won't be flush with cash one month and then flat broke the next.  You will have looked ahead and saved up money for those leaner months.

Use Both!

You can see from the above scenarios how the two types of budgets work in tandem with one another.  You really need to have and use both budgets for a successful plan.

What I Do:  

I use Everydollar, a free budgeting app from Dave Ramsey for my monthly budgeting.  Periodic expenses: like car, life, and home insurance are broken down into equal monthly increments and listed on the monthly budget.  At the end of every month, I transfer my monthly totals to an excel spreadsheet so that I can track the totals and insure that we are staying on track and within our agreed upon parameters in each category.  It also means that we are ready to pay those annual, bi-annual, or quarterly expenses on time and with no extra frustration or anxiety.   I find the excel spread sheet invaluable in preparing a "quarterly report" for periodic budgeting and goal-setting "dates". Well, actually it's coffee and cookies at home after the kids go to bed.  But, it can still count as a "date", can't it??!! 

So, which type of budget do you use?  And why do you find it most helpful?   

A. monthly
B.  yearly
C.  Both
D.  "What's a budget?"

Answer and leave a comment below and let's discuss the "in's", "out's", "pros", and "cons" of the budgeting process.


No comments:

Post a Comment