Control your finances all year round
In order for you to fulfill all your financial purposes this year, make an annual financial plan that will help you manage your money better. Don’t know where to start? In this brief guide we tell you how to make a personal financial budget for this year.
Annual budget for happy finances
To maintain a balanced and healthy finances and to pursue your purposes, it is necessary to start by making a financial budget, not only of the month but of the whole year, the more detailed it is, the easier it will be to keep your finances under control and achieve your goals. That’s why today we’re telling you how to make an annual budget.
Do a review of the last year
To begin your budgeting process, you need to identify your expenses and income. You can get a better idea if you have a record from the previous year, or by trying to remember them so that you can at least predict recurring expenses.
Classifies income and expenses
Do you have multiple sources of income? Include them all, even if they’re not all fixed. Break them down into categories such as Main Income or Salary, Investments, and if you have other income from additional activities also specify them.
You should also classify your expenses into general categories and break down each category. Here are a few examples:
- Services: electricity, water, telephone, cell phone, internet, pay TV, gas.
- Pantry, including food, personal hygiene and household cleaning.
- Insurance policies: medical expenses insurance, life insurance, auto insurance, home insurance.
- Education: tuition, registration, school fees, uniforms.
- Annuities: credit cards.
- Subscriptions: magazines, entertainment, music.
- Auto: gasoline, preventive services, parking lots (if it is a regular expense).
- Debts: monthly mortgage loans, automobile loans, personal loans, credit cards.
- Home maintenance: remodeling, furniture replacement, waterproofing, air conditioning maintenance, appliance renovation or any other planned expense.
- Entertainment: meals away from home, movies and even a monthly gym membership.
- Savings: voluntary savings for retirement, savings for holidays, savings for emergency fund, savings for the down payment of the new car, etc.
Once you have the list of income and expenses try to allocate as accurately as possible the amount that corresponds to each monthly for the entire year.
Tips to identify all your expenses
- Remember also to include expenses that do not have a fixed periodicity or that are not presented every month, anticipating them will help to prevent you from being caught without sufficient liquidity.
- It includes variable expenses such as entertainment, although you don’t always spend the same and in the same you assign a fixed fee and set a maximum limit for this category.
- Don’t forget to also include savings as a category of expenses, after all it counts as an outflow. In addition to considering it as a “fixed expense” you can also break down this category according to the purposes of saving.
- For example, if you plan to start exercising, include a monthly fee for the gym or an extra to buy sportswear, or if you want to learn something new, consider the cost of classes. Also take into account the expenses you should reduce, for example, if you want to quit smoking reduce the expense of buying cigars in your budget.
Include your financial goals in the budget
Once you’ve listed all of your usual income and expenses, take your financial goals into account to make the necessary adjustments. If you want to increase your retirement savings, save for a trip or buy a car with a credit add these expenses to your budget expenses.
Reviews and adjusts the budget
- For each of the expenses take into account seasonal fluctuations or annual increases. For example, if you consume more electricity in summer because of air conditioning use, make the adjustment in the months of greatest expenditure, or if each year increases the payment of the policies try to predict it.
- Remember that it is recommended to have an emergency fund equivalent to three months of your salary, also, 10% of your salary is an adequate proportion for saving. Are you saving enough? Do you already have the emergency fund covered or should you save an extra?
- Debt should not exceed 30% of your income, how are your debt levels? Should you pay more to catch up? Are you able to acquire new debt this year?
- Check your month-end balance (total income minus total expenses). It is not a question of remaining in zeroes, as minimum after discounting the expenses, the debt and the saving should remain a positive balance that at least is equivalent to 10% of your total income, of course that the greater is better.
- If you have a negative balance or less than 10% of what you earn, check which expenses you can reduce or eliminate completely. Be realistic because the goal is for you to stick to the budget all year round. You don’t necessarily have to eliminate expenses, you can also offset them by looking for new ways to generate additional income.
- If you have a positive balance, define what you will use it for, it could be to increase your savings for retirement, give yourself a treat, an additional payment on the debt, or decide what percentage of the balance will be used for each purpose.
Stick to the plan and compare monthly expenses
Once you have the year’s finances planned in your budget it’s a matter of following it. To keep track, keep track of your expenses and keep track of them with your budget at the end of each month. Identify your areas of opportunity, work them out and reaffirm your goals.
You already know how to make a budget, take into account that preparing it takes time, but without a doubt it is an investment worth making as it will be your guide throughout the year for the finances you want to have.
Make your budget work by sticking to the plan, this will be beneficial to your finances and will help you become more disciplined and meet your goals.