How to Create a Personal Annual Budget

                                             

Create an annual budget or spending plan for a twelve-month period to show your total income and total expenses. An annual budget helps you adequately manage your finances and project your future cash flow. An annual budget should include expenses, bills, savings goals and debt. 

An annual budget identifies projected expenses, projected income, and areas overspending occurs. An annual budget gives an exact view of what you can afford, areas where you lack funds, and areas where you are overspending. An annual budget also gives an exact picture of money spent on wants and needs such as Starbucks coffees, entertainment, eating out or shopping. 

Compare your total income to your total expenses. If there is no money left over this is a red flag you are overspending and need to improve your spending habits. Review your annual budget at least quarterly and make any necessary adjustments. Here are 10 tips to create an annual budget.

1. Create creating a monthly budget first and track money for one year. Then use the data from the monthly budget to create an annual budget. Create an annual budget by subtracting total yearly income after taxes and total yearly expenses.
2. Include fixed and variable expenses in your annual budget. If the total annual amount leftover is, negative or less than 5% of your total yearly income that is a red flag that you need to make some major adjustments to your budget.
3. Determine if there are some areas where you are overspending. Buy more needs vs. wants and consider buying used versus new items.
4. Create a balanced annual budget:  35% housing, 15% debt (excluding mortgage), 15% transportation, 25% other expenses and 10% savings.
5. Develop at least five financial goals. Create short-term (0-4 years) and long-term (4 or more years) financial goals.
6. Create your annual budget using pen and paper, Word, an Excel spreadsheet or a software tool such as Quicken, Microsoft Money Plus Sunset or Pageonce.
7. Include savings goals in your annual budget.
8. Find ways to reduce expenses. Reduce spending by 30% - 50%. Start small by taking your lunch to work, skipping Starbucks and bringing your coffee from home, use coupons or buy items on sale to save money. 
9. Create an emergency savings fund to cover monthly expenses for 9-12 months.
10. Include some wiggle room in your annual budget to accommodate for unexpected expenses.

Want to Get Out of Debt Use a Budget

Many people continually complain about being in debt but when you ask do you have a budget, do you know how much you owe, or when you suggest they cut back on expenses they look like a deer in headlights or they just plain out refuse.  I am always amazed at this, how can you ever get out of debt if you don’t change your mindset, if you aren’t willing to work hard and make sacrifices.  There is no quick fix or cure all to get out of debt.  It takes a long time to get in debt and you will not get out of debt overnight. 

Many people do not know how to create a budget for themselves and many don’t even know where to start. Luckily learned at an early age how to create a budget for myself.  I knew how much money I spent and how much I had left.  This skill helped me when I became an adult and got into debt.   

The first step to getting out of debt is creating a budget.  The basic premise for creating a budget is to know what you have coming in and what you have going out. Track everything you spend money on, cigarettes, candy, bubble gum, etc.  Make the budget flexible so you have room for unexpected expenses such as house repairs or car repairs. If you don't have an emergency fund or savings to cover these expenses you can readily see in your budget what areas you can reduce expenses to get money to pay for those unexpected expenses.

Most people don't think about how much money they spend per week or per month but when you see all of your expenses written down it provides awareness of your spending habits. A budget and being in debt go hand in hand. Most people who don’t have a budget or don’t stick to it are in debt. Most people in debt don’t have a budget.  A budget is the first step to help you get out of debt. A budget will help you to determine if you have any money left over to pay down debt. If you don’t here are 20 ways to help you create a budget and pay off debt:

1. Admit that you have a problem and do something about it.
2. Take accountability for your actions. Don't blame others for your financial situation.
3. You have to know where you are before you can get to where you want to go. A budget will help you determine – what you spend, what you earn and what you owe.  
4. Use pen and paper, use a software tool like Quicken or Microsoft Money, a smartphone app or use the envelope method to track you spending daily, weekly or monthly. Once you visually see where you are spending your money it will make it easier to reduce spending.
5. Automate. Use online bill payment to pay bills.  Most banks also offer online budget tools to help you track your spending.
6. Notify. Set email or text alerts to let you know if you bank account balance is low and to notify you when bills are due.
7. Write down a list of all of your debts.  Set a payoff date and develop an action plan and beside each debt write down steps on how you can pay the debt off: reduce spending, use coupons, use money savings tips, earn extra income, etc.
8. Pay off small bills first. Focus on late payments such as collection accounts, judgments, liens or repossession first, next focus on paying off credit card debt, then focus on paying off loans.
9. Plan. Setup payment plans and negotiate with creditors to pay off debt.
10. Support. Surround yourself with at least three people who are doing better financially and gain financial advice from them.
11. Seek professional help. Get professional help if you are unable to create a budget on your own.
12. Needs vs. Wants. Buy more needs vs. wants to help reduce spending. Needs are food, clothing and shelter, everything else is a want.
13. Reduce spending. Buy in bulk, on sale, at discount stores, online or use coupons, buy generic brands.  Try websites such as groupon.com, coupons.com, freecycle.org, ebay.com or craigslist.com to find bargains. Reduce spending by 30%.
14. Groceries. Don’t go shopping when you are hungry, buy items on the lower shelves and ask about specials, join store clubs to get alerts on discounts.
15. Banking. Open accounts with little to no fees, ask about discounts and specials, and establish a relationship with the branch manager to get alerts about specials and new products and services that could save you money. Avoid using check cashing stores; cashing checks at the liquor store, payday loans or cash advances.
16. Driving. Buy gas in the morning, combine nearby trips on the same day, keep the trunk empty, get regular maintenance on your car, search for the cheapest priced gas and buy a gas efficient car.  Drive the speed limit to also save money on gas.
17. Medical. Buy at least basic medical insurance for you and your family, get a prescription card and fill prescriptions at discounts stores such as Wal-Mart or Walgreens to save money, negotiate medical services to save money and ask about programs for uninsured or low-income patients.
18. Insurance. Buy insurance for health, life, disability and your home.  Buy bundled services to save money, buy homeowners and car insurance with the same company and ask about discounts.
19. Compare. Comparison shop before making a purchase to get the best deal.  Use sites like www.bizrate.com, www.nextag.com, www.pricegrabber.com.
20. Clothing. Shop at discount stores, buy clothes in off-season, check out discount racks at stores and ask if stores if they honor competitor coupons. Buy a few jackets and mix and match pieces to stretch your wardrobe.

Your Personal Budget - The New Recovery

Many people know they should track their spending and create a budget or spending plan but don’t want to. The thought of knowing how much money you actually owe, how much money you earn and how much money you actually spend each month is terrifying. If you create a budget you will quickly see how you spend your money. You won’t be able to hide it or run from it any longer. If you know, other people may know too, yes those other people are your creditors who continue to call asking for a payment.

Many people are fearful of creating a budget and have good intentions by creating one but don’t stick to it. To stick to creating a budget you have to view a budget as a tool to help you. You are the only one who has to see your budget. Many people today live paycheck to paycheck and are in mounds of debt, in some cases because they didn’t create a budget or didn’t stick to it.

If you know how much you earn, how much money you owe and how much money you spend you can change the direction of your life. A budget helps you if you have an unexpected expense. Since 2008 many people have had unexpected expenses. In 2010 the country experienced several fires, floods and earthquakes some in areas that were not expected. If you did not have homeowner’s insurance to cover the damages that is example of unexpected expense.

Create a budget by writing down everything you spend money on each week or during each month and subtract your income. If the result is less than 10% of your monthly income you need to make some adjustments to your spending. A balanced budget consists of: 15% transportation, 15% debt, 10% savings, 35% housing and 25% other expenses.

Create an emergency fund to cover your total monthly expenses for 9-12 months. Creating a budget will help you to reduce spending and prevent you from using credit cards to pay for purchases. Use credit cards for emergencies only.

Develop financial goals when creating your budget. Financial goals provide motivation for you to work towards reaching that goal and provides a sense of accomplishment when the goal is met. Some examples of financial goals are: pay off a credit card, buy a home, start a business, take a vacation, etc. Here are 6 ways to create a budget and stick to it.

1. Take accountability. Take accountability for your actions, don’t blame others for your current situation. Learn how to be flexible and adjust to changes in your life.
2. Use pen and paper, use a software tool like Quicken or Microsoft Money or use the envelope method. Once you visually see where you are spending your money it will make it easier to reduce spending.
3. Create goals. Write down a list of at least 5 financial goals. If you cannot achieve any or can only achieve 1 or 2 of your financial goals you need to make some changes in your spending habits. Write down a list of all of your debts. Develop an action plan and beside each debt write down steps on how you can pay the debt off: reduce spending, use coupons, use money savings tips, earn extra income, etc.
4. Pay off small bills first. Pay down any small bills and debt first. Once all your small bills have been paid off start tackling the larger bills. Setup payment plans for bills you cannot pay off in full. Be sure the account balances are updated on your credit report.
5. Support network. Surround yourself with at least three people who are doing better financially and gain financial advice from them.
6. Seek professional help. Consult a financial coach, financial planner or advisor to help you create a budget or spending plan and provide recommendations to help you stay on track.