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Budget for the Year Within Your Monthly Budget, Use More of Your Money


You know that your monthly budget should be at the core of your financial plan (unless you enjoy the surprise of running out of money). What you may not realize is that it’s just as important to make a budget for the entire year.

Sizeable expenditures, household projects, and maintenance repairs can all be added to your yearly budget, making your finances all the more manageable. Having this plan will reduce stress and make sure you’re putting your money to its best use.

1. Create a “Master List”

This list should include everything you’d like to spend money on over the year: your kitchen remodeling, the new china cabinet your wife’s been “hinting at,” or the leaky toilet everyone complains about.

Obviously, these will be larger purchases or expenditures that fall outside of your normal monthly budget categories. If you like, download our free Yearly Budget Prioritized Spending Plan to make the process a little simpler.

2. Distinguish Between Needs vs. Wants

Separate your list into two categories: Items that are absolutely 100% necessities and items that are simply things you would like to buy if you can afford them. Most personal finance experts consider this a “Wants vs. Needs” method extremely useful, and I have to agree. Needs are expenses such as roof repairs, leaky plumbing or overdue and essential dental work.

My wife Katy wants a new carpet for the living room, and I just bought a $100 orthopedic neck pillow. Both of these are obviously wants, but we include them in our budget in order to make sure they’re covered and won’t impede our ability to satisfy our needs.

3. Prioritize Your Master List

Once you’ve categorized your Master List you should then prioritize it. Item 1 will have the highest priority, above Item 2, which has priority over Item 3 etc… In almost all cases, your “Needs” should obviously take priority over your “Wants.”

4. Determine Approximate Costs

Though it may be impossible to know exactly how much an item or project will cost, do the research necessary to make a practical estimate. Add this approximate cost in your budget line. Add all of your approximate costs together to determine your desired expenses for the year, then divide by 12: This is how much you’ll have to save monthly to meet all of these expenses.

For Example:
Total estimated costs = $765.
$765/12 = $63.75; meaning you would need to save $63.75 every month in order to afford everything on your Year’s Budget.

5. Putting Your New Budget Into Practice

Let’s say you’re saving $63.75 each month and the first item on your list costs $125. You’ll save $63.75 in January, $63.75 in February, and then you’ll be able to purchase the first item on your list. Continue saving $63.75 per month and make each purchase on your list once you’ve saved the full purchase amount. You simply continue this process through the year until you’ve purchased everything on the list.

6. Be Realistic

Here’s the key to making this work: Once you know the monthly amount, you’ve got to determine how realistic it is that you will actually be able to save that much. From the example above: Can you afford to save $63.75 per month? Will that leave you enough money each month to tenaciously dump your debt, build up your emergency fund, and/or invest for retirement?  If not, you probably need to scratch some items from your list, starting with the “Wants.” You might also decide to sell some things around the house in order to pay for some of the items on your list.

One of the biggest keys to your financial health is learning to prioritize your spending. If you’re working feverishly to get Debt Free, there shouldn’t be too many “Wants” on your list. You can’t have everything you want in life, but by creating your budget for the year, you may find out that you can afford more than you thought.

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