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It’s that time of year again. Time for laying out the annual budget.
While some people might dread it, I find that planning for the upcoming year’s expenses is exciting and interesting. It’s something I enjoy doing, and continue to watch, adjust, and learn from throughout the year. If you don’t look forward to planning the annual budget, here are a few things that I do that might also help you in handling this task in a way that isn’t as burdensome or time consuming.
Review Last Year’s Budget
How can I know where I’m going if I don’t know where I’ve been? Reviewing the previous year’s budget, looking at the types of expenses I’ve incurred, the amounts, as well as when those expenses hit the books can help to jump start my budget planning and point me in the right direction for the new year’s numbers.
There may be more than just average costs to consider when outlining the new year’s budget though. Sure, there are food costs, utilities, credit card bills, and similar regular expenses that come along, but there are also those irregularly occurring bills that can catch me off guard and throw my budget into disarray.
Renter’s or homeowner’s insurance, property taxes, car insurance, and other bills that come on a semi-annual, quarterly, or another non-monthly schedule are items that I try to account for and leave a little extra room for in certain budget months when I expect that they’ll be arriving.
Factor in Unknowns
There may be those other items that, while I know they will likely play a part in my budget, I may not know when or in what amounts they’ll hit.
Since I’m self-employed, income and self-employment taxes can be somewhat of an unknown for me. And while I can get a general idea of what these expenses might be on a regular basis, as my income fluctuates, so might my tax amount.
Vacations are another such expense. While I can budget a general amount for such costs, I may not have a true idea of exactly what I’ll be spending until I actually incur the costs. Therefore, by making my best assumption based upon previous expenditures in years gone by, and through estimates of this year’s future vacation costs, I can get a pretty good idea of the amounts to budget for such items.
Estimate Slightly High, but Aim Low
I like to estimate a little high going into my new year’s budget. However, just because I estimate high doesn’t mean I spend all that I budget. Leaving myself a little wiggle room in case there are unexpected expenses that could come with health issues, insurance deductibles, or similar unforeseen events can keep me from blowing my budget.
This is not however, the go ahead just spend my entire budgeted amount should no such events occur. Rather, I tend to aim lower than my budgeted numbers allow and hope that I’ll end up beating those numbers each month, allowing me to arrive at a significantly lower expense total at the end of the year than that for which I’ve budgeted.