A sea change: going from monthly budgeting to annual

I’ve been a fan of monthly budgeting virtually since I started trying to budget ever. You figure out your income and outgo and it stays basically stable month-to-month. When I developed my budgeting tools — the Ledger (or “future checkbook”) and the Bills & Budget static spreadsheet — I felt pretty on top of things, and the system served me well for several years.

I realized that there were nonmonthly expenses that were nonetheless predictable and should be budgeted for, so I developed my DIY “escrow” method, in which I calculated the annual amount of a nonregular expense, divided that by 12 and entered that figure into my monthly spreadsheet. It worked well, although every time I entered another month of expenses into my ledger spreadsheet, I’d need to do a bunch of math right up front to add the escrow amounts to the proper lines and delete the lines, then ensure everything added up.

I also got sick of having to re-date everything with the exact dates when I entered them into the ledger, then reorganize them so they were chronological.

Yet, even when I made this article about budgeting annually my link of the week for a blog post, I didn’t seriously consider its advice. I was comfortable with my system, even though it was a lot of work.

The recent re-evaluation of everything about how my family runs our lives, however, made me rethink my budgeting technique. For someone who’s also juggling home-cooked meals, kids and a full-time job, why was I giving myself more work unnecessarily? So I decided to try out an annual budget. We have enough of a budget surplus to fund most nonregular expenses the month they happen, so saving up a little each month isn’t as much of a necessity anymore.

So I made an Excel file (in Google Drive, natch) similar to my Bills & Budget sheet but with 13 sheets instead of one. I have a sheet for each month of 2014 with expected income and expenses tailored to that month (for instance, the homeowner’s insurance bill is listed in full on the February calendar rather than having a line each month with one-twelfth of the amount). I fixed all the dates gradually in my spare time, so instead of estimating the date as the “15th,” for example, each line has the exact date of each paycheck deposit and bill payment.

The 13th sheet is where I add up all the expenses to see what percentage of my annual income goes to Needs, Wants and Savings, so I can make sure I’m roughly adhering to the Elizabeth Warren / All Your Worth philosophy.

I’ll still paste each month into my ledger and keep track of actual balances there, but I won’t have to do nearly as much juggling with all the escrow lines now eliminated and the dates already figured out.

Next year will be even easier to calculate because I can just make a copy of this file and fine-tune the dates.

Changing one of the most fundamental aspects of my budgeting has reminded me that nothing’s set in stone, especially when it comes to the tips and tools that help keep personal finances in balance.

annual accounting

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

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