One of the things I realized when budgeting without a yearly budget was that it’s really hard to stay on track with my goals without the bigger picture in mind.
Going back to the map analogy, it’s like I had a list of all the steps to take without being able to see I was going.
Not all that helpful, although better than nothing.
The reason a yearly budget helps me stay on track is because when I overspend in a category in one budgeting period, I then go into my yearly budget and see how I need to adjust my spending in those categories for the next budgeting periods.
For example, say I have a goal to spend $1,200 on entertainment for the year, which means in order to achieve that, I can only spend $100 a month on entertainment.
If one month I blow the budget and spend $200 on entertainment, I’d then need to look at the remaining months to decide how much I can spend on entertainment each month in order to achieve my goal of spending only $1,200 on entertainment for the year.
Say I spent that $200 in January, for the next eleven months of the year I only have $1,000 left to spend on entertainment which means I’d need to only spend $90 a month on entertainment ($1,000/11 months).
See how that works?
If we aren’t adjusting our monthly spending goals, then we fall into the trap of always overspending and never rebalancing our budget. Without that rebalancing part, it gets pretty hard to reach the goals we set for ourselves.
This is great! I’ve been working on my budget a lot during quarantine and I love the idea of making a yearly budget!
Love this! I’ve also recently started trying to be more financially literate and this is really helpful!
Love this! My yearly budget has definitely been my saving grace at times this year.