How to Make a Yearly Budget from Your Annual Spending
One of the ways to make a budget is to use your past spending as the basis for the current year. An added benefit of making a budget by this method is that it offers you a chance to reflect on your prior year’s spending. Allowing you to make better money decisions for the upcoming year.
There are many methods of preparing your annual spending. I choose not automate the process for various reasons. This article discusses how I prepare my annual spending and how you can use that information to build a budget.
Make a Workbook for the Year
I begin by opening and saving a new workbook. I use Excel, but Google Docs or any other spreadsheet program will do. As I gather information from different sources, i.e. each different credit card or bank account, I make a new sheet.
Here are the sheets I have:
- Business expenses – Download from credit card providers, all checks, and online payments
- Business Income
- Cash – This is from Expense Manager, the app I use to keep track of my cash spending
- Personal Credit Cards – Downloads from my credit card providers
- Personal bank transactions – Any checks that I have written or online bill paying other than my credit cards. I don’t include credit card payments anywhere because I pay off my cards every month.
Look Over the Information
After all the information is downloaded or entered, I will look at each sheet and check the categories. My business credit cards have categories but some are not correct. I make any changes to the categories. My personal credit cards do not have the categories, but this can be done by either line by line or by sorting by vendor.
Categories of spending that I use (they are in alphabetical order):
- Automobile – Maintenance, tolls, gas, car wash
- Condo Maintenance Fees
- Entertainment – Movies, admission to local museums and tours (different from travel)
- Food – Groceries, snacks, restaurants, liquor
- Gifts – Gifts, cards, wrapping paper
- Healthcare – Health insurance, doctors’ visits, prescriptions
- Home Improvement*
- Household Consumables – Cleaning items and products, i.e. water filters
- Insurance – Homeowners, automobile
- Personal Care – Includes haircuts, make-up, items bought in pharmacy or discount pharmacy.
- Real Estate Taxes
- Telecom – Internet and cell phone
- Travel* – Hotels, transportation, airfare, admission fees
- Utilities – PSE&G
*I do not include my travel expenses and home improvements in my yearly spending. While these expenses did occur, they are outside of my normal spending, i.e. how much per month is it costing me to live. I also don’t want to cloud or confuse my actually spending with unusual or extraordinary purchases.
Summarize your spending
Sort each worksheet by category and put the data on your summary page. You can choose to have all the details on your summary page or only have totals.
You may choose to prepare a quick chart on your summary page. It’s fairly easy by following the help instructions. A visual can be quite useful.
Preparing a Yearly Budget
Once you have all of your spending and income, you can use the data to prepare this year’s budget.
A Few Tips
- Don’t do it all at once. Even for me it’s a lot to do. I first start with downloading data. Next, I go to my checking accounts. I ignore all payments to my credit card providers, since I pay off the balance every month. Otherwise, you will need to include payments, if you are paying off balances.
- If you don’t keep track of your cash spending, then lump into cash. If you are spending more than a small amount of cash a month, look into keeping track.
- Don’t make too many categories and make categories that make sense to you. If the total for a category seems too high or low for you, then look at the details.
If you are stuck trying to figure out a budget for the year, I suggest reviewing last year’s actual spending. It may take a little time to prepare a last years’ spending plan. I suggest preparing it in stages. It will be worth it when preparing the current year’s budget.
Do you prepare an annual review? How did or do you prepare yours?