You know the view you get when flying in an airplane? Traveling high above the day to day, you can see much farther and gain a new perspective. You see connections-roads, buildings, neighborhoods, landscapes come together—forming patterns not seen from the ground.
That’s an Annual Budget vs. a Monthly Budget.
Monthly budgets are important. Most of us start budgeting with a monthly budget. It shows what income will come in during the month ahead and then we plan what spending, saving or investing we’ll do that month with that income. However, the monthly budget only looks a few weeks ahead. It can be short-sighted. We see the trees, but not the forest.
The Annual Budget is where we see the bigger picture of the ebb and flow of our income & expenses. An Annual Budget will help you understand and manage…
-Income variances that may come with seasonal or commission income.
-Expenses that vary over months or seasons, such as the inevitable summer vacations, back to school shopping or saving up for the Christmas to come and winter’s high heating bills. These are expenses for which we often need to save in advance —so we need to see the expense coming up in the future and use the months before to prepare.
-Expenses that don’t happen on a monthly basis: such as quarterly, semi-annual or annual bills and obligations.
-The longer term impact of financial decisions: such as the financial changes that come with buying a home vs. renting, adding a new car payment or reducing work hours to stay home with a new child or what more we could achieve financially if we earned a promotion at work.
Today is a great time to start your annual budget. If you would like assistance in expanding your financial point of view though creating an Annual Budget, contact one of us–the Accredited Financial Counselors at Better Financial Counseling Network.
Marjorie McLean, MBA, AFC