• Skip to main content
  • Skip to primary sidebar
  • Skip to footer
My Money Design

My Money Design

Designing Financial Freedom

  • Start Here
    • Start a Blog
    • What Is Passive Income?
    • Passive Income Ideas
    • My eBooks
  • Categories
    • Retirement
    • Savings & Budgeting
    • Stocks & Investing
    • Philosophy & Motivation
    • Travel Rewards
    • Money Books
    • Mortgage & Refinance
    • Insurance & Estate Planning
    • Credit
    • Taxes
    • Career
    • Blogging
  • About
    • Contact Us
    • Advertise
    • Privacy Policy

Monthly Budget Not Working? Why An Annual Budget Is Better

January 5, 2020 by MMD 8 Comments
Some of the links included in this article are from our advertisers. Please read our Disclosure for more info.



Are your finances always going off track? Here's why you’ll want to consider an annual budget vs monthly budget as a better way to manage your money. #MyMoneyDesign #FinancialFreedom #HowToSaveMoney #BudgetingTips

We all know that budgeting is the key to managing our money.  But have you ever considered how an annual budget might work better than a monthly budget?

Tell me if this is how budgeting usually goes for you …

You take your annual income, divide it by 12, and then make a goal to not spend over that amount each month.  Things might go well for a little while.  But then you find that you’ve over-spent by $500 because of a bill you weren’t expecting.  Then the next month its $1,000 more than you anticipated.

Perhaps you’d like to buy a new car, but you’re unsure of how much you can actually afford each month.  Or maybe you’d like to boost your 401(k) savings rate.  But again – how much extra can you actually put aside without breaking the bank?

This was exactly how budgeting used to go for me every month.  Then one day, while at work, we started going over the annual budget for the next year.  There it was, right in front of me … a spreadsheet with exactly what the company planned to spend and earn for the entire year.  It was a complete financial picture of what was going to happen!  No surprises or slip ups.  Pick any month, and you could see just how many planned expenses they had and how much cash they had to cover it.

That’s when it hit me …  As the family CFO, I need to do the same thing!  I need to setup our family budget like a business that plans to succeed!  And that means we need to get a complete picture of how our finances will look over the course of the whole year, not just month to month.

Shortly after that, I did just that.  I made a list of all our expenses, carried them forward throughout an entire year, and then compared it to our income to determine just how much money we “really” had available to spend.

It’s a strategy that’s been working great ever since!  If you have any doubts, here are a few reasons why you’ll want to consider an annual budget vs monthly budget.

 

Missed Expenses

With a monthly budget, there are several expenses that get missed because you simply don’t think about them every month.

Consider the following heavy-hitters:

  • Christmas gifts
  • Birthday gifts
  • Vacations / travel
  • Tax payments
  • Major auto maintenance (like spending $800 for new tires)
  • Minor auto maintenance (like oil changes)
  • Car insurance
  • Vehicle registration
  • Property taxes and insurance (if not already covered in your escrow)
  • Annual vet check-ups / registration (if you have pets)
  • Donations

Even though most of them happen only once or twice throughout the year, when combined, they could add up to thousands of unplanned dollars.  This is why annual budget works better.  With an annual budget, you successfully account for each and every one of these miscellaneous but straining expenses.

With a monthly budget, it’s almost impossible to properly capture these periodic expenses.  Unless you’re incredibly, super disciplined by setting aside a few hundred dollars per month (which most of us aren’t), then it’s not going to happen.

 

Missed Income

Expenses aren’t the only thing that might get missed with a monthly budget.

If you budget your money on an annual basis, you may also find a pleasant surprise: 2 extra paychecks!

Yes, for most people who get paid every two weeks, they can plan to receive 26 paychecks per year.  But with a monthly budget, we falsely assume that we will only ever receive 2 paychecks per month, or 24 per year.  In reality, that means we’re not accounting for 2 whole paychecks!

Anyone enjoy a nice Federal Income Tax refund?  What about profit sharing or an annual bonus from your job?

Again, with an annual budget, you can capture all of it.  This additional income will boost your overall cash flow, leaving you with more capital to work with.  That gets you closer and closer to your goals!

 

Spotting Negative Trends Early On

One of my favorite benefits of budgeting annually is the fact that I can spot negative trends early on.

By having all my income and expenses laid out over a 12 month period, I can see exactly how much money will be in my bank account at the end of every month. 

In a few months will my checking account get close to zero or in the red?

Good catch!  Months before the damage is even done, I can make some adjustments to my spending that will put us back on the right track.

 

Building in Goals

The other thing I really like about annual budgeting over monthly budgeting is the fact that I can work in specific goals and see how they will influence our overall cash flow.

Remember those examples I gave earlier with the new car and 401(k) increase?  Those were real goals (among many others) where I could add them to our annual budget and see how it affected the balance every month.  By working with realistic estimates over the course of the whole year, I could see just how much we were able to afford.

 

Conclusions

If you budget your money, that’s great.  But consider how an annual budgeting might be better than monthly budgeting over the long run.  By getting the complete financial picture, you will properly plan for all your income and expenses … even those that happen only once throughout the year.  But on top of that, you’ll also be able to better build in your goals, anticipate your cash flow, and set yourself up for financial success.

Readers – Which do you prefer between an annual budget vs monthly budget?  What successes have you had, and what strategies do you use to make it work?

 

Photo(s): Pixabay

Filed Under: Savings & Budgeting

Reader Interactions

Comments

  1. Mark Jr. M. says

    February 9, 2018 at 9:56 am

    I had tried to budget my money so many times. My each attemps was regrettable. As you mention in your article, i had missed so many extra expenses. As a result all process is ended with minus target. I gave up at the end. Maybe your budget managing could be worked. Why not? I will try one more time, thanks.

    Reply
  2. Jim Wang says

    June 11, 2018 at 10:09 am

    I spread those “balloon” payment things across the year too because it’s a little unfair to May when I have to make insurance payments (just works out to be that month), plus it gives you a better sense of how you’re actually doing. I think we try to force things into a monthly setup but there really isn’t a good reason for that.

    Reply
  3. Daniel says

    June 11, 2018 at 11:18 am

    I thought I was getting the article on how to retire before 55 on a salary of 50,000 or less. Not budgeting on a yearly basis 🙁

    Reply
    • MMD says

      June 20, 2018 at 9:07 pm

      No problem. That article is right here: https://www.mymoneydesign.com/personal-finance-2/retirement/how-can-i-retire-at-55/

      Reply
  4. Theresa says

    March 23, 2019 at 9:56 am

    I was having the same thought. About a year and a half ago I started using Mint, thinking it was a quick, easy and free “gateway” into budgeting. However, it’s limited in reporting and what I’d really like is an annual budget that accounts for regular monthly expenses and annual expenses like insurance premiums, income tax payments, legal fees, large one-off home repair expenses etc. I’m looking for something that will let me input financial data and 1) identify past trends and 2) assist me in creating an annual budget based in part on those trends. I’d like it to track my expenses and keep a running total of how my daily or monthly spending is impacting the annual budget on a running basis. Whew…So my question is this: Can anyone recommend a personal budgeting tool that will help accomplish this? Thanks!

    Reply
  5. Nakul Grover says

    June 20, 2019 at 8:17 am

    Great post.

    It’s been over 3 months that I’m recording all my expenses. I truly agree with the point that in monthly budgets we often miss unexpected expenses.

    Would you recommend me to go for yearly budget based on my three months of expenses or shall I track expenses for a few more months to have clarity of yearly expenses? 🙂 🙂

    Reply
  6. andy says

    August 2, 2019 at 4:37 pm

    I have been budgeting this way for 10 years now. Even more to the point I budget by pay check and then by month and then by year. Yearly “missed costs” are divided by 12 and spread out over the course of the year using a savings account. I actually move the money from our checking acount into a savings account like I am making a monthly payment. The biggest issue Ihave with this is that it is a very complex spreadsheet that allows me to tack all of this and it isn’t very portable. I would love to find a app that allows this level of flexibility so I can always have my budget with me…

    Reply
  7. Virginia says

    December 28, 2019 at 6:43 pm

    What do you use to plan your family budget? Excel? Would you mind sharing? My first year doing an annual budget because it makes more sense than a monthly budget.

    Thank you!

    Virginia

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Primary Sidebar

  • Email
  • Facebook
  • Pinterest
  • Twitter

More Great Posts!

Footer

Recent Posts

  • How to Manage Your Debt and Reduce Financial Stress
  • How to Invest During a Recession and Actually Make More Money
  • What’s the Best Way to Retire Early? By Doing This One Important Thing
  • How to Stop Worrying About Money – 5 Effective Strategies for Better Money Habits
  • How to Turn Cloudy Pool Water From Green to Blue

Search

Archives

My Money Design is for entertainment and reference purposes only. The information presented is the opinion of the author only and should not be interpreted as specific advice or recommendations towards your financial situation. Always consult with a true professional before making any financial decisions.

Affiliate Disclaimer: My Money Design may be compensated for our personal opinions, reviews, and affiliate relationships with some of the featured products and services. Google Adsense and Amazon Associates are examples of such relationships. Such content, advertising space or posts may not always be identified as paid or sponsored content. All offers or claims are subject to change without notice and should be verified with the manufacturer, provider or party in question.

Copyright © 2011–2025 MyMoneyDesign.com · All Rights Reserved · Powered by WordPress

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Cookie settingsACCEPT
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary
Always Enabled

Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.

Non-necessary

Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.