I really HATE monthly budgets. Yes, you’ve read that correctly! I hate that a large majority of budget plans and apps reinforce and perpetuate a month to month existence.
There’s a BIG difference between a yearly budget and a monthly budget.
When I first started managing my own money I fell into this month to month trap. I would receive my paycheck, pay my monthly bills such as my car payment, rent, and utilities. I would then spend the rest on the other things I needed such as gasoline, food, and clothes. Unfortunately, this form or management was incomplete and left me unprepared. I often had to use my credit cards when an expense I didn’t anticipate and wasn’t prepared for came along.
A monthly budget is not enough
Here’s the problem. A monthly budget provides for what normally happens in a typical month. But my experience has shown me that rarely is a month “typical.” Expenses fluctuate from month to month. Also, not every expense occurs every month. Unless you plan for this and have a system to help you fund every expense, you’re going to find it difficult to avoid overspending.
Through my financial coaching experience, I’ve witnessed that high credit card balances were mainly due to not being prepared for normal expenses happening at certain times of the year. Some of these were medical expenses, car repairs, and gift buying.
My clients’ system for managing their money was not sufficient to provide for these expenses when they happened.
That’s why you have to live on a yearly budget, not a monthly budget. A yearly budget allows you to plan for every expense for the entire year. The amount for the year is then divided by 12 to establish a monthly average.
A yearly budget connects each month in sequence to the other months of the year.
In a yearly budget, all months are connected together. It’s a plan that provides for every expense when it's needed throughout the course of a year.
The most obvious downside to a monthly budget is that it doesn’t take into account and provide for those non-monthly expenses.
Consider the following expenses:
- Car maintenance and repairs
- Gift buying (including Christmas)
When using a yearly budget you take into account the total yearly cost of each of these expenses. You then calculate the monthly amount you’ll need to set aside and place it into its category every month.
You’ll no longer be surprised by the untimely arrival of Christmas! You won’t need to react to your child getting sick with, “How are we going to pay for this?”, or “How am I going to repair my car and also pay the rent?”
A yearly budget takes all of these into consideration and makes a plan to fund each one through an amount set aside each month, so you can have it when you’ll need it.
A monthly budget doesn’t look to the future, it only manages the expenses of today, this week, or this month, leaving you unprepared for what’s ahead. It's short-sighted and incomplete and will keep you trapped into a paycheck to paycheck way of living.
I’ve included a video tutorial below to show you how to use the Yearly Budget form. You can download the form here and use it to manage your money for an entire year.
Call to Action
- If you don’t use a budget for managing your money download the Yearly Budget and start using it today.
- I’ve also created a video course to help you become a "budget ninja." You can access it on my Resources page.
I’d love to hear your take on this yearly vs monthly budget. Do you agree or disagree? Please leave a comment or ask a question below.