It’s become a joke among my friends that I spend New Years Day doing my budget. I usually start working on it a few weeks earlier but I get it finished up while watching the Rose Bowl Parade.
I guess it’s one of my holiday traditions–vanilla latte, parade and budgeting. Sounds cozy doesn’t it?
I budget my net worth so the earliest I can finish up my budget is New Years Day. Until I know my starting investment and retirement balances, I can’t budget my investment earnings.
Budgeting one month at a time works for lots of people but I prefer to budget for the full year.
Because I have some ugly months.
April is the worst. We pay property taxes, homeowners insurance and income taxes in April. By budgeting the full year, I make sure I save in other months to pay for these big expenses. Before I boosted my savings rate above 50%, April was the only month when I spent more than I made.
December is tough too with holiday expenses. Though we’ve reduced our gift giving a lot through our perfect gift policy, it is still an expensive month. We travel to see family and friends and there are more costly gatherings.
If I were budgeting monthly, I would have to budget a sinking fund for these once a year expenses. By budgeting the whole year at once, I make sure I meet my savings goals in spite of the ugly months. If my cash was tight, I’d still set up sinking funds for those big expenses even if I was doing my budget for the full year.
Seeing my year end budgeted net worth helps me stay on track.
I like (ok, I admit, I love) seeing my net worth grow. When I do my budget, I can see how much my net worth should be at the end of the year. If the investment markets cooperate and I control my spending, I know I can get to that number.
Budgeting for just a month’s growth in net worth wouldn’t work as well. It’s hard for me to get excited about an increase of a few hundred dollars but easy to get excited about thousands.
It’s the middle of December so it’s time to get this party started!
There are no hard and fast rules of budgeting, finding one that works for you is the tough part.
Does a detail budget make you think brain damage and drudgery? Then budget in summary.
Are you a detailed person and do you look forward to tracking your expenses by detailed categories? Then budget in detail.
Are there certain things you like to track closely but others that can be summarized? Then prepare a hybrid budget.
Need some more information about how to budget? Check out MoneyPeach.com to get started.
A hybrid budget works best for me. I like to track my vehicle and home related expenses in detail but I’m fine with a big total for most of my “spending”. It doesn’t matter to me whether I’m getting my hair done, buying groceries or a new shirt–that’s “spending” in my budget. When I track the actual expenses in quicken, I break them down a bit more. For my budget, a summarized amount is just fine.
So grab a latte or maybe a glass of wine, a cozy blanket and get started!
How do you budget? What works for you?
Photo credit Ms. Liz taken from our back deck–lucky us!