How to make a yearly budget 

building a yearly budget

Consumers can make a yearly budget by calculating their net income, setting a monthly budget, tracking their spending, and making a financial plan. By making and sticking to a yearly budget, borrowers can save money and improve their spending habits. 

If you are struggling with managing your finances, you are probably not using a budget. According to a new survey by The Penny Hoarder, a little over 55% of Americans do not use a budget to manage their hard-earned income.1 

We’ll show you how to make a budget and how to maintain that personal budget each month.

Your Annual Budget starts with a Monthly Budget.

Keeping an annual budget is a financial habit that gives your spending the structure it needs. But just because it’s important doesn’t mean that managing your budget is complex. The key to maintaining a yearly budget is to take it month by month.

Figure Out Your Net Income

The first step in building a yearly budget is to find out exactly how much money you make in a year. Knowing what’s coming into your checking account is the best way to monitor what’s going out. Gather some of the following documents to help calculate your income: 

  • Payroll stubs
  • Bank statements
  • W2s or other wage statements
  • IRS Form 1099s
  • Tax filings

If you are self-employed or freelancing, you must calculate the tax yourself using the 15.3% self-employment tax rate. When you get your total for the month, multiply it by 12. This amount is your annual take-home income.

Identify Your Monthly Expenses

After totaling your income, you’ll want to do the same thing for your monthly expenses. There are two types of monthly expenses—fixed expenses and variable expenses.

AspectFixed ExpensesVariable Expenses
DefinitionExpenses that remain the same each month.Expenses that vary in amount from month to month.
PredictabilityHighly predictable and consistent.Unpredictable and can fluctuate.
Examples– Mortgage or rent payments
– Car payments
Unsecured loans
– Tuition
– Groceries
– Utility bills (to some extent)
– Entertainment
– Gasoline
Budgeting ApproachEasier to budget for as the amount is known in advance.Requires estimation and regular adjustment based on actual spending.
ControlLess control over changing these expenses in the short term.More control to increase or decrease spending based on current financial status.
PlanningEssential for long-term financial planning.Important for flexible spending and savings goals.
Impact on SavingsPredictable impact on savings and financial planning.Can significantly affect savings depending on spending habits.
AdjustmentsAdjustments for fixed expenses usually require major financial decisions (like refinancing a loan).Adjustments can be made more frequently and with smaller lifestyle changes.

Create a Wish list

What is the thing you want the most? A new car? Dream vacation? Whatever it is, create a category for these things in your budget. Be sure to also list any financial goals, like paying off credit card debt or getting a certain amount of money into your savings account. It’s not uncommon for people to think that a yearly budget shouldn’t have non-essential items listed. But, making even small contributions will get you closer to making each item on your wish list a reality.

Create an Emergency Fund

Whether it’s a sudden illness, a critical car repair, or loss of income, life’s unpredictable curveballs can throw a serious wrench in your life. That is why learning how to build an emergency fund is an essential part of building your yearly budget.

An emergency fund is a reserve of money that you set aside to cover unexpected financial responsibilities. Your savings are for meeting your long-term financial goals. But your fund is there for the things we can never plan for. According to Federal Reserve data, the average savings amount is $8,863 in America.2

How Much Money Should You Put In Your Fund?

When it comes to the size of your fund, a general rule of thumb is to build a fund that has enough money to cover 3 to 6 months of your expenses—an amount that varies from person to person. For example, if you have children or other dependents, or an underlying medical condition, you should consider building a larger fund that can cover your needs for up to a year.

Any substantial fund will take a while to build; after all, you have bills and obligations that need to be covered now. Like any part of your budget, it will take some discipline to make your fund grow. Use banking features like automatic transfers to make deposits.

None of your other bank accounts should connect with the account that holds your emergency funds. Emergency funds are insurance to be only used when you experience an emergency or disaster, so it should be a separate account that you don’t touch until you need it.

The 50/30/20 Budget Rule

The standard approach to budget building may not work for you. But, that doesn’t mean that you shouldn’t apply a plan to your finances. If a structured annual budget is overwhelming, the 50-30-20 budget rule is a clear starting point for managing your money.

According to the 50-30-20 budget rule, you should break your income after taxes into three spending categories:

The most significant amount of your net income—50%—goes to essentials and bills you have to pay. These bills include:

  • Rent or mortgage payments
  • Utilities
  • Groceries
  • Child support
  • Car payments
  • Insurance premiums
  • Minimum monthly payments

Then, put 30% towards what you want, like a cable TV package or a new gaming system. They are things that you could ultimately do without, but they add some fun to your life.

The remaining 20% of your income goes to repaying debt or stashing into savings. If you do have debt, pull from this 20% to beef up your monthly minimum payments. But don’t use all of it; set aside some money for savings will build a reserve that will reduce the need for you to take on more debt later.

The 50-30-20 budget rule provides a simple and direct view of your spending. If you discover that you’re spending more in one category, you should consider making cost-cutting adjustments. That could include moving to a more affordable home, downsizing your car, or eating out less.

Make Tough Decisions and Adjust

Setting up a yearly budget can not only organize the way we spend, but it can also reveal that our problem may be overspending. If you discover that your monthly income is less than your monthly expenditures, you need to reevaluate the priorities in your budget. 

Adjusting your budget can force some hard decisions, but covering your basic needs and keeping you from drowning in debt is why you built the budget in the first place. When your budget tells you to cut something, do it. And if you’re in a relationship, use budget plans for couples.

FAQs About Yearly Budgets 

How do I accurately calculate my net income if it varies each month?

If your monthly income isn’t consistent, start by calculating an average. Look at your income from the past six months or a year, add it all up, and divide by the number of months. This average gives you a solid base to make a budget.

What’s the best way to track all your expenses over the year?

Keeping track of all your expenses can seem daunting, but it’s key to creating a financial plan that works. Consider using a budgeting app or a simple spreadsheet. Record every expense, no matter how small, to get a clear picture of where you are spending money. 

How much should I allocate to a savings account in my personal budget?

A good rule of thumb is to aim for saving at least 20% of your net income. However, if that’s not feasible, start with a smaller percentage and gradually increase it. Remember, the goal is to build a habit of saving.

Can I include debt repayment in my yearly budget, and how?

Absolutely! Prioritize debt repayment in your budget. Dedicate a portion of your income to paying off debts each month. This helps you reduce interest over time and achieve financial freedom faster.

What should I do if my spending limits exceed my monthly income?

First, don’t panic. Review your budget to identify areas where you can cut back. Focus on reducing non-essential spending and look for ways to increase your income. Remember, a budget is a flexible tool that you can adjust as needed.

How do I factor in irregular expenses, like health insurance premiums or annual subscriptions, into my budget?

For expenses that don’t occur monthly, divide the annual cost by 12 and set aside that amount each month. This way, when the bill comes due, you’re prepared and it doesn’t disrupt your budget.

Is it okay to occasionally spend money on non-essentials when I’m on a strict budget?

Definitely! It’s important to allow yourself some flexibility to enjoy life. Allocate a small portion of your budget for ‘fun money’. This helps you stick to your budget without feeling too restricted.

What are some common mistakes to avoid when creating a budget?

Common mistakes include underestimating expenses, not adjusting the budget when necessary, and forgetting to include savings or emergency funds. Remember, creating a budget is a learning process, and it’s okay to make adjustments along the way.

CreditNinja’s Thoughts on Creating a Yearly Budget

A yearly budget will do a lot for your financial planning. But, it will only work if you work at it! CreditNinja suggests that everyone who wants to keep a tight budget take time weekly to review their budget and make sure that spending stays on track. The work you put in will be worth the financial security and freedom.

And if you need some extra cash to make your budget stretch, there are options out there. Consider a CreditNinja personal loan. Our online installment loans can provide quick funding for unexpected emergencies. 


  1. More Than Half of Us Don’t Keep a Budget │ The Penny Hoarder 
  2. The Average Emergency Fund Size By Age │ Financial Samurai 
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