An annual budget flabbergasts most people when I suggest it, but I contribute the much of my financial success to making a plan annually. To me, it’s the only budget that makes sense on a fluctuating income. I know September is going to be a huge month, just like I know I might make $0 in July. Budgeting for each month doesn’t make sense if you’re a freelancer, a small business owner, or anyone who experiences ebbs and flows in income.

Here’s how to make your very own annual budget, broken down:

Step one: take all your personal monthly expenses, x12.

Things like: rent, utilities, groceries, gas, car payment, car insurance, health insurance, internet, fun money, home spending, pet spending, etc. I love looking at my personal expenses annually, especially the “fun” categories, because spending $50 on coffee shops in a month doesn’t sound so bad but spending $600 a year makes me reassess.

Step two: take all your business monthly expenses, x 12.

This is another opportunity to check back over the last few months of business expenses and see where your money is going!

Account for all your annual expenses, personal and business.

Often referred to as “sinking funds” when budgeted for monthly, personal annual expenses can be things like travel, Christmas expenses, gifts, targeted saving (like for a down payment), semi-annual auto insurance premiums, etc. For my business, many expenses are annual – like my website, domain, gallery, insurance, accountant, etc. I always make sure those are accounted for in my annual budget.

Set your goals.

Now that you’ve written out your personal monthly expenses (x12), business monthly expenses (x12), and accounted for your annual expenses, how does it look? Is it aligning with your financial goals? What can you cut to be leaner? On the other end of the spectrum, is there anything you need to be investing in?

Bonus: look over last year’s income and spending.

It’s hard to know where you’re going if you don’t look back and see where you came from. Make yourself a fun drink, get a highlighter or two, and print out those statements!

In Review

Seeing the year as a whole and not my expenses month-by-month was a game changer for my financial life. I don’t stress during months I don’t make “enough” and I don’t splurge on months when I make double or even triple what I need. This goes for the business and for my personal budget.

Would y’all benefit from an annual budget template, either in Google Sheets or Excel (or both?). Let me know!