CHEATSHEETS MONEY

Unlike a monthly one, an annual budget gives you a big-picture view of your finances and could help you save more.

Draw up your 2014 budget.

An annual budget forces you to consider periodic expenses – things like insurance payments or Christmas shopping – which you might overlook in a monthly budget, which is more short-term. Studies also show that because people find it harder to predict their annual expenses, they tend to budget more conservatively. However, when planning monthly budgets, they usually underestimate how much they spend. Another plus point of an annual budget: it helps you set long-term savings goals. For instance, if you plan to buy a house in 2017, your annual budget will help you to calculate how much you need to set aside every year to afford it.

GET STARTED

Tally up your annual income, including bonuses and extra sources of money – say, rent collected – before breaking it down into these three categories. Start with your savings.

Savings

Identify your shortterm financial goals – such as financing your year-end wedding – and long-term ones, which are goals you hope to achieve in three years and beyond, such as getting a second home. The amount you need to put aside yearly to meet these goals is how much you should save. Also include an emergency fund of three to six months' income for unexpected expenses.

Fixed expenses

Onc Once you've subtracted your projected savings from rom your annual income, split the remainder into your fi xed and variable expenses. Fixed expenses are regular payments that won't fluctuate much – personal insurance, income tax, mobile phone bills and mortgage payments.

Variable expenses

These are day-to-day expenses on things like food, transport, entertainment, holidays and your dependents – spending on your kid's birthday party, for instance. Base these figures on previous monthly budgets or receipts. As these are the expenses that will vary the most, buffer an extra 5 to 10 per cent of your yearly income for them.

FOLLOW THROUGH:

❶ Some people may, out of convenience, choose to divide their yearly budget by 12, giving them a xed spending limit each month. Others may allow themselves a bigger variable budget in December, for instance. In any case, check every three months that you're not overspending. If you are, the easiest x is to trim down your variable expenses on things like holidays, movies and dining out.

❷ Alternatively, reconsider your xed expenses. Could you get a cheaper mobile plan, or give up your expensive gym membership and use the facilities at a community centre? This adjustment will save you money in the long term.

❸ If you get a raise or nd that you’re spending less than you expected, don’t adjust your budget until next year. Save the extra cash – you may need it.