How To Put Together an Annual Family Budget - Baby Chick
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How To Put Together an Annual Family Budget

Ready to get on top of your finances this year? We're walking you through the steps to creating an annual family budget.

Updated May 7, 2024

by Meredith Rines

Accountant and Certified Financial Planner

Are you curious about why you should create an annual family budget? Having a budget for the entire year can be a huge blessing when trying to reach your financial goals. You’ll be able to easily see what bills you have coming up that are irregular or happen just a few times a year. There are a few different ways to create an annual family budget. You can start with a monthly average for the year so that each month’s budget is the same–or you can treat each month individually. We’re sharing both approaches so you can determine which one will work best for your family.

Annual Family Budget Based on a Monthly Average

A monthly average is the simplest approach to creating an annual family budget. We’ll explore how to project income and expenses for the year in a bit, but the basic step is to add all of your anticipated income for the year and divide it by 12 months. That will be your average monthly income.

Next, take your annual expenses from all sources – mortgage or rent, utilities, insurance, groceries, property taxes, school fees, and so on and add those up. Take that amount and divide it by 12 to create your monthly average.

As I said, this approach is pretty simple. The goal is to have your annual expenses be less than your yearly income. The money you have left is for savings, paying down debt, and helping you reach your goals.

Treat Each Month Separately

This tactic is a bit more complicated but can be more accurate. You will take each month’s income and expenses into consideration. This works great if your bills fluctuate month-to-month or you have expenses due only a few times throughout the year. Bills typically due only a few times a year are personal property taxes, annual insurance premiums, and so on.

How to Create an Annual Family Budget

1. Choose an Approach

The first step is to decide which approach you will use—the monthly average or treating each month separately. Once you have your method selected, you can proceed. Remember, having a realistic annual budget will help you reach your financial goals, so it’s important to create this budget. 

2. Get Organized

You will need to gather a few things to create your budget more easily. You will need:

  • A calculator
  • Highlighters
  • Pencil and paper
  • Budgeting software (Quicken,, or a spreadsheet program like Excel)
  • Copies of bank statements, credit card statements, and bills

3. Project Your Expenses

You will need to determine how much you typically spend in a year between bills, expenses, miscellaneous spending, and any other financial obligations. The easiest way to tackle this step is to pour over last year’s spending habits.

This is where I like to use a few different highlighter colors to keep my expenses organized. You can do the same or just use one color if you want. Here’s typically the breakdown of my colors:

  • Green is for income
  • Yellow is for fixed monthly bills (utilities, mortgage/rent, cell phone, etc.)
  • Blue is for variable monthly expenses (groceries, gas, eating out, etc.)
  • Pink is for irregular bills that come just a few times a year.

Grab a highlighter and start organizing your statements. Go through month by month and add up each category so you can determine a 12-month average. You will need to understand your spending habits to project better what you will spend in the upcoming year.

Here’s a list of categories to help get you started:

  • Debt Payments – car loan, student loan, credit card, personal loans
  • Education – tuition, daycare, books, supplies
  • Entertainment – sports, hobbies, movies, concerts
  • Food – groceries, dining out
  • Giving – birthdays, holidays, charitable, special occasions.
  • Housing – mortgage/rent, home maintenance, HOA fees, property taxes
  • Insurance – health, home/renter’s, auto, life
  • Medical – doctors, dentist, prescription medications
  • Personal – clothing, hair care, gym, professional dues
  • Savings – retirement, college funding, emergency fund, specific goals (i.e., vacation)
  • Transportation – gas, taxi, subway, tolls, parking, car maintenance

4. Project Your Income

Determining your income can be a bit tricky, but you have to be careful only to calculate what you for sure can earn. If you are paid commissions or self-employment income, you must decide on an average to use. Figure out how much income you anticipate to earn or make this coming year. It can include all income from these sources:

  • Salary and wages
  • Bonuses (that are guaranteed)
  • Alimony
  • Child support
  • Disability benefits
  • Interests and dividends
  • Rents and royalties
  • Self-employment income (using an average from the last three months or longer)
  • Tips
  • Commissions (using an average)

5. Look At Cash Flow

Determine your annual net income by subtracting your expenses from your income. If you have a positive cash flow, you can decide how to use it: by applying it to your debt, putting it in savings, or using it towards another financial goal.

Make sure any money left over that you will use for a separate purpose (debt, savings, etc.) is added to your annual budget under the correct category.

If your cash flow is negative, you will need to adjust your expenses. Variable expenses are the easiest to adjust first. You may have to cut down on eating out, entertainment, or other categories to balance your budget.

6. Create A Monthly Budget

Now that you have decided on which approach you will use—monthly average or treating each month separately—you can create your monthly budget. A monthly budget will help you stay on track with your annual family goals.

Happy budgeting!

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Meredith Rines, MBA, CFP®
Meredith Rines Accountant and Certified Financial Planner
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Wife, Mom, MBA, Certified Financial Planner, and a budget and financial strategist helping families pay off debt and live the life they've always wanted. Meredith resides in Missouri with her… Read more

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