I’m a big believer in budgeting. I don’t always stick to my financial plan, but I nevertheless make the effort to anticipate my expenses ahead of time.I’ve always planned on a monthly, rather than yearly, basis. I feel like I have a better idea where my money is going when I allocate funds from individual paychecks, rather than trying to paint a big picture. However, according to this article from The New York Times, I may not be doing myself any favors budgeting in this manner.
According to the author, the very reason I dislike budgeting on a yearly basis—that it’s difficult to do so accurately—is the reason it’s the more effective way to plan. People tend to overestimate their anticipated expenses when doing an annual budget, because they lack confidence in their guesses. As a result, these budgeters don’t usually exceed the spending amounts they’ve allotted for themselves.
I will admit I’ve been struggling to stick to my budget over the past few months. Maybe I’ll take a stab at budgeting annually, rather than by paycheck. Have you tried this? How did/does it work for you? Please share your experiences in the comments!
2 comments:
Budgeting annually makes me so nervous! I don't trust it, but I do think that the study's correct... you should give it a try and report back in a couple of months :D
Hmmm... For some things, I go on a by-month basis: for example, last month might have been $250 on groceries, but this month we're having a party so it's $300 for groceries and toiletries. But some annual expenses I divy up by month. ie $300 in vehicle registrations, divided by 12 and put that much away each month. If I tried to budget annually for "entertainment" or "food" I would still end up adjusting monthly as things change.
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