Search for Savings & Loans
How to Plan and Create your 2023 Annual Budget 
How to Plan and Create your 2023 Annual Budget 
See The Best Loans Available in Kenya Today
Money Management

How to Plan and Create your 2023 Annual Budget 

Money254
Farah Nurow
January 2, 2023

As you usher in the new year, you have many financial goals planned for 2023. To accomplish those goals, you will need to be in total control of your money. You just don’t need to know where your money goes; you must plan for where it goes in advance. And that that all starts by creating an annual budget.

An annual budget balances your income and expenses to achieve your yearly and long-term financial goals. It allows you to make realistic plans and lifestyle adjustments without hurting your bottom line. For instance, if you plan to make a big purchase or travel in 2023, revamping your budget for the new year will help you shift your spending habits without compromising your goals.

Creating an annual budget will help you manage your finances more efficiently. It will help you adopt crucial personal finance practices like paying yourself first, planning for emergencies, and avoiding consumer debt. This will help you stay more financially stable in 2023.

This article will explain how you can create an annual budget to help you achieve your new year's resolutions and prevent you from wasting money.

Read Also: How to Budget & Save a Lot of Money As an Employee in Kenya

Calculate Your Income

The first step of creating a budget is determining how much you bring home. This could be easy if you are a single person with one source of regular income. You will need to budget based on your net salary. 

If you have multiple sources of income, you will need to sum them up before you start budgeting. Ideally, you should budget for dependable, regular monthly incomes. Steady incomes should include employment, dividends and interest you earn monthly, profits from your side hustles, rental incomes, royalties, and alimony/child support. 

If you are married or combine finances with your partner, you should also account for their income. 

Next, you should determine your irregular income. This can be tips, bonuses, or income from freelance projects. Add them to your regular income, but be mindful that you may not receive this money. 

The next step is determining your net income. Sum up your regular and irregular income, adjust for taxes and deductions such as insurance and pension schemes, and find your average monthly income. Now that's the money you have available to use for your budget.

Read Also: What to Do With Your Savings at The End of The Year

Determine Your Expenses

To make a plan of how Smartly you are going to spend your income, you need to determine your expenses. This helps you avoid wasting money and living beyond your means, and, most importantly, enables you to save money. When creating an annual budget, it could be easier if your budget is monthly based. This is because most expenses are charged monthly, and it will be easier to make adjustments down the road.

To determine your expenses, you need to take three steps:

  1. Pay yourself first: To accomplish your goals and live within your means, you need to ensure that you save a portion of your income. You achieve this by keeping your living expenses below at least 80%. Paying yourself first involves taking 20% of your income, putting it away for future use, and budgeting the rest to cover your living costs.
  1. Account for the fixed expenses: These are costs that stay the same throughout the year. This includes housing, loan repayments (if you are in debt), transportation, school fees, and insurance if you pay monthly premiums. You should cap your fixed expenses to 50% of your income.
  1. Account for the variable expenses: These are expenses that can change every month, and you can adjust them depending on your needs. They include food, utilities, and discretionary spending. Even though they change, you should have a solid estimate of how much you will spend on each category. Your variable expenses shouldn’t exceed 30% of your total income.
  1. Balance your expenses: The final step is to sum up, all your expenses, i.e., fixed expenses, variables and saved money. The total should not exceed your monthly income. If it does, you might have to cut your costs; if there’s a surplus, you should save the extra money or use it to build an emergency fund.

Read Also: Want to Tame Bad Spending Habits? Try the 30-Day Rule

Design Your Budget

Creating an annual budget is a personal process. Therefore, it is crucial that you pay attention to your needs and design a budget you can stick to and follow without struggling. Once you have determined your expenses, you will want to break them down into categories, like how much you will be spending on food per week or the maximum rent you can afford. You will need to choose a budget type and a template to achieve this. 

To stay consistent, it's important that you choose a budget type that works for you. If you prioritise saving, your budget will differ from that of a person prioritising debt repayment. This is because every type of budget has its set of guidelines designed to help you address your needs. Here are some types of budgets to consider:

  1. The 50/30/20 budget 
  2. The Envelope Method
  3. The 60% Solution 
  4. The Zero-Based Budgeting 
  5. The Reverse Budget 

Read Also: The 7 Types of Personal Budgets and How to Choose 

The next step to designing your budget is choosing suitable budget templates. This will help you organise your budget and track your expenses. Depending on how versed you are regarding budgeting, you can create your template using an excel spreadsheet, download one online or borrow from friends, or use budgeting apps and software. You can find these apps in your phone's play/app store. Choose one that allows for personalisation and customisation.

Read Also: More Money, More Expenses: How To Deal With Lifestyle Inflation

Identify Your Goals 

The main point of having a budget is to ensure you are not spending all your income on living expenses. You have to plan for the future. That’s why when determining your expenses; you pay yourself first. And just like you break down your living expenses into fixed and variable and then categorise them, you have to do the same with the money you put aside.

How do you do that?

You start by identifying your goals for the year and the long term. These goals include retirement planning, homeownership, educating your children, etc. Planning for these goals will help you invest and get the best out of your money instead of just keeping it in a bank account. You should calculate the costs of your goals to know how you should invest to ensure you stay on track to achieve them.

You will also need to plan for your upcoming life events, e.g., are you planning to change your job, get married or have a child? Without proper planning, you will struggle to make smooth transitions when the time comes. Planning will also allow you to allocate money to these events. If you plan to have a baby, you might have to start cutting expenses to afford childcare later.

Read Also: How to Get Your Finances in Shape After the Holidays

Automate Where you Can

To reduce stress, avoid mistakes, increase efficiency and stick to a budget, you should consider automating your finances. They can save you time by streamlining tasks and simplifying your budget process. Automation allows you to keep your finances in order, as you won't have to worry about missing a payment or forgetting to save money at the end month. It gives you more freedom over your finances.

When creating your annual budget, here are some automation practices you should consider:

Automate Bill payment: You can talk to your bank to help you create standing orders that help you pay for your fixed expenses like rent and service your loans. This will prevent you from delaying payment and being penalised.

Automate Your Savings: You can talk to your employer and instruct them to deduct a portion of your income and direct it to SACCO, pension schemes or annuities like life insurance. Additionally, you can create standing orders that enable automatic transfers from your checking account to saving accounts.

Use budgeting software: They can alert you to record expenses daily, make expense tracking easy, and prevent you from exceeding your limits. This will help you stick to a budget.

Read Also: How to Automate Your Finances - Save Time, Money and Stress 

Start Testing Your Budget 

Your budget is your financial constitution. You should therefore ensure that it serves your needs best. For a budget to work and help you accomplish your objectives, it should reflect those needs. After creating your annual budget, you will spend the first two or three months testing it. The reason for this is to enable you to compare actual and planned spending and help you identify leaks. 

Testing will allow you to identify mistakes you might have made when calculating your income or missed expenditure. You will be able to know the changes you need to make and perfect your budget for the rest of the year.

To test your budget, you will need to put it into use and track your expenses. You will be able to notice discrepancies and identify where you are overspending or underbudgeting if there are any. You will then make the necessary adjustments to get in to align with your needs and goals.

Read Also: Spending 101: Skills to Keep Your Expenses in Check 

Revisit your Budget Regularly 

Many events that can affect your budget can happen within a year. They can be positive or negative. For example, you can lose your income or significantly increase it. These events can happen instantaneously or slowly without you noticing. To prevent them from negatively affecting your budget, you must constantly revisit and review your budget at least once per month.

Reviewing your budget allows you to adapt when your financial situation changes. You might need to adjust your budget if your expenses have increased or income reduced. Additionally, you will be able to reprioritise when experiencing significant life changes. This will allow you to keep yourself financially stable. 

Additionally, a review will help explain why you are deviating from your budget. It will show if your budget is too restrictive or if you have bad financial habits. You can keep your spending habits in check, notice the bad ones and make the necessary changes. 

Read Also: 5 Good Financial Habits to Start in 2023

WRAPPING UP 

A budget can only be viable and serve its purpose if you stick to it. And it takes work. Sticking to a budget means you will need to control your temptations and have a high level of financial discipline. You have to control your impulses, automate your finances, and regularly set time aside to review your budget. 

In the end, sticking to your budget always pays off. 

  1. You will be able to avoid overspending and save more. 
  2. You will have more control over your finances and keep yourself stable. 
  3. It will help you prepare for financial emergencies and prevent you from going into debt. 
  4. It will help you stay on track to achieve your long-term goals and set yourself up for financial independence. 

Farah Nurow is an experienced Content Writer who enjoys writing creative and educative articles meant to provoke readers' thoughts. He loves sunny weather and thick books. You can connect with him on LinkedIn.

Download the new Money254 App and don’t miss out on the next article.

Join 1.5M Kenyans using Money254 to find better loans, savings accounts, and money tips today.
Get it on Google Play

Learn more about Personal Loans available in Kenya on Money254

Money 254 is a new platform focused on helping you make more out of the money you have. We've created a simple, fast and secure way to find and compare financial products that best match your needs. All of the information shown is from products available at established financial institutions that our team of experts has tirelessly collected.

Instantly search loan products from established providers in Kenya and compare on the terms that matter most to you.
Money254
Find the best Personal Loans for me

Don't miss another article - download the new Money254 App Today

Get it on Google Play

Sign up for our newsletter and get weekly money tips to your inbox.

Get updates from the Money254 team on financial news and new Money254 features.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.