How to Budget on a Cyclical Basis?

Answer 1

Our lives are full of cycles whether we realize it or not. Seasons are cyclical. There are lunar and planetary cycles. Even many of our routines are often based on a pattern of cycles. Shoot, we even have a lifecycle. So why shouldn’t our budgeting be cyclical as well?

By setting benchmarks based upon cyclical timeframes and re-evaluating those benchmarks also on a regular basis, you may be able to achieve a pattern of cyclical budgeting that could make the tracking of your finances more efficient as well as more effective.

Monthly Budgets

A great way to get started on cyclical budgeting is by laying out a monthly budget. By determining your monthly income, and then outlining a group of expense categories into which your regular expenses fall, you can begin to get an idea of where your money comes from, as well as where it goes.

It might be difficult initially to gauge exactly how much money is going where. Your expenses might fluctuate from month to month or depending upon the time of year. This is why cyclical budgeting is important. For most of us, incomes and expenses have patterns. While they might ebb and flow like the tides, rising in certain months and falling in others, over the course of time, you may be able to pinpoint a regularity to your personal finances that can give you a basic average of how much money will be coming in and going out in a given month.

Yearly Budgets

Once you have gauged your basic spending patterns for several months, you’ll probably have a decent idea of how much you’re spending. However, once you’ve done this over a period of 12-months, you may be able to determine an annual budget that you can compare year to year or month to month on a cyclical basis.

While monthly budgets can be helpful, there will likely be expenses in your life that will fall in a large lump sum in one particular month. Items like car insurance, renter’s insurance, a retirement account payment, or other large expenses might skew a typical monthly budget. These items may be better factored into a yearly budget since they may only occur once or twice throughout the year, preparing you for that expense on a reoccurring or cyclical basis.

Review

Having budgets, even cyclical ones, can be a fantastic way to track and gauge your income and expenses as well as determine where you spend your money. However, keeping track of your finances, while a step in the right direction, isn’t always enough to make budgeting completely effective. By constantly reviewing, comparing, updating, and adjusting your budgets as your knowledge and understanding of your income and expenses grows however, can make your cyclical budgets more effective over the long haul.

Disclaimer:

The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. For financial advice, readers should consult a licensed financial advisor. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.