You Should Create an Annual Plan Instead of a Budget — Here’s Why
AI eliminates one of the biggest factors affecting our quality of life at home and how much money we spend — decision fatigue.
Creating an annual plan gives an AI assistant — whether that’s ChatGPT, Notion, or some other tool — a foundation of data to guide you throughout the year. This assistance will help you manage your household more efficiently, freeing up time and money for other pursuits — new hobbies, vacations, or the freedom to leave your job.
To create an annual plan, outline 52 weeks’ worth of meals, spending, and activities.
When you’re ready to create an annual plan, outline 52 weeks of meals, spending, and activities like chores right from the start. These are the three primary domains within the average household.
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While you don’t have to stick rigidly to your plan, knowing your year’s plan upfront allows you to take advantage of bulk buying — reducing costs — and time blocking — setting boundaries around your time. What remains in terms of both time and money is yours to allocate towards enjoyable activities.
You won’t have to worry about what to cook for dinner. And you will know which days are chore days and which are designated for rest and relaxation. By planning your household in advance, you create the space you need to live your life.
Finances
The first step in creating an annual plan is knowing how much money you have to work with. One of the biggest reasons people struggle to live within their means is that they have no idea what those means are.
Here’s what I mean. Suppose you’re paid $2,500 bimonthly, after taxes. That gives you $5,000 per month for living expenses. You budget for predictable things like rent, groceries, and your phone bill. But what happens when your car breaks down and you’re hit with a hefty repair bill? Or your computer fails and you need a new one?
It’s easy to plan for regular expenses, but when unexpected costs arise — which they always do — you might not have enough flexibility in your budget to handle them.
Financial experts will advise creating a sinking fund to anticipate these costs. The reality is, most Americans don’t have enough savings to cover current expenses, let alone plan for future ones.
By creating an annual plan, you can anticipate irregular expenses throughout the year and adjust your monthly discretionary spending accordingly.
To do this, I like to categorize my expenses into three groups:
Mandatory
Obligatory
Discretionary
Mandatory expenses include rent and car insurance. Failing to pay these can have severe consequences. Too many late rent payments could lead to homelessness, and not paying your car insurance premium could result in a suspended license.
Obligatory expenses are things you’re responsible for but have some flexibility with. Your car payment, credit card bill, and other debt-related expenses fall into this category. If you miss a credit card payment, you might incur a late fee, and too many missed payments will harm your credit score, but you can choose not to pay it if something more critical, like keeping a roof over your head, is at stake.
Discretionary expenses encompass everything else you spend money on. This includes your grocery budget, streaming subscriptions, and shopping trips. Some of these expenses are fixed — like your monthly Netflix subscription — while others are more flexible — like how often you order takeout in a week.
Creating a hierarchy of your living expenses gives you greater control over your spending. Doing this on an annual basis allows you to adapt to life’s natural demands rather than adhering strictly to a monthly budget.
Here’s what I mean. Let’s go back to the example of someone with a monthly take-home income of $5,000. Annually, that equates to $60,000. Your goal with an annual plan is not to spend less than $5,000 per month, but to spend less than $60,000 by year’s end.
Let’s say your rent is $2,000 a month, and your monthly car expenses (excluding gas) are $800. Annually, this totals $33,600 — or 56% of your income.
You know that over the next year, you’ll have to travel for the holidays, your car needs its next service, and you’ve been invited to at least two weddings. For this example, let’s estimate these expenses at $5,000 in total.
Between your rent, monthly car expenses, and these irregular — yet anticipated — future costs, you’ve allocated $38,600 of your yearly income. That leaves you with $21,400.
Review your mandatory and obligatory expenses. Include insurance premiums, student loan payments, and expected utility bills. For this example, let’s say these total $1,000 per month or $12,000 annually.
This leaves you with $9,400 for discretionary expenses. This money covers groceries, takeout, subscriptions, gas, shopping, and occasional road trips.
By framing your spending around an annual plan, you can make better financial decisions. $9,400 per year might seem substantial, but it only amounts to $783 per month. This helps gauge whether you’re overspending and provides a way to address it.
To create an annual spending plan, use a spreadsheet to calculate expected monthly expenses and irregular yearly costs. Personally, I use Tiller Money for this. It’s a spreadsheet-based budgeting tool that syncs with my bank accounts. I can create an annual budget, and it will generate an annual spending plan for me. I can evaluate it monthly to check if I’m on track. If I’m overspending, I can adjust the following month to compensate.
Meals
Meal planning is arguably the most crucial thing you should do. Everyone needs to eat. Regardless of whether you follow a specific diet or none at all, if you don’t plan your meals, your hunger will inevitably dictate your choices.
Failing to plan meals not only costs money but also years of your life, especially if you rely on unhealthy processed foods to compensate for poor planning. Meal planning is essential for controlling both your waistline and your wallet.
To start, inventory your favorite meals and their ingredients. Make a comprehensive list of the ingredients needed for those meals.
One of my favorite meals is Cuban black beans and rice. It’s nutritious, inexpensive, and easy to make.
The ingredients are simple:
Black beans
Peppers
Onion
Rice
Based on my eating habits, I know I’ll make Cuban black beans and rice at least once a month. Each time I make it, I need the following quantities:
1.5 cups dried black beans
1 green bell pepper
1 onion
1 cup uncooked rice
To make Cuban rice and beans once a month for a year, I’ll need:
18 cups dried black beans
12 bell peppers
12 onions
12 cups rice
Instead of going to the store each time I need these ingredients, I can buy in bulk. I can purchase a 20 lb bag of rice at Costco and a 25 lb bag of dried beans from a company like Azure Standard. For perishables like onions and peppers, I can chop and freeze them.
Expand this approach for a year. If you know you’ll have tacos on Tuesdays and homemade pizza on Thursdays, plan for it. Shop to fill an annual pantry inventory rather than shopping whenever you’re hungry.
Once you have a meal plan, shop accordingly. This might mean one bulk purchase at the start of the year or quarterly trips to Costco. Do what works for you based on your needs and storage space.
The key is knowing your food needs upfront rather than guessing daily or weekly. If you have $5,000 to spend on food annually and allocate $3,000 for groceries, you have $2,000 for other things. This could go towards financial goals, a daily coffee fund, or dinners at restaurants you’ve been wanting to try.
(Pro Tip: Knowing your spending in advance allows you to schedule OpenTable reservations in advance, securing the best seating).
Use a spreadsheet or a tool like Notion to plan. I prefer Notion because its web clipper extension makes it easy to save recipes from my favorite food blogs into my recipe database. From there, I can use the Notion Calendar to see upcoming meals and use AI-assisted search to efficiently use perishable ingredients.
Chores
The final part of an annual plan is creating a household task list. These are chores needed to maintain your home and its contents.
Chores can be divided into daily, weekly, monthly, and quarterly tasks. Here are some examples:
Daily: load and unload the dishwasher
Weekly: sweep, mop, and vacuum the floors
Monthly: clean the bathtub
Quarterly: trim the hedges and clean the gutters
You can do chores as often or infrequently as you like. By planning them, you can schedule them and ensure you have the necessary tools and supplies.
Take laundry as an example. I do laundry every Tuesday. Knowing I’ll do laundry 52 times a year, I can buy enough detergent for the year, avoiding unplanned trips to Target.
Laundry is something I can do while working. By scheduling it, I can align my workflow to be flexible with completing the task.
This is important. One of the biggest household complaints — especially among couples — is the unequal distribution of household chores. The common belief is that women bear the brunt of household chores without compensation.
I challenge this notion. It’s not that women do more; it’s that they don’t plan. Without planning, they can’t take advantage of strategic options to lighten their workload, increasing the value of their “unpaid” labor.
We now live in a society where almost everything can be outsourced. A Roomba can vacuum for you. You can Instacart groceries. A laundry service can do your laundry. You can hire a maid to clean your home if you want to avoid housework altogether.
Household chores are no longer mandatory for anyone, but they come with a a cost. Without planning, you can’t allocate the time or resources to ensure chores are done.
For example, if you work the standard American work year of 1,810 hours with a $60,000 salary, your hourly rate is $33. Spending one hour per week vacuuming costs you $1,716 annually. A Roomba costs a few hundred dollars. Planning chores and evaluating their annual cost allows you to make strategic decisions, like outsourcing floor cleaning to a robot.
If you know you want to do this, planning ahead lets you take advantage of end-of-year sales to buy a Roomba at a discount.
The easiest way to create an annual household plan is to list all your chores and organize them by frequency. Determine what’s needed for each task, schedule them, or decide which tasks to outsource.
The challenge isn’t the chores themselves; it’s finding the time to plan for them. Final takeaway.
What I’ve outlined follows the same logic a business executive uses to evaluate business performance. They know their revenue versus operating costs, tools and equipment needed, staffing levels, and future needs. Businesses operate on annual and multi-year plans.
Why don’t we do this for our own households?
By creating an inventory — whether cooking ingredients or cleaning supplies — you can take advantage of bulk buying. This reduces costs and eliminates the decision fatigue of daily meal planning.
Maintaining a home inventory reduces the need for frequent store trips, saving time and money by avoiding impulse purchases.
Knowing what chores need to be done and who’s responsible eliminates conflict before it arises. (Honestly, I think more men would share the chore burden if they knew what to do, but that’s just my opinion).
The goal of an annual plan isn’t to micromanage your life. It’s to eliminate decision fatigue and prevent conflict. When done correctly, an annual plan is prepared in advance, assigned, scheduled, and resourced.
What remains is what YOU have left to live your life — money for your desires and time for hobbies and passions.
If creating an annual plan reveals you don’t have enough, it’s a signal for YOU to take action. This might mean reducing discretionary spending or getting a part-time job.
Regardless of the outcome, an annual plan is a crucial tool for living life on your terms. As Benjamin Franklin famously said: “If you fail to plan, you plan to fail.”
Dedicate some time this weekend to build your annual plan. Adjust it as you go. Rome wasn’t built in a day, and neither will your life. The key is to start.
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