It's good to plan ahead, but an annual budget can be too much of a good thing. Life happens and interrupts even your best laid out plans. Unless you have a crystal ball, budget for the near future and leave the annual forecasts to the big corporations.
Big Picture Vs. Small Picture
Setting an annual budget may help you set goals, such as saving for a new home or paying down debt. But you probably don't cash your paychecks, pay your bills or do most of your shopping on an annual basis. Instead, you probably write checks for your most important expenses each month, get paid monthly or bi-weekly and make minor purchases on a weekly, or even daily, basis. Put your energy into developing a monthly budget that can help you meet your long-term financial objectives.
Anticipating the Unexpected
Sometimes life throws us a curve ball and it is up to us to use what resources we have to deal with it. If you are completely invested in your annual budget, having that compromised by a financial or personal crisis can really mess things up and make it harder for you to cope. If you've been budgeting monthly, on the other hand, you can more easily adapt your financial plans to your present circumstances. Even if you don't personally experience a financial crisis, other people in your life might, and you may feel the need to assist them financially.
Living in the Present
Planning is crucial in forming a budget and maintaining your financial health, but a little flexibility doesn't hurt, either. While saving your cash is always a good idea, bargains and opportunities sometimes present themselves. If your friends or family want to take a vacation, an appliance store holds a going-out-of-business sale or your aunt is selling off her car at a ridiculously low price, you'll have an easier time changing your monthly budget, as opposed to an annual one, to accommodate these expenses.
A Second Opinion
If you're new to budgeting, or have trouble sticking to budgets, get help. Ask a friend or family member who is good with money to go over your budget and offer input. You could also ask a financial planner or credit counselor to do the same, though you'll probably have to pay for their services.