Most people don't budget from gross and many more find it difficult to create an annual budget. I always budget from gross and try to do a annual budget. Why? Because it gives you a firmer grasp on all areas of your budget including your taxes, savings, and spending.
How does it all work? Well let's start with a married man making $48k, a stay at home wife, 2 kids, and house bought for $169k (80% mortgage = $135k). I picked $169k the median home price in 2000 right before the housing prices started skyrocketing.
Gross Income = $48,000 ($4000/month)
15% to retirement = $7200($600/month) - Roth IRA
Social Security (6.2%) = $2976 ($248/month)
Medicare (1.45%)= $696 ($58/month)
Federal Taxes (standard deduction) = $0 (0/month) , because of child tax credit, personal exemption, standard deduction
State Taxes (2%) = $740 ($61.66/month)
Health Insurance (pretax) = $6000($500/month), I assumed 50% of average family
Net Take Home = $30,388 ($2532/month)
-these are the fixed costs which I think belong in the group before you even consider getting a mortgage. Notice retirement to me comes up at the top of the list. It all goes to Roth IRA because I don't know if people have a 401k match or not.
Mortgage $135k @ 6%, 30 years = $9712 ($809/month), 25% of net adding back retirement, but if not 32% of net income
Property Taxes @ 1% = $1650 ($137.50/month)
Repairs @ 1% = $1650 (137.50/month)
Food (low plan USDA) = $7351.12 ($612/month) (I think this is high, but it's the national average)
Car Gas = $1200 ($100/month)
Car Insurance = $1200 - ($100/month)
Car Repairs = $600 ($50/month)
Electric/Gas Utilities = $2400 ($200/month)
Fixed Costs = $25763 ($2147/month)
Total Income - Fixed Costs = $4625 ($385/month) leftover
This is how I would draft my annual gross budget. I would try to figure out my taxes, my savings first. Then look at my "fixed costs" and minus it from my income leftover after my taxes and savings. This leaves me with $385/month to play with. If I had more income I might be able to enjoy life more. The more I cut with car expenses, food, utilities, etc I would be able to enjoy luxuries.
Also realize this budget would need to be tweaked for things like health insurance, co-pays, utilities, property taxes, etc. I just try to do the best estimates as an example of how to set up an annual gross budget.
Before we even bought our first house this is how we started budgeting. Because it was so tight we really needed to see every single penny accounted for before we moved forward with buying out condo. Because of the tax break we were able to afford it because we were able to pay less in taxes. Plus we accounted for things like property taxes, repair, etc to help us think about recurring budget expenses.
While this may not seem a feasible method for many people. I think a gross annual budget is a great starting point when planning a budget. The next step would be reconciling spending with categorized amounts. Please consider setting up an annual budget for 2008.