By Janice Estey
Sometimes financial words such as taxes, mortgage, and interest can be intimidating. Another important financial word that many people avoid is budget. Unfortunately, because many avoid living on a budget — not to mention even creating one — their financial situation suffers. This suffering can be greater if the individual is a senior adult.
To be really smart about retirement, it’s important to create a budget to prepare. “Believe it or not,” writes Dana Anspach, founder and CEO of Sensible Money, LLC, a registered investment advisory firm which provides retirement income planning, “a retirement budget can lead to more fun in retirement.” A budget during your retirement can reduce stress and help you avoid spending too much money too soon after retiring — a big mistake many people make.
There are many factors that affect retirement income — inflation, your rate of return on savings and investments, your retirement date, taxes, spending, part-time earnings, Social Security, pensions, etc. But there is one thing you have the most control over spending. Ms. Anspach continues, “Getting a handle on your upcoming retirement budget puts you in a place where you’ll be able to make smart choices about the retirement lifestyle you want.”
If you have already retired, and you haven’t yet created a budget, it’s not too late to put one together. It’s never too late to begin a good habit.
Start by gathering information. You need to look at bank account statements, credit card statements, income records, and old tax returns. Use the information to see how you have spent your money in the past so to plan how you will spend it in the future.
If your fixed expenses are a higher percentage than you like, there are ways you may be able to reduce them. You could consider a lifestyle change, such as selling a car or downsizing your home. Take a look at those non-essential expenses. Could some of those be reduced or eliminated? “As a general rule of thumb,” Ms. Anspach concludes, “if you want more fun in retirement, find ways to lower fixed expenses so you can have more flex funds available to spend on the interests you most enjoy.”
According to the Consumer Law Project for Elders, “financial experts suggest that you spend no more than the following percentages of monthly income on each item below:”
So, now you have your budget created, and you’re being careful not to spend more than you’ve budgeted, when — oh, no! — you’ve gone over your budget. How did it happen? Unfortunately, there will sometimes be unplanned expenses that pop up, but if you plan ahead, those times can be greatly reduced.
Perhaps you’re reading this, but you’re not the one needing to create a budget; perhaps it’s a senior loved one. As we get older, certain activities become more difficult. If you’ve noticed a parent or sibling having trouble keeping track of their money, it might be a good idea for you to help them put together a budget. The Institute on Aging suggests these tips when assisting a senior create a budget:
A budget is important for everyone, but especially for those who are living on a fixed income because of retirement. While the process may seem scary at first, the long-term benefits will make the process worthwhile.
This article is intended as general advice and should not be viewed as legal or financial advice. For your individual situation, please consult an elder law attorney.
About the author: Janice Estey is the Director of Social Services for Independent Living at Advent Christian Village. She earned a Master’s degree in Gerontology in 2008 and has worked for over 10 years in a variety of settings providing services and care for seniors. At ACV, she oversees a team of hard-working service coordinators who provide one-on-one support to independently living ACV members.