Bauerle Financial: Retirement Budgeting Tips
It is common knowledge that having a savings plan in place for retirement is very important, but how do we put that plan into action? Sometimes the most obvious options like budgeting and cutting expenses are the hardest to implement. We have spending habits and are accustomed to certain creature comforts that we think we can’t live without. Here are some things to consider that might aid you in your retirement savings journey.
Why Retirement Budgeting is Crucial
There are many factors that affect your income during retirement. These factors include taxes, inflation, the age at which you retire, your rate of return on your investments and savings, your spending habits, social security, and for some, your pension.
The factor that you have the most control over is your spending. When it becomes time to retire, some people get anxious or bored and start irrationally spending that sizeable nest egg they have built over the years. Overspending is very dangerous because you need to make the savings you have acquired over the years last for decades down the road.
This is why budgeting for retirement is so important. A well-detailed retirement plan helps you live within your monetary constraints, have a good quality of life, and make that nest egg last as long as possible.
Locate Your Fixed Expenses
First things first, you need to create a record of the following items; your bank account and credit card statements from the last 6-12 months, the last two pay stubs if you or your significant other is still employed, and last year’s tax return.
Next, you need to take a look at all of your monthly, quarterly, and annual expenses. After you have all of that information, you’re going to want to break it down even further. The subcategories are going to be essential spending, non-essential monthly expenses, and required non-monthly expenses. The essential spending categories include things such as food, housing, clothing, transportation, utilities, and health care expenses. Next, non-essential monthly expenses are things you are billed monthly for that arent necessary. These include cable television, streaming subscriptions, memberships to places like gyms and clubs, and many others. The next subcategory is required non-monthly expenses; non-monthly expenses include things like property tax, home and auto insurance, warranties, and things of that nature. These three subgroups make up your total fixed costs.
Don’t Forget About Yourself
Remember that health is wealth, and that includes mental health too. So during your budgeting don’t forget to leave room for things that you enjoy like hobbies, extracurricular activities, and even vacations. Make sure to keep your spouse’s hobbies in mind too if you’re married. Remember you’re going to have a lot more free time, just make sure that if you are shelling out a bunch of cash for an extracurricular, it’s really worth it to you. There are also ways to free up money that could then be spent on more activities and hobbies. For example, downsizing on your home and moving into a smaller place of residence, or selling off toys and vehicles that hold value but are just sitting in the garage collecting dust.
Calculate Fixed vs Flexible Costs
After you have all your expected costs figured out, the next step is to filter that even more by asking the question of what is fixed and what is flexible. The easiest way to do this is to total all of your fixed expenses, then total all of your other non-fixed expenses, and divide your fixed expenses into your total expenses. That gives you what percentage of your retirement income will be going towards your fixed expenses. If that number is higher than you would like, you need to go back and find ways to cut back on your fixed expenses to give you more opportunities on how you want to spend your flexible income.
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