If you plant to have a successful retirement the first thing you will have to do is master your retirement budget. The biggest thing you always have control over when it comes to finances is how much money you are spending so; this is where most of your focus should center.
You don’t have to be a bean counter or a finance expert to fix your retirement budget. The great thing about getting your retirement finances in order is that you will have more time to kick back and actually enjoy retirement. The reason you will be able to relax is that you will have it all figured out and you will only be spending money that you know you can.
Tools You Need to Setup Your Retirement Budget
- Your bank statements from the last twelve to twenty-four months.
- One hour of your time.
- A blank excel spreadsheet or a pencil and paper if you prefer, along with a calculator.
- Some soft music playing in the background or classic rock if that is your thing. (this is totally optional)
The First Step – Figuring Out How Much it Costs You to Live
This isn’t the time to be worrying about how much you spend; just how much you have to spend to get by on a monthly basis. This is why you will need those bank statements because’ they will tell you exactly what you spent each month. It is simple to find; that will be all the money taken from your account during a month’s time.
Go back over the last twelve or twenty-four months and calculate your average spending. If you go back twelve months; add the twelve months’ totals together and divide by twelve to get the average. This should only take you about fifteen minutes of that hour you have set aside.
The Second Step – Adjusting Your Spending
In this step of fixing your retirement budget you will want to look back over those bank statements for any unusual spending. What this means is that you made some type of purchase that was large enough to change the average, but, isn’t something that you would do on a monthly basis. For example; you purchased a new washer and dryer, you had a large expense to repair the roof or maybe you purchased a car.
If you took out large amounts for savings purposes you can opt to make this part of your retirement budget if you are going to continue that after retirement. These amounts need to be adjusted out of your average month expenses. You may also want to consider future payments that will either increase or decrease. This could include paying off your home and reducing your spending or you could be losing insurance and will be increasing your payments for that.
The Third Step – Figuring Income Versus Expenses
This is an easy step, but, can also be a frustrating when you are fixing your retirement budget. In this step you simple ad up any income you will be drawing after retirement such as, social security, pensions, retirement finds, or money from a part time job. The object is to get the income to be higher that the outgoing figure.
The Fourth Step – Your Income is More Than Your Expenses
If you came up with an income figure that is large than the figure you got for expenses then you are in good shape for retirement. At this point the only thing you will need to do is monitor the situation to make sure that you are staying on track. Keep in mind that it may fluctuate from time to time depending on unforeseen circumstances that may arise.
The Fifth Step – Your Income is Less Than Your Expenses
If you find that you are not going to be bringing in enough income to cover the expenses; don’t go into panic mode, there is time to fix your retirement budget. Go back through the expenses that you calculated for and see if there are things you can trim back on. Some of the things that are most common are eating out frequently, traveling, buying new clothes more often than needed, or going to the salon more than a few times a month. Another option if you don’t already have one; is thinking about getting a part-time job for some extra income.
If you can’t figure it out on your own you may want to consider talking to a financial adviser. This may cost you a couple of dollars, but, it will be worth it to gain that peace of mind you need to enjoy life after retirement.
As you see creating a retirement budget isn’t a very time consuming or difficult task; you just have to commit to do it. The biggest thing to remember is to be honest with yourself about the numbers, otherwise you will end up in a place you don’t want to be.