One of the biggest challenges for retirees is adjusting to the way you receive your income. No longer can you rely on your weekly wage earned through work – now, it comes down to the savings you’ve accumulated and/or the age pension.
For many retirees, fear of not having enough money is a major stress. Setting yourself a financial budget is a simple way to put your mind at ease and help you stay in control.
If your finances are stretched and you don’t feel on top of things, a budget could be the answer. To help you get started, here’s a simple guide outlining how to set a budget in retirement (and stick to it).
Why Set a Budget?
Creating a budget is a good idea at any age, but it’s not easy. From hidden expenses we forget to factor in to extra costs we don’t expect, it can seem like there is always something unavoidable popping up to sabotage your best laid plans. But when you get it right, it can be a real life-changer. So, it’s worth the time, effort and yes, even the sacrifice.
Money troubles can put immense stress on your health, happiness and relationships. A budget helps you see where your money is going, and if you are spending more or less than your income. You can then make adjustments to get things on track and achieve your goals. You’re also less tempted to overspend on luxury items you may not be able to afford.
Setting a Budget That Works for You
Of course, everyone’s situation is different and getting professional financial advice regarding your own unique circumstances is always best. However, if this is not possible, a budget is a great starting point.
The best budget for you is one that is realistic and achievable. There’s no point coming up with something that is too complicated or unsuitable for your lifestyle as it’s destined to fail. Be honest in your calculations and be prepared to make tough decisions to make it work.
Creating Your Budget
First, you’ll need to work out your total income, then calculate your non-negotiable and additional expenses. Your income in retirement could include your savings, super, investments, the age pension or a combination of these. Your non-negotiable expenses will include things like your rent, electricity, water, gas, rates, phone and internet, car or public transport, insurances, food and medical bills.
Your additional expenses are the extras that are nice to have but are not essential. For you this could be subscriptions, memberships, dining out, alcohol, movies, hobbies, travel and other entertainment activities. The simplest way to prepare your budget is to work out the totals across a one-year period. From there, break it down into monthly, fortnightly or weekly amounts to suit the timing of your income.
Utilise Online Resources
If you need some help putting it together, you’ll find some excellent resources and calculators online. A good place to start is the Australian Securities and Investments Commission (ASIC) MoneySmart website. You’ll find an easy to use budget planner that you can fill in online that will clearly show you where your money is going and if you’re spending more than you earn. It includes some handy features such as setting the payment frequency for items and allows you to add custom items too.
It’s a real time-saver if you’re starting your budget from scratch, as it only takes about 20 minutes to complete. You can then save it to an Excel spreadsheet and make changes as needed.
What to Do if You’re Spending Too Much
If you discover your income does not cover your expenses, you’ll need to look for ways to cut back. Have a close look at all the expenses on your budget and see if you can reduce or eliminate them. Maybe you could cancel a subscription or shop around for a better deal on your phone or insurance? Or limit your dining out to once a month instead of weekly? Remember, it all adds up – $5 a week here and $20 a month there can make a real difference.
Likewise, if you have a debt you’re trying to eliminate or you’re saving for a holiday. Find ways to cut back and use the surplus funds to achieve your goals. It may mean missing out on some things in the shorter term, but you’ll be grateful when you’re debt-free or enjoying your dream holiday.
What if You Have Extra Funds?
An ideal situation will see you with extra funds remaining after you pay your expenses to save for a rainy day. It’s a good idea to set up a separate savings account or put the money into an interest-earning account. This limits the temptation of buying impulse items because you have the extra money within easy reach.
Once you’ve got a good system in place, you’ll see your savings grow – and you can then decide what you want to do with them. Maybe you’ll pay off some debt, upgrade your furniture, go overseas – the possibilities are endless! Whatever you decide, it’s a good idea to always keep a little buffer in your account for unexpected emergencies that may pop up.
Take Control of Your Finances to Secure Your Future
Setting and sticking to a budget in retirement can help you feel on top of your finances and stay in control. You’ll know where your money is going and be prepared for bills and other expenses before they’re due. This allows you to work towards achieving your financial goals instead of living week-to-week – and gives you the freedom and means to enjoy your retirement to the fullest.
Over to You
Do you have a budgeting tip for retirees you’d like to share? We’d love to hear it – simply post a comment below.
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