Formulating or estimating a retirement budget while you are still in the planning process is definitely a challenge. It is only natural to make the mistake of downplaying what we will spend, pretending we will be a tightly reined horse of sorts in that magical moment. Anyone can throw together a retirement budget, but creating one that works is a different story.
You will quickly discover that the various unknowns are not your biggest enemy. Instead, it is both your willingness to be honest with yourself and get direct answers as opposed to wide averages.
Here are some key takeaways for the budget planning process:
Narrow Down Estimations
Getting actual numbers are your greatest asset and enable your financial advisor to be able to help you so much more. Use your personal financial records and current debt levels to determine your current spending and work from there. Even simple spending pie charts made in Excel or included as a free tool from your financial institution can be incredibly helpful in estimating your spending habits. Old habits die hard, and chances are those typical expenditures unrelated to working won't drastically shift on the day of retirement. Use that knowledge to your advantage and avoid estimating too low or taking the lowest end of the averages. If your budget only fits your low-end estimations, then it simply doesn't fit.
Calculate, Not Eliminate, Non-Essentials
Non-essentials can feel like your greatest enemy in the planning process, but they are in fact a useful tool. By calculating these unnecessary expenses, you are well aware of the wiggle-room you have when things get tough, and you need to reduce your spending. Don't pretend you will suddenly cancel your gym membership, or drop cable TV when you will be spending even more time at home. Include these easily eliminated expenses in your budget so you have fat to trim off when needed. Be completely thorough identifying these money pits as no matter how small, together they become a tidy sum.
Co-plan With Your Spouse
Being on the same page as your spouse with your retirement budget is often essential to avoiding financial difficulties in the future. Your retirement may be envisioned by them as a time for endless vacations when in truth you may need to keep those adventures limited. Make sure your spouse is well aware of your budget plan so there are no uncomfortable surprises. This can also help you to lessen or avoid those "But I thought we could afford it now" situations. In single income households where one person handles all the finances this is all too often viewed as an unnecessary step. Ultimately, budgeting is far more about spending than it is about income and this involves both parties in a marriage.
A retirement budget may not be able to prepare you for unknowns, but it is an important part of any planning process. Creating a realistic budget may mean facing some hard truths and making difficult changes. Resist the urge to bare bones your budget to make it fit your long-term plans, as few people have the willpower to strictly adhere to such budgets for long periods of time. For retirement and financial planning services, contact our team at BD Financial Concepts.
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