Retirees also need budgets. Here’s how to make one.
You might not have carefully followed a budget in your working years. But if you’re retiring, it’s really important to take your budget seriously.
While some retirees have part-time jobs, if that isn’t part of your plan then you will need to be extra careful about managing your money. This is especially true if Social Security will be your main source of income and you don’t expect to have access to a lot of money outside of these benefits.
Whether you’re completely new to budgeting or retiring soon, here’s how to budget in four steps that allows you to get the most from your income.
1. See what your existing expenses look like
Chances are, many of the expenses you pay today are expenses you will continue to incur after you officially retire. Go over your credit card and bank statements for the past six months or so and see what your spending looks like. Next, write down each expense category that applies to you and what it costs you on average. For example, if your electric bill is typically around $ 150 per month, this is an item you would include in your budget.
2. Determine how your expenses are likely to change
Some of your living expenses may go down after you retire. For example, you could spend less on gas once you stop driving to get to work every day.
But some of your living expenses might increase in retirement. If you spend more time at home, your utility costs could increase. And you might end up spending more money on hobbies and entertainment because you’ll have to keep busy when you’re away from work. Go over each item in your budget and adjust that amount based on what you think it will change.
3. Determine the income you have
Once you retire, you can have access to a number of different sources of income, such as social security benefits, withdrawals from the retirement plan, and money from a pension. Add up these income sources to find out how much you can afford to spend, and adjust your budget if necessary to account for a drop in income from what you are currently earning.
4. Set priorities to maximize your new free time
There may be little room in your retirement budget for things like travel and entertainment. But these are expenses you might want to prioritize once you stop working, because sitting at home bored all day is not a good way to live.
Take a look at your budget and see if there is room to narrow down some areas to free up more money for recreation. You may decide to make larger changes, such as downsizing, to give yourself that flexibility.
Sticking to a budget could help you avoid a world of financial stress once you retire. These tips could help you create a budget that is not only realistic, but allows you to spend your retirement years doing the things you’ve always dreamed of.