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Sometimes recipe books fool me. A meal may say that it takes 30 minutes to cook, and that is great! After I get home from work I can whip up something really quick. But wait, the recipe also estimates about 30 minutes of prep time. My quick meal just turned into an hour-long event. It is easy to think of the end result and forget the prep work that goes into it. The same goes for your retirement budget.
Like a recipe, a budget is not developed at random. There are many steps which include preparation, management, and execution. Each of these components are crucial to a successful budget. When it comes to your retirement planning, the legwork has to come up front. In order to create a budget that will work for you, understanding your spending habits is a crucial first step.
By assessing the how and why of your spending early on, you will be able to better create a budget that not only works with the numbers but makes you happy as well.
Spending money is something we all do. Our society depends on the spending, saving, and investing of money. We may all spend money, but we don’t spend it in the same way. What drives your spending? Some fixed expenses:
Outside of these living expenses, what do you spend your money on?
We often spend money on the goods or services that are most important to us. For some it may be a Crossfit membership, for others, it may be a designer purse, and still others may never be able to turn down a meal at a new local spot. Even more commonly for retirees, it’s splurging not on yourself – but on your grandkids! Whatever it is, our spending is rooted in our values.
Take a look at your credit card statement and see the trends of where, how, and why you are spending your money. Once you have gathered the information, think about it.
These are really good questions to ask yourself in an open and honest fashion. If after examining you find there are some changes you would like to make, then do it! When you uncover the why of your spending you will be better able to alter your practice if needed.
This why also becomes important when planning for your retirement budget. While your expenses may decrease slightly, they often do not decrease to the same degree that people think. Teaching yourself healthy spending habits now will help make sure you don’t overspend too early in retirement.
Connected to this idea of why is the concept of where. Where is your money going? Be honest with yourself here. If your money is being funneled into institutions that do not give you fulfilment, then there are some changes you should make.
It is difficult to be honest, even with yourself, when you have cultivated negative spending habits. Once you make yourself aware of where your money ends up, you can start to make some changes.
These changes should be made years before you retire. You want to start creating healthy spending habits before retirement so you can enjoy your golden years without the weight of excess spending looming over you.
Throughout this process, you have maybe discovered that you do not have the best spending habits. That is ok! Once you realize this, you will be able to make a change. I would like to provide you with some tools that you can use to help keep you on the right track with your spending.
Your cash-flow in retirement will look drastically different than how it does now. An employer’s paycheck will not be a given and your savings will finally get to take center stage. Since a majority of your money is tied up in your savings, you do not want to go through that money too quickly.
Gauging your spending habits in your pre-retirement years will help instill positive spending habits to make your retirement a long and happy one.