A monthly budget for personal finances can provide a lot of peace of mind for people of any age. It ensures you know exactly how much income and savings you're working with and what you can and can't spend. Then, when it comes time to make buying and spending decisions, you have a pre-planned ruleset to live buy. That can reduce decision fatigue and help you make better money choices on a daily basis.
While the tenants of budgeting are similar for most situations, seniors in retirement do tend to have a different set of factors to consider. Whether you're new to budgeting or just want a refresher course that's geared toward your situation, the tips below may help you create a budget and stick to it.
It's always a good idea to start with the positive, and in this case, that's literal. Begin by understanding all the positive amounts flowing into your accounts each month. Many seniors may have some form of Social Security benefits paying out each month, for example. Write that down on a piece of paper or, if you like to use a computer, enter it in a spreadsheet.
Record any other estimated monthly income. Seniors might have retirement distributions throughout the year, for example. It's typically best to plan those out ahead of time so you can manage tax obligations. So, if you know how many distributions and how much they'll be within a year, you can divide that income over months and make plans including it.
For example: You plan to take distributions in April and August. After taxes, the money you receive will be $6,000. You can distribute this how you like through your budget, but you might plan to save $2,000 and add $1,000 of "income" for four months after each distribution. Or, if you know you have a big expense such as a medical bill to budget for, you could just call all $6,000 income in the first month.
You don't need to plan the entire year at once, but it does help if you have at least some understanding of your income over longer periods of time.
Next, list all your debts and other obligations for the month. Your assisted living community fees, a car payment, insurance premiums and credit card payments are all examples of bills you may need to pay every month. Try to estimate bills related to medical care if necessary here.
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After listing your bills, you can see how much you have left out of your monthly income. If it's a very small amount or nothing, you might want to adjust your retirement distributions or consider how you can reduce your bills. Because what's leftover needs to cover all other expenses.
Now that you know what that amount is, you can plan extra expenses for the month. Decide how much you want to spend on food and other items for your home, eating out, entertainment, personal purchases, gifts or other items. As you move through the month, try to stick as close as possible to those numbers to keep from overspending.
If it's possible, build buffers into your monthly budget. Add a little more than you think is necessary to various spending categories, even if it's $10 or $20. That lets you attend to unplanned expenses and makes it more likely you'll arrive at the end of the month under budget instead of over.
You also want to account for savings, even as a senior. Have a savings account where you can keep extra funds in case an emergency arises, because it's not always easy to get immediate access to your retirement funds.
Don't worry if your budget doesn't hold up well the first month. Sometimes, finding the right personal finance ruleset for yourself takes some trial and error. At the end of the first month, look at how well you did at sticking to your budget and where you may have strayed. Be honest about why that happened. Did you plan your budget so tightly that it was impossible to keep? Did you forget about an expense that needs to be included going forward? Or did you simply ignore your budget and not try to stick with it?
You may need to change some things in your budget going forward or make a recommitment to stick with it next month, and that's okay. Using a budget gets easier over time, and that's true no matter when you start budgeting.
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