Tag Archives: budget

You always spend more on vacation

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A major component that I look at when putting together a retirement plan is how my clients are living their life. I like to know not only what their fixed expenses are, but also what they spend on vacations, charitable gifting, personal care, pets, kids, and all of the little things that make up our lives. Retiring is like a long vacation, and you always spend more on vacation. So how do you prepare?

We like to start 2-3 years before you plan to retire by looking at the total expense figure plus tax and inflation. While inflation has been downplayed by the government over the last few years, I never ignore it. We like to take this budget and review it annually just as we do with the investment mix to make sure you are not falling off the track. Budgets are just as important in retirement as they are prior to retirement. You should not be surprised if you blow your budget in the first year of retirement. Most clients do.

By scheduling regular review and update appointments, we can keep close track of not only your investment portfolio but how well you are doing with your retirement budget. Knowledge is power. Knowing where your cash is going will give you the freedom to occasionally blow the budget in retirement.

 

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What is your “phrase to save?”

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We all know that we need to save money for the big things like buying a house, college for our kids, our own retirement, etc., but what is your “phrase to save” that gets you there?

Every journey begins with a single step and saving is no different. Many people now are saying that due to the economy it is much harder to save, but it is not impossible. Let’s say that you have already accomplished the big things, you love your home, and you contribute regularly to your retirement plan. But it is the small items that have you worried. Let’s say there is a big family event coming up next year and you don’t know how you can afford the airfare and hotel.

For two weeks, keep a receipt for everything you spend from a pack of gum to dinner and a movie to your mortgage payment. You will be surprised at all of the small areas you can cut back and save for that family trip. If your “phrase to save” is for the airline tickets, look at items such as that daily premium cup of coffee or buy movie tickets for $10 each vs. renting a movie from Netflix for $3.00. Maybe you will take a sabbatical from eating out for two months and save those dollars specifically for the airline tickets. Small changes in your everyday spending can make huge differences in your savings account.

Whether the goal is big or small, think about and write down your own “phrase to save” and you will be on your way to savings success.

My spending will go down when I retire.

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49% of people within three years of retirement believe that their spending will go down by half in retirement. Really? My experience has shown that is far from reality. Most people think they will spend less on travel, eating out, and see fewer doctors. My clients are living healthier and longer into retirement than past generations. They are not cutting back on travel or eating out. If anything, entertainment in all forms has increased for the retiree. So what is the solution?

You could retire at a later age. Many people I meet with today are still looking at age 62 or 65 for retirement. If that is pushed back to 66 or 70, the difference in their retirement can be significant. Those extra working years allows for more contributions to qualified retirement plan, a potentially larger social security benefit, reduced out of pocket expense from items such as health care because you will still be part of a corporate insurance plan, and lower monthly spending because you are working and do not have all of that free time.

Another option, though not the first choice, is to die before you run out of money. 60% of pre-retirees believe they only have a 25% chance of living beyond age 85. The reality: of married couples currently age 65, there is a 63% chance of at least one spouse living to age 90. So what can you do?

Plan and prepare at least three years before you pull the retirement trigger. We look at all of our client’s current expense plus taxes and inflation through age 90 when putting together a Retirement Analysis. We take a conservative approach to average annual total return throughout the years, and conduct regular reviews and updates. With this approach to Retirement Planning, we can try to stay ahead or on top of any surprises. Seek out a qualified Certified Financial Planner™ Professional and have a comprehensive Retirement Plan done before moving into your golden years.

Budgets are Sexy?

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I recently ran across this title while doing some research. Yes, I do think budgets are sexy. They are also a lot of work and are the path to freedom.

Let’s look at your budget as your new exercise program. It is summer after all and you want to look good on the beach. Nothing makes you look better than confidence and being fit. Financial fitness is just as important as physical fitness. So you are ready to walk into the gym for this first time in a long time. This decision takes commitment and planning but you know that the end result will be worth it. This first step is just that. You will be on a long road to fitness and it will require maintenance.

Planning and sticking to your budget requires the same commitment and maintenance. You need to look at all of your regular monthly expenses such as mortgage, power, internet, food, and transportation costs. Next, you need to look at the periodic expenses such as insurance premiums for your home and life as well as items such as property taxes. Don’t forget your regular savings. We look at savings as an expense whether it is long term savings to a retirement plan or short term savings into an emergency fund. I think it is important to add charitable gifting into the budget. Giving to your community is a wonderful way to spend money.

So stretch your muscles, sharpen your pencils, and get your financial and physical sexy going.