Many hard working people, who face the daily stress of earning a living look forward to retirement. Unfortunately, retirement is not what it used to be. Planning for retirement by relying on your company’s pension, long-term savings, and Social Security is a thing of the past.
Although we now live in a world with sophisticated technology, retirement has failed to keep up with cultural progress. For this reason, it’s essential to come up with new strategies to make it easier to live on a retirement income.
Start a Budget
A budget is essential to manage the inflow and outflow of money. If your money is going out faster than it’s coming in, it can cause all sorts of problems.
While some expenses no longer exist, there are new expenses now. For instance, there are no longer expenses associated with work—transportation, business trips, clothing, and dining out—but there are new expenses like hiring nursing and domestic help, as well as managing doctor’s visits and hospitalization.
With that in mind, here are 5 budget ideas to make it easier to live on a retirement income:
1. Reduce Fixed or Recurring Costs
It’s always a good idea to look for ways to pay less for essential services. Electric costs, for example, can be trimmed if you live in an area that has electricity deregulation. Since this is a complicated topic, an example might help. For more information about how deregulation works, click this link to get an idea of how Alberta’s deregulated energy market has made it easier for local residents to shop for the best rates.
2. Track variable expenses.
While a budget might help you stay on top of fixed expenses like mortgage, rent, utilities, and home or car insurance, a budget can quickly get off track because of variable expenses. These are flexible costs based on daily decisions. Paying for dinner and a movie is a variable expense.
However, it’s only too easy for one category, say, the entertainment budget, to take away money allocated for something else.
The way to manage variable expenses then is to have an early warning system to alert you about having exhausted your entertainment budget. While this can be done on paper, user-friendly budgeting software will make it far easier to synchronize all your expenses with a bank account.
3. Plan for increased medical costs.
While medical insurance might help with many expenses, some will remain out-of-pocket costs. Since health care costs can be remarkably high, it’s essential to get Medicare coverage. However, it’s also important to set aside money to cover ancillary costs that are not covered by Medicare. A healthcare budget is a must even if you happen to be relatively healthy right now.
4. Make a plan for hobbies.
The biggest challenge you might face in retirement is boredom. If you don’t have some engaging hobbies, then you will spend much of your time and money on things that provide low levels of satisfaction. For instance, you might spend hours watching TV every day and begin to take long drives and dine out more frequently to break the ennui of staying at home all day,
While going out more frequently might relieve psychological distress, it can wreck havoc on your budget. Issues associated with buying comfort foods and entertainment can be headed off at the pass by spending more time on engaging hobbies. While some hobbies like playing golf or becoming a gourmet chef can be expensive, others like reading books, playing chess, or learning French are relatively inexpensive. Pursuing hobby-oriented goals can make retirement pleasurable rather than utterly boring.
4. Set aside money for emergency expenses
An unexpected emergency, like paying for car repairs or fixing the fan on an electric fireplace in winter, can quickly drain the best-planned budgets. For this reason, it’s always a good idea to keep reserve funds for a big-ticket expense. This money should only be used for emergencies and not borrowed from to balance out any shortage in variable income costs.
5. Avoid installment payments.
The quickest way to end up paying more than you would like is to pay small amounts for an ongoing subscription. Without even noticing it, these small subscriptions to different membership websites or consumer services begin to add up.
We live in a consumer culture and are surrounded by marketing offers that appeal to our core interests. Since many offers cost hundreds to thousands, marketers persuade us to buy their big ticket items in small increments over a long period of time. While this may be convenient, we have to pay interest to compensate for their generosity in accepting deferred payments.
Why Adopt these 5 Steps
Although the world has progressed in many ways, retirement has not been part of the progressive train. In fact, it’s gone backwards. Retirees can no longer rely on the government and their employer to take care of them. Even personal savings has become difficult because the rising cost of living has made it harder to put money aside, and the low-interest rate can’t keep up with inflation.
Even if you have used strategies like 401(k) plans, IRAs, and savings to plan for your retirement and may be far better off than those who merely rely on Social Security, it’s still a good idea to use these five tips to manage your money.