There are many turning points in life with most of them affecting daily routines, careers, and even finances. A great example of this is when individuals have to make the jump from working a full-time career to retirement. This change brings about many new, great opportunities that one may not have had previously, but it also comes with some challenges.
While you may now have the time to travel or take up a new hobby, you might also be concerned about supporting yourself and your family. Without a steady and consistent stream of income, it can make planning ahead difficult. However, here are some great tips on how to maintain healthy spending habits in retirement.
Understanding the Shift in Retirement Finances
As a full-time worker, it may have been easy to fund any extracurricular activities or other forms of entertainment. However, with the transition to retirement, this may not be as simple and straightforward. For instance, gambling is a pastime that many people enjoy, especially now with all the latest online platforms. However, once retired, you now have to rely on fixed income sources such as pensions and savings instead of a steady income flow. Therefore, the need for a budget is higher than ever, and with punting, it makes sense to research cost-effective alternatives.
For example, if you’re an avid iGamer, there are several online casino bonuses for UK players that allow users to save significantly while gambling. These sites have become a welcome alternative that offer few restrictions and many perks, like instant payouts, helping players enjoy a smoother gaming experience.
Consider your financial values, and ask yourself whether an entertainment option is a spender or a saver to make it easier to identify your spending habits. Once you have this information, you can adapt your spending habits to align with your new financial landscape. In turn, this means you can be proactive with your financial planning and strategise on how you will approach hobbies such as gambling, gaming, or any other extracurricular expenditures.
Distinguishing Needs from Wants
Another important aspect of financial planning is establishing and separating one’s needs from one’s wants. Many people think of retirement as an opportunity to travel, eat out, purchase luxury vehicles, and splurge. Of course, this is perfectly fine. However, doing so recklessly can land you in unsavoury situations where finances are concerned.
Therefore, categorising your spending once you have reflected on your spending values is very important. On the one hand, you might have always wanted to travel to a specific country to explore. But on the other hand, would doing so tear a hole in your savings and come back to haunt you later on? These are the questions to ask yourself when setting money aside for each activity.
Identifying Essential Spending
Planning your budget involves quite a few categories of expenditures. Off the top of one’s head, it may not seem like much. But after sitting down and compiling each one, necessities such as food, housing, and healthcare (amongst many others) quickly become a point of concern. Even more, some of these costs will not remain stagnant, constantly being influenced by tax fluctuations and inflation. As a result, assessing and re-assessing these costs will take priority, and needs to be factored into your budget.
With housing costs, it is more than just a matter of paying your mortgage or rent. For many, by the time retirement rolls around, a mortgage is no longer an issue. However, what about council tax and utilities? Are these items factored into your budget? Then there is maintenance, which accounts for housing and any vehicles you may own. Do you have a service plan in place, or costs put aside to maintain these assets on your own?
Healthcare is more than just hospital bills; it also includes any chronic medication, subscriptions, and doctor’s visits you may need. Some retirees may need long-term care, which is an added expense.
Creating a Realistic Retirement Budget
Creating a budget may sound daunting, considering all the factors one needs to consider. However, it is much easier than it sounds.
- First, begin tracking your spending patterns before you retire, or very early into retirement, so you have an accurate idea of your cost of living.
- Next, create estimates for your current and future essential expenses to get a rough idea of your monthly expenses.
- Check your affordability to help with allocating funds for any discretionary expenditures you may have.
- Finally, have a good idea of how to use your money once you enter retirement, as this can help hedge against unforeseen issues.
If creating a financial plan still sounds daunting, perhaps a budgeting application can streamline the process. A financial advisor may also be a good course of action.
Setting Financial Goals
While setting a goal may sound like a given, it is a crucial part of responsibly managing your finances. Consider SMART (specific, measurable, achievable, relevant, and time-bound) goals, which will significantly help encourage healthier spending habits. If you have a lot of debt, aim to pay this off before retiring, or if you plan to travel, save up for the trip. Create a financial buffer for each goal you have in place so in a worst-case scenario, there is a money cushion to fall back on.
Setting Boundaries for Discretionary Spending
Now that you have an established budget for necessities with goals set in place, it is important to think about your non-essential spending. Setting aside a fixed amount for all expenses that fall into this category can help a lot, especially if you are an impulsive spender.
For instance, if you spend a lot of time in physical or online stores and have a tendency to make unplanned purchases, set a limit on the number of times this is allowed. It is a great way to break away from gratification where money is involved and teach yourself financial discipline. If you have a partner, be sure to communicate and agree on this spending limit together.
Monitoring and Adjusting Spending
Overall, budgeting and tracking finances is a great way to maintain healthy spending habits. The reality, however, is that budgets require constant review as they are not a set-in-stone strategy, especially in the current economic climate. Therefore, tracking your actual spending against your budget is a great way to make adjustments as you go without being caught off-guard. In doing so, you can easily identify areas where overspending is occurring and put a plan in place to mitigate this going forward.
