Creating a budget with a fixed income is not an easy task. You need to understand where your money is going and how to handle it. This is especially the case for baby boomers hitting retirement age or are already in retirement. Balancing a steady, but small paycheck means thinking about everything before doing it.
But you don’t have to worry too much. We are here to provide you with some easy steps to create a budget and help you stay on track with your budget.
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Assessing Income Sources
The first thing you need to do is understand exactly where your money comes from. For some, this may mean pensions, social security and/or savings. This type of income is generally fixed. List down all the ways in which you make money. You should know the exact amount you receive each month and year. It helps you be more organized and makes sure you are not leaving any money that’s available.
Tracking Expenses
There is no way to budget if you do not know where your money has been going each month. Track every expense — from major costs like rent or mortgage to minor expenses like groceries and gas. Don’t forget to count in occasional expenses like insurance premiums, medical costs, etc. When you focus on your expenses as a whole, you can see where the majority of your money is going. This will help you figure out where you can cut back if needed.
Differentiating Needs vs. Wants
When you’re living on a fixed income, you need to know the difference between needs and wants. Needs are things you can’t do without – housing, food, medical care, etc. Wants are extras, like going out to eat or clothes. Be honest with yourself when you decide on what to cut back on. This does not mean you have to say goodbye to all your wants but learn to prioritize your needs.
Creating a Realistic Budget
Once you identify your income and expenses, it’s time to start a budget. But you will need to make it realistic and based on real numbers. If you set goals that are too ambitious, you may end up becoming frustrated. Put aside as much as it takes to cover your requirements before considering what you might have left over for luxuries. Keep it flexible in case something unexpected happens.
Building in Contingency Funds
Life is full of surprises and you should save some amount as emergency funds. This contingency fund can be used for unexpected expenses like a car repair or sudden disease. You can save a little bit each month, but it all adds up. This fund helps you avoid dipping into your savings or taking out a loan when you are hit with unexpected expenses.
Exploring Cost-Saving Strategies
Find ways to cut costs (within reason). Things like switching to energy-efficient light bulbs or cutting back on cable TV can save money in the long run. You can also save by buying products that are on sale, using coupons or buying in bulk. Think about areas where you can cut costs without affecting your quality of life.
Prioritizing Debt Repayment
Paying off any debt should be a priority for you. Credit cards are the top burden for most people, so make a plan to start with the highest interest rates first. Once you repay one debt, get to the next. When you slash your debt, it allows a larger portion of your income to be invested in savings or other necessities. It also decreases financial pressure on you.
Using Senior Discounts and Benefits
Most baby boomers qualify for senior discounts or special benefits. Stores, restaurants or services often provide discounts to those who have reached a certain age. When such discounts are available, be sure to use them. Also, see if you qualify for any state assistance program that can help with your utilities or even medical care.
Revising Your Budget Regularly
A budget is a living document that changes, just like your financial state. Update your income, expenditure and goals every few months. This way, you can make any necessary adjustments to keep your budget in tip top shape. You may also discover new areas of saving or even realize that some expenses are different.
Seeking Financial Guidance
If you have any doubts about budgeting, it is better to ask for help. There are financial advisers who specialize in working with retirees on a fixed income. They can give advice about saving, investing and debt management. Having a discussion with a financial advisor may help you find areas where your budget could use improvement.
Disclaimer – This list is solely the author’s opinion based on research and publicly available information.