Being able to budget effectively is a great life skill to have and one that can be learnt at any age. In straightforward terms, budgeting is making a plan to spend and save money. And it’s much easier than you might think.
It’s especially important when planning for and during retirement as most of us are likely to have a lower income than when we were working and more time to enjoy ourselves. It’s easier to save regularly for treats and holidays if you stick to a budget and if you start budgeting before you retire you could find yourself with spare money each month that you could use to pay more off your mortgage or to increase your pension contributions so you can enjoy a better retirement.
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How do I create a budget -
First make a list of the money you receive each month whether that’s from a job, benefits, property income or savings and investments and add this up.
Next look at your bank statements, credit card bills and till receipts to make a list of everything you’re spending.
Start with identifying the essential outgoings such as the weekly food shop, utilities (gas, electricity, water, phone, television, broadband, council tax), rent or mortgage charges, loans, petrol/diesel, clothing, haircuts, mobile phones, car tax and insurance and add these up.
Then move on to the nice to haves such as magazine subscriptions, hobbies, memberships, eating out, holidays and gifts for other people and add these up. Now add both together.
If you compare how much you receive each month with how much you’re spending you can quickly see if you are spending too much and need to cut back or if you have spare income. Our retirement budget calculator can help.
How much do I need in retirement? -
According to research, the minimum income level at which people feel comfortable in retirement is £15,000, but how much do you actually need?
Budgeting is easier than you think. Find out how to budget effectively.
To work out how much income you need for your retirement start with your monthly outgoings:
- How much will you be spending on the essentials (food, utilities, housing, outstanding loans, clothing, haircuts and car running costs)?
- Will you have paid off your mortgage and/or any loans?
- Will you still need to find the rent each month?
- Will you be able to save money by making home cooked meals or enjoying meal deals for retirees?
- If you have more than one car or vehicle will you still need all of these in retirement?
Now consider how you would like to spend your time in retirement and how much each activity is likely to cost you a month:
- Will you still need your gym membership or is there a more cost effective hobby for keeping fit such as walking or cycling?
- Do your clubs offer lower membership fees for retirees?
- How often will you eat out or go on holiday?
- How much do you want to spend on children and grandchildren?
Once you have a good idea of how much you will actually need you can look at your pension savings, state pension entitlement and any other sources to income to see if you will be able to have your ideal retirement, whether you’ll need to save more now into your pension or whether you’ll need to cutback.
Get started now with our retirement budget calculator. Just pop in what you know to see what it’s looking like and save it. It will be here for you to revisit when you have the rest of your information gathered.