Detailed approach to spending is critical
By Dan Newquist
A spending plan can set you on the right path to having a more comfortable retirement with less stress and worry. It can be difficult to live with at first, especially for those who have never done it before. However, like anything, it just takes a bit of practice to make it part of your way of life.
The best spending plans reflect what you want your lifestyle to be like in retirement, and with longevity trends (living longer), a more detailed and conscientious approach to retirement spending is critical. There are numerous methods to define your spending plan including developing a budget, gathering all your financial information, tracking your expenses, and consulting your financial advisor.
Develop a Budget
Your budget is the first and most important step in developing your spending plan. The key to spending within your means is to know your expenses and to spend less than you make. Your budget is essentially a mini financial plan that identifies your monthly income and expenses and places them into categories so that you can manage your expenses within the limits of your income. Be sure to account for annual expenses in the process.
Budgets are personal and unique to everyone, but in general your budget will first reveal how much of your income you need to allocate to essential expenses, such as housing, food, transportation, health costs and utilities.
Secondly, your lifestyle priorities will represent the remaining part of your income to cover expenses such as dining out, travel, shopping, savings, or other fun spending. It is important to keep your budget realistic, stick to it and monitor it regularly.
Gather Financial Info
By gathering all of your financial information in one place you can better understand your income and expense elements. This is critical to creating a strong foundation for your spending plan.
Track Your Spending
Journaling all of your expenditures and categorizing them on a monthly basis will help track where your money is going. A written journal works well or there are a variety of higher-tech options available from mobile aps to on-line banking bill pay and debit cards. As unexpected expenses arise, you can adjust your budget accordingly to keep your spending plan intact. Tracking will also help you identify situations or feelings that trigger overspending.
Consult Financial Advisor
You financial advisor is your fiduciary and your advocate. Your advisor knows your income sources and how best to draw from them based on your circumstances. A conversation with your advisor to develop your spending plan and modify your spending behaviors can help keep overspending in check, keep you on track and provide piece of mind.
One of the hardest things about retirement can be maintaining discipline to live within your new income structure. Once you have created your spending plan, test drive it for a few months, then make any necessary adjustments. If you haven’t retired yet, this is a good test so you can make adjustments in advance.
This information is intended for educational purposes only. It is not intended as investment advice. Consult your financial or tax-planning professional for guidance for your specific situation.
DAN NEWQUIST, CFP®, AIF® is a Principal Investment Advisor Representative with RNP Advisory Services, Inc., in Morgan Hill and can be reached at 408-779-0699 or [email protected]. Investment advisory services offered through RNP Advisory Services, Inc. — a registered investment advisor. Securities offered through Foothill Securities, Inc., member FINRA/SIPC, an unaffiliated company.
