In retirement, you’ll likely be living on a consistent budget with fixed monthly expenses. If that budget is ample, you should easily be able to meet all your needs. But if you want to live a more comfortable, confident, financially stable life, you’ll need a plan in place to ensure that your income and budget are able to meet all your needs consistently.
That means you’ll need a plan to keep your monthly expenses as consistent as possible in retirement.
General Principles for Consistent Expense Planning
Let’s start with some of the most important general principles for consistent expense planning and retirement. These core ideas and strategies will help you maintain consistent, reasonable expenses throughout your retirement years and across many different areas of spending.
Minimizing your spending is key to keeping your spending consistent. If you spend less overall and focus on living a minimalist lifestyle, there won’t be much room for your expenses to increase.
For example, imagine the difference between a person who buys groceries based entirely on intuition and a person who buys only what they need. The first person is probably going to see significant peaks and valleys in their ongoing grocery spending, while the second person spends approximately the same amount every month. Much expense volatility can be attributed to unnecessary expenses and waste, so if you remove these from the equation, you’ll naturally be more consistent.
Next, try to plan as proactively as possible. It’s impossible to predict everything, and there will always be things you don’t foresee, but the further ahead you plan and the more thoroughly you plan, the more control you’ll have over your expenses. Additionally, you’ll be able to predict and plan for unexpected expenses that may be on the horizon.
Even with proactive planning, there are going to be weak points in your plan. Prices are going to rise in certain areas and you’ll likely face unusual circumstances that you weren’t able to build into your plan.
Accordingly, it’s also a good idea to plan conservatively. In other words, always budget a bit more than you think you’ll need. If something unexpected does increase your expenses, you’ll be prepared for it, and you won’t have to throw your entire budget out to accommodate it.
Prevent or Accommodate Abnormal Increases
Finally, do what you can to prevent or make accommodations for certain excessive, abnormal expenses. For example, if you use your car on a regular basis, eventually, it’s going to need major repairs. But you may be able to delay or even eliminate those repair needs by taking good care of your vehicle and maintaining it regularly.
Now, let’s take a look at individual areas of spending that can be made more consistent through proactive and conservative planning.
One of the biggest expenses you’re going to face in retirement is housing. You need a place to live – and it’s probably going to take 30 percent of your gross income (or more). If you’re already living in a house that’s paid off, or if your house will be paid off in the near future, you’ll be in a good position already.
Otherwise, you’ll need to pay close attention to these strategies:
Choose a multi-year lease.
If you’re renting, choose the longest lease agreement you can, assuming you’re not in a position to move in the near future. This will lock in your rent, preventing it from increasing during the term of your lease. There are some downsides to this strategy, of course, but it can keep your core expenses more consistent for longer.
Factor in property tax increases.
Property taxes almost never decrease. Property taxes in most areas increase steadily over time, and they’ll increase even further if the value of your property increases. You need to be prepared for this, even if your house is paid off. Build in anticipated property tax increases to your monthly budget.
Be willing to make insurance adjustments.
Home insurance is another important component of your monthly housing expenses, and it may be rolled into your mortgage. If your expenses increase in other areas, you may need to make adjustments here. Shopping around to discover less expensive providers and making small changes to your coverage may be able to save you significant money here.
Invest proactively in upkeep.
Finally, invest proactively in upkeep. Paying $200 a year for HVAC maintenance and routine service is very consistent and predictable, and even more importantly, it could prevent you from having to pay $5,000 or more for a major replacement.
Utilities and Basic Necessities
Utilities and basic necessities aren’t something you can cut out of your life, but there are key strategic areas where you can increase consistency and save money.
Reduce reliance on paper products.
Chances are, you’re already spending too much money on paper products. With a bidet attachment, you’ll be able to eliminate the need for toilet paper almost entirely. With reusable towels, you may be able to eliminate the need for paper towels. Paper products, individually, aren’t expensive, but you’ll have much more consistent monthly expenses if you take them out of the equation.
Budget for average use.
Your utility costs are probably going to fluctuate with the seasons, especially if you live in a climate that’s susceptible to major temperature changes. However, when budgeting, you should always plan for average use. Your electricity bill may be $200 in summer but only $50 in winter, so if you want to have a consistent plan in place, you should probably budget for $100 a month, plus or minus $30.
Invest in energy efficient appliances.
Upgrading your appliances is a large, upfront expense, but it can save you money in the long run and make sure your utility bills are more consistent. Newer appliances are designed to use energy much more efficiently, ultimately lowering your bills and making your expenses more predictable. While you’re at it, upgrade your light bulbs to LEDs.
Make lifestyle changes for efficiency.
Consider making some lifestyle changes to increase your personal utility efficiency. For example, keeping the temperature a bit higher in summer can prevent your electricity bill from exceeding the budget you allocate for it.
Everyone needs to eat and most of us genuinely enjoy the experience. But if you’re not careful, your grocery and food expenses can become volatile.
Cook at home.
One of the most important things you can do is cook at home. Eating at a restaurant or getting takeout are both significantly more expensive than buying groceries and cooking your own meals. It’s also generally less healthy. You’ll have a much easier time keeping your budget consistent if you learn to cook on your own.
Consider growing some of your food.
You can reduce your expenses even further if you grow your own food. Starting a backyard garden or cultivating gourmet mushrooms in your bedroom closet could give you access to clean, healthy foods for little to no money.
Set a strict budget and work around it.
When it comes to groceries, unlike other categories, you have near-total control. Accordingly, you should set a very strict grocery budget and work around it. If you plan to spend only $600 on groceries for the month, figure out a way to make it work, even if that means making sacrifices.
Buy in bulk and on sale.
Take advantage of sales and deals, and buy in bulk when you can. In isolation, stock-ups can seem like a sudden expense – but when divided out, they almost always work in your favor.
Make multiple stops.
Shop at varying grocery stores and become familiar with the strengths and weaknesses of each. Often, you’ll find very different prices for identical products in different locations.
Stack coupons and rewards.
Take advantage of coupons, store loyalty rewards, and credit card rewards whenever possible – and stack them if you can for even bigger savings.
Transportation is another area where expenses can be made much more consistent.
When possible, stay local. Many people dream of traveling in retirement, and if you have the resources to do this, feel free to do so. But if you want to stay frugal, with a consistent budget, try to meet all your needs within a relatively small area.
Use public transportation.
Roughly 80 percent of seniors over 65 live in an area where a car is a practical necessity. This makes it difficult to take advantage of public transportation. However, public transportation is generally safe, reliable, and consistently inexpensive, so you should use it if it’s available to you.
Invest in routine vehicle maintenance.
If you are relying on a car, invest in routine maintenance. Twice a year oil changes and simple maintenance items like tire rotations can keep your vehicle in good shape, preventing sudden, major expenses.
Unfortunately, we can’t exert much control over the prices of healthcare and medicine. But there are some things you can do to make your healthcare expenses a bit more consistent.
Take care of yourself.
Most health complications are at least somewhat preventable, so be proactive and take good care of yourself. It’s very inexpensive, and very consistent to eat vegetables, get regular exercise, and avoid potentially harmful substances. Following these basic protocols could prevent the need for treatments that ultimately cost you thousands of dollars.
Get regular checkups.
In line with this, it’s a good idea to get regular checkups with your primary care physician. These are stable, consistent appointments that don’t cost much money, but could save you from much more expensive and unpredictable needs.
Work to understand your policy.
Finally, make it a point to truly understand your insurance policy, especially if you’re depending on Medicare. You’ll have a much easier time keeping your expenses to an acceptable range if you know the limitations of your policy and follow the recommendations of your provider.
In most of these categories and then some, it’s possible to face unexpected developments and emergencies that artificially add expenses to your bottom line. For example, you might experience a sudden medical event, or your car might unexpectedly break down.
This is normal, and from a high-level perspective, unpreventable. But there are some measures you can take to ensure these unanticipated emergencies don’t compromise your ability to fulfill your basic necessities.
Budget as conservatively as possible. If you ordinarily budget $500 a month for travel-related expenses, consider budgeting $650 a month for those expenses. Each month, you’ll be left with $150 left over, which you can allocate to a separate fund or accumulate in your general savings.
If, once a year, you experience a transportation-related emergency amounting to $1,800 or less, you’ll have plenty of proceeds to cover it. This is also a safeguard against general increases. If you’ve already budgeted 10 percent more than you actually need, and the cost of goods in this category increases by 10 percent, you won’t have to make any adjustments (other than perhaps preparing for the next increase).
Accumulate Emergency Funds
It’s a good idea to have emergency savings set aside. This pool of funds can be used to address any abnormal expense or unexpected increase. As a general rule, you should have about 6 months of living expenses set aside for potential emergencies and unexpected situations. With this cushion in place, you’ll have a much easier time accommodating periods of volatility.
Be Ready to Compensate
Finally, be ready to compensate for categorical increases and other changes in your budget. For example, let’s say your average monthly expenses in the healthcare and medical category increase by $500. If you’re on a fixed income, this has the potential to be financially devastating. But what if you were able to decrease your spending in 4 other categories by $125 a month each? It’s certainly not ideal, but it is possible – and you should have a plan for how you’re going to do it.
Regardless of how much you can afford to spend, it’s important to have a consistent and somewhat predictable expense basis. Life is complicated; in your retirement years, you’ll likely have to deal with issues like economic uncertainty, inflation, supply shortages, and even disasters that throw your entire budget (or possibly, your entire life) into chaos. But with a stable, reliable foundation for your retirement expenses, you’ll be in a much better position to continue meeting your expenses unscathed.
Featured Image Credit: Photo by Vlada Karpovich; Pexels; Thank you.