Budgeting can be a very important part of planning for retirement. If you are like most Canadians, your spending will look a lot different during retirement than when you were working. When planning your budget it is important to make sure it is realistic based on your savings and goals for retirement. Here are a few things to keep in mind before you start crunching numbers.
Think about your financial goals
Identify your short and long term goals and make them a priority in your budget. Maybe you want to pay off all your debts, travel more or have enough money to move into a comfortable retirement residence once the time comes. You should also have an emergency fund to cover any unexpected costs that may come up.
Know where your money is going right now
Tracking your money will help you figure out your income and your expenses. That way you can have a good idea about how much you might need to live once you retire. Small changes to spending habits can have a big impact on your budget and your ability to save. For example, if you spend $2.50 a day on coffee this amounts to $900 per year.
You can use the government’s expense calculator to see how these small expenses can add up over time. This is important to note when making a budget because you want to make sure you have enough money to reach your goals for retirement .
Evaluate your needs and wants
It is important to know the difference between your needs and wants. A need is something that is non-negotiable. A roof over your head, food, clothing and medication are all things you cannot live without. A need is something you’d like, but don’t necessarily need. You might like that $5 latte from Starbucks but in reality you can survive on coffee you make at home.
Needs and wants are different for everyone and may change over time. As a senior you may not need the full size washer/dryer that was necessary when you had a house full of kids. It is absolutely OK to include some of your wants in your budget, but only if your needs are taken care of first. Taking a good look at both will help identify which needs are important to you and budget accordingly. You can use this budget calculator on the government’s website to help you identify the line items in your budget.
Taking these three things into consideration when deciding on your budget for retirement will ensure that you have enough money live the life you want. Being realistic about your goals is important so you don’t end up feeling stressed and strapped for cash once you are on a fixed income. Retirement can be a great time in your life and proper budgeting can help you get there.