July 14, 2011

Jumping off The Financial Cliff.....Without a Net

Having a Satisfying Retirement without a budget is pretty much like jumping off a cliff without a parachute. You may survive but I wouldn't recommend it. I believe quite strongly that a budget is absolutely essential to a financially secure retirement lifestyle. Whether you are already fully retired, working part time, or still a few years away from leaving your job, it is never too early to build a retirement budget. You may hate the idea of keeping track of what you spend. You may think you know what you income and outgo are. But until you put in on paper (or in a software program) you are playing with fire.

So, what goes into a budget? How different is a retirement budget? Are there categories that were important when you worked full time that can be dropped when you are retired? How do you plan for retirement? To give you some idea what might belong in your post-work budget, I will use mine as a sample. Since your situation is likely to be different please just use this as a starting point.

Mortgage payments (I own my home but you may have monthly payments)
Real Estate Taxes
Home Owners Insurance
Utilities: electric, gas, water,  sewer/trash pickup
Home maintenance and repairs, pest control

Food and household supplies
Internet and cable TV
Telephone: land line & cells
Decorations & furnishings
Yard service

Clothing purchase
Dry Cleaning/Laundry
Dining Out
Auto: payments, gas, repairs, insurance, registration
Health insurance: premiums, uncovered expenses, co-pays
Health supplies: over-the-counter vitamins & medicines
Dental care: checkups, fillings, crowns, dentures, etc
Eyeglasses & hearing aids
haircuts & beauty salon

Computer purchase, repair, software
Subscriptions, postage stamps
Tax prep and accountant costs
Life insurance

You may be surprised at all the categories I maintain. A budget after retirement isn't much different from one you used while working full time. It is quite easy to forget that a majority of expenses don't go away. The amount you decide to spend in each may change, but the actual number of categories is pretty much the same, retired or not. And, don't forget to plan for inflation in virtually every category.

Admission: when I designed my first budget I forget two critical items: I forget about vacations, and I had made no allowance for the huge increase in medical insurance and expenses. Two years into retirement I had a rude awakening from my journey to a satisfying retirement.

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  1. I have always kept track of what I spend. The main change is that I no longer have to buy clothes for work. When I planned for retirement,I put aside a fund for things I might have forgot or are unexpected. You can't plan for everything. I encourage everyone to save as much as you can for retirement and make sure you give yourself permission to enjoy spending some of it.

  2. GM Donna,

    There is actually one additional category I didn't list: WAM, or walking around money. As you note you can't plan for everything. It is important to be able to just get something "off the books" for a personal hobby, or you feel like having a coffee and reading a newspaper at Starbucks.

    My wife and I each get a certain amount each month that is totally ours to spend or accumulate as we please. As you might imagine it is the budget's most popular category.

  3. 1 – 1 of 1
    Wow!!! Its an interesting blog on pest control supply ... Really too useful... Thanks for sharing such information.... Keep sharing...

  4. I allowed this "comment" to appear so you realize the interesting stuff I see each morning. Obviously my budget category for pest control triggered something in this fellow's Internet alert system that generated a completely off-target response with a link to a page for a pest control service.

    Normally, I just delete this stuff but felt puckish this morning and thought I'd let you see the extent to which some people will go for self-promotion.

    I did remove the link to his business---I have my limits!

  5. Pets is a huge part of my budget. They were the largest surprise after the first year recap. They turned out to be about 1/5 of our expenditures after the real estate taxes are taken out.
    I have a hard time convincing my husband that the "house repairs" is different than the "house maintenance". One has to do with the plumber, air conditioner and such---the other is for a new roof or redoing the asphalt driveway. Smallish expenditures Vs large ones (that continue to grow into a large sum so we can do it all in cash).
    Thanks for showing us the silly tags you end up getting!

  6. Hi JBO,

    The days of getting a pet from the pound for a few dollars and feeding him basic dry food seem to be over. Dogs sell for well over $1,000, vets charge $200 for basic puppy shots, and "fixing" a pet can be over $400.

    You are absolutely correct about the expense of maintaining a dog or cat. That cost has stopped us more than once from adding a dog to our household.

    And, yes, house repairs are not cheap but not budget-busting. But, if you forget to set aside the $5000 to get the house painted every 7-10 years or $6000 for a re-roofing project when things start to leak, those bills will ruin your day!

  7. using a Quicken-type program is an easy way to see exactly what you spend. No guessing at all
    Dr. Keith

  8. Hi Dr. Keith,

    I have used Quicken for years. It is easy to set up and produces an easy-to-understand analysis of what you are spending money on and how well you are sticking with a budget.

  9. Great post on budgeting. My secret to a successful retirement budget -- spend $1.00 less than the monthly/annual income. For some of us who saved throughout our careers, it is hard to learn that we should actually spend some money! I have always kept track of all spending. Seeing how costs add up annually is often the basis for evaluating lifestyle choices.

  10. I tracked every dollar I spent for 3 years to get a sense of where my money goes. I use Quicken now, too. Much faster. I started doing this because I realized that money seemed to disappear and I didn't know where it went. I am not a big shopper, and I don't go out a lot, so it was very helpful to see where my hidden money drains were. Your budget outline is very helpful. Thanks!

  11. Hi Galen,

    I still use the 2002 version of Quicken..I'm amazed it still works! I track everything, look at reports to see where I'm over or under and make mid-course adjustments.

    I hope a reader leaves a list of his or her categories that may be different than mine. Maybe I'm missing something!

  12. Jeanette,

    I saved 30% of my income during the flush years which allowed for an early retirement. Now that I am not saving but spending, it is a tough habit to break. I am getting better. 2 years ago I would never have felt comfortable enough to spend the amount of money the 3 weeks in Hawaii are going to cost. But, I'd rather live while I'm alive and in control of most of my faculties.


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