This is the 3rd in the weekly Series called Retirement Happiness. In this Series we discuss the issues and concerns about money, and how its various components are so inter-twined that sometimes we cannot see a solution to our constant fear of running out of money as we get older.
Part 9 – Expense Control, Part Two
Last week we talked about preparing a budget, and checking it regularly, daily or weekly, or at worst, monthly. We spoke in broad terms. Let’s get a little more specific this week.
Broadly speaking, your accommodation costs should be both known and predictable for a certain period of time. If you have a monthly mortgage then that should be reasonably fixed month over month, and you will also know how many years to still have left to pay. If you are in rented property then it is a little bit less predictable, unless you have a really long lease, with a fixed price. So, the best you can do in rented property is estimate how much this place, or a new place, will cost for the next foreseeable years. You can always downgrade if needs be – and sometimes that decision is not so much based on cost but more on having too much space now the kids have flown. In any event, this basic expense should be predictable.
Never, to the best of your financial abilities, deny yourself, at least basic foodstuffs. You will already have a very good idea of what it costs every week, with the odd treat thrown in to the mix. Inflation will always impact food costs, and should be noted, but unless we ever see rampant inflation again, it should not be too much of a concern, even over a longer period. Moreover, so many people these days have the dilemma of choosing food over medical prescriptions – or vice versa. That is the shame of our society and should never be a decision needing to be made. It is essential that proper budgeting should be followed to avoid the “one or the other” issue. If cost is a problem, then some sort of balance must be worked out.
This is one which many retirees seem to think they should scrimp on. Whether that is heating in the winter or air condition in the summer, there seems to be a resiliency to “suffer” the extremes. It may not be wise to scrimp of course, but there is a lot to be said for letting the retiree work it out for herself. If she can tolerate the cold and it doesn’t affect her health, then it would take a strong person to tell them they shouldn’t do that. Just try to find some balance between comfort and cost.
Travel and Entertainment
Unless your entertainment is solely going to the movies every week and you know the cost, this category is typically a lump-sum issue. Either you save up for the airfare and the hotel accommodation, and pay it ahead of the trip, or you leave enough space on the credit card, to buy now and pay later. In any event, it is an expense which, based on the 12 month rolling budget can easily be worked into your monthly expenses. In other words, let’s say your trip cost $1,200 (to make it easy), then you budget $100 every month, either in advance or after the trip.
This is the tricky category. Something comes along of a capital nature – new plumbing system, new car, or even worse, a health issue not covered by insurance. How can you budget for it? Not easily. That is why holding on to that little surplus at the end of each month comes in handy. Or if you have space on the credit card, and the extra is not too much, then perhaps you can pay using the card and run it out over the next few months.
Lower expense over time
There is a theory that as you age, your overall expenses begin to lessen. It may be true, certainly in things like less travel or no need to buy another new car etc, but the basics of life are probably not going to reduce unless you slow down eating as well. This theory is probably fair enough and maybe you can re-calibrate your budget as you get older, but is not something to rely too heavily on. But if the expenses do reduce, good for you.
You should be able to instruct your pension provider, and in turn, the investment manager of your pension fund, what tolerance level you have for your investment decisions, ranging from “conservative” to “aggressive”. It is not an easy decision to make, especially to get it consistently right, so every appropriate financial advice must be taken. This is a broad overview and by no means can be classified as solid advice in your case. Be careful.