A well-thought-out budget plan you follow can make your retirement much more enjoyable. The idea of budgeting may sound counter-intuitive to the idea of enjoyment but think about it – you’ve spent fifty years or more of your life concerned about how much money you have, paying off the mortgage, running a dozen or so cars, raising kids, spoiling grandkids, and more. Now is the time to stop worrying about money.
Your retirement income is now essentially your wage. In the vast majority of cases, it will be a lot less than you earned when you were a member of the workforce. On the other hand, while you may be “sacrificing” money because you’re now retired, you’re actually gaining so much more. You’ll now be able to fully pursue the hobbies that have always interested you and you’ll have much more time to spend with your nearest and dearest.
If you overspend in your retirement, it’s dangerous. Borrowing money is much harder than if you’re in employment. The loans you may qualify for may not be the cheapest – indeed, a recent article in the Daily Mirror reported that the amount of over-65s turning to short-term loan companies had nearly doubled since 2015.
While there is nothing wrong with short-term loans if you can afford to pay one back, interest on loans you take out will only eat further into your budget making life a little bit more difficult when you’re repaying the loan.
The best way to come up with a budget is to understand how much your household is bringing in and how much you’re spending.
Gather together your last 12 months’ bank account and credit card statements. Add the income all together to come up with a total. Do the same with your expenditure. If your expenditure is higher than your income, you’re living beyond your means and it’s a matter of urgency for you to put together a budget.
If your income is higher than your expenditure, then you’re living within your means. Could you be doing better and enjoying more of life with a budget though? Let’s find out.
There are three types of expenditure – things that you spend money on. There are essentials, there is discretionary spending, and there is emergency money.
Essential spending are those things that you have to pay for regardless. They include your mortgage (if you still have one), your rent, council tax, your TV licence, your utilities (gas, electricity, and water) bills, telephone costs, your insurances (car, home, life insurance), funeral plans, food, clothing, and so on.
Your discretionary spending is your “fun money”. This can be money you spend to be a member of a local club, holidays you take, restaurants, that Sky Sports subscription, going out with your friends, presents you buy for your spouse, kids, or grandchildren, days out – even meals from the local takeaway.
It’s your discretionary spending that you should think about more than any other because this is the money that adds enjoyment and companionship to your life. In this article, we want you to find ways to make this budget as big as possible – more on that later.
When people think of overspending in their retirement, they often wrongly think that people are spending too much on their discretionary budget. In most cases, that’s just not true – overspending is caused by a lack of emergency money.
What if your boiler, oven, washing machine, or tumble dryer breaks down? What if your car has gone in for its MOT and you’ve been presented with a big bill to get it back on the road? Emergency cash can leave a large hole in your budget if the expense is large enough – it may push you into overdraft or leave you needing a loan to see you through to the next time money hits your bank account.
There are lots of different ways you can save money. Before we pick away at your discretionary spending, let’s look at what you can save from your essentials budget.
There is now competition between many different providers who will help you save money on your gas, electricity, telephone, and insurance bills. We all know that these types of companies, once you’ve signed up, want to increase your bills every year – not bring them down. Every company does it and they all know that their competitors do it too. You could save a lot of money by switching your gas, electricity, telephone, and insurance providers every year by taking up their teaser offers you can find on comparison websites – sometimes you’ll be able to save well over £1,000.
You can choose to shop at different stores for your food and your clothing. The cheaper supermarkets sell food that many critics say is just as nice as the food you’d buy from a top-end store. When you need to buy replacement clothes, you can go to one of the famous discount stores both on the high street and online.
The money you save from shopping smarter you can then use to pay down any credit card bills you have gradually. Every time you overpay, you’ll reduce the amount of interest you’re paying and the number of repayments you have to make.
With the savings you make, you could increase both your discretionary spending and your emergency budget at the same time. So you’ve got the same amount of money coming in as before but you’re able to go out and enjoy yourself more and put money aside for a rainy day.
Most financial experts say that you should have three months’ emergency budget – three months of income sitting aside waiting to pay for an unexpected expense. However, this applies more to those in the workforce still who may lose their job more than pensioners whose income is guaranteed and fixed at a certain level.
If you’re retired, try to imagine the worst thing happening financially. What if your car broke down beyond repair and you needed to replace it? What if the boiler packed in at the same time? Imagine the two biggest things you’d need to spend money on occurring at the same time and that’ll give you the best idea what emergency budget you need for your situation.
All though your working life, you’ve been paying stamps which entitles you to your State Pension. But please remember that you aren’t paid the government pension automatically – you have to claim it. There are other benefits in retirement you may be entitled to, including Pension Credits.
If you have unwanted items around your home or in your garage, you could always raise money by selling them. The most popular destination is eBay, the auction site. What may be of little or no value to you any longer may be something special to another person who will be willing to pay you handsomely for it.
You can also sell unwanted items on other platforms too including Amazon and Shpock. Alternatively, if there is too much to sell or you just want someone else to handle it, you can ask a local auctioneer, antiques expert, or house removals team to unclutter your home and pay you money at the same time.
You may also realise a lot of extra money by cashing in on the appreciation in value of your property since you bought it. Homes are now sold for three to four times the amount they sold for in the 1980s and the 1990s.
If you are finding that the family home is too large, selling it to downsize may mean that you’re able to pay for your smaller home in cash if you have no mortgage and the price you sell your home for is higher than the price of the new home you’re buying.
You can rent out a room in your home and take in up to £7,500 a year with the government’s Rent A Room scheme. Please bear in mind that you may be liable to pay tax on any amount over £7,500 that your lodger pays you. Your lodger can be anyone including a family member.
If you love your home and you don’t want to move, you might want to raise cash with a home equity release loan. You can a lump sum of money now and, when you die, move in with relatives, or move into care, your home is sold to pay off the loan. Please take advice on this option though.
Retirement is there to be enjoyed – it’s a time to leave financial stresses and worries as far back in the past as possible. And budgeting means you can enjoy it more and have money saved for real emergencies.