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Budget Tracking/Adjusting

Continuously Track Progress & Adjust your Retirement Plan.

Planning is Forever

Once you’ve retired, don’t assume that the planning is over.  Just as your personal and financial situations changed while you were working, they will continue to change in retirement.  There will be surprises as to how much money you really need to fit your new lifestyle.  Keep in mind that you’ll be mostly on a fixed income, and some budgeted items will increase dramatically in cost over time (e.g. food, gas, utilities, etc.).

Also, you’ll need to periodically adjust your budget to accommodate the following unplanned events:

  • Gain or loss in investment value,
  • Income not keeping pace with inflation,
  • Development of health issues,
  • Change in housing situation (dwelling, location, etc.),
  • Encountering unplanned expenses (e.g. housing or auto repairs),
  • Obtaining part-time employment, or
  • Commencement of minimum pre-tax account withdrawals.

However, before you begin to make major adjustments, you need to give your initial budget a chance.  Also, be aware that it usually takes a year or two to determine how well your retirement financial plan is working.  This is why it’s important to continue tracking and categorizing expenditures after retirement so that you can do an accurate comparison and make appropriate adjustments.

Update Your Budget

Updating your budget can be an easy or very complicated exercise depending upon how well you classify your expenses.  Expenditure tracking is greatly facilitated through the use of credit card purchasing.  Each month when the statement arrives, you can accumulate expenses into the various categories and post these into your financial software (Quicken, Mint, YNAB, etc.).  It’s easiest to just post the credit card totals and use the “split” function to split the total into the various categories.

This process is automated by downloading transactions from your financial institution to your computer.  Credit card expenditures can be either directly imported into your financial software (e.g., using a Quicken QFX file) or into spreadsheet software using a CSV (comma separated values) file.  Once imported into Quicken the transactions can be individually categorized.  However, I prefer working with an MS Excel spreadsheet to categorize expenses and to load just the category summaries into Quicken.  This simplifies the amount of detail in the credit card register.

Although most banks offer file-download functionality, there are still some smaller banks that do not provide it.  Check with your software’s financial institution list to be sure.

Analyze and Adjust Expenditures

Once you’ve collected a year or two of data and believe that you’ve reached an initial steady-state, it’s time to analyze your expenditures versus plan and update your initial budget.  This may mean having to make certain concessions if you determine that expenses are exceeding income.

Your opportunity to bring expenses into line with income primarily lies within the discretionary lines of your budget – travel/vacations, restaurants, etc.

However, don’t rule out some items that you’re classified as mandatory.  For example you can:

  • Relocate to a less costly house and/or location,
  • Reduce utility costs by cutting back on the amount of heating or cooling utilized,
  • Conserve gasoline by cutting back on driving or purchasing a more fuel-efficient car,
  • Save on phone expense by using a less-costly no-contract cell phone and a VOIP (Voice Over Internet Protocol) landline such as Ooma, Vontage, etc., or
  • Forego the more expensive products, name-brand labels, or organic foods.

You should continue to review and update your budget at least every few years to get a better sense as to where you’re spending your money and to make adjustments.  The last thing that you want at this stage of your life is to run out of money.  This could impact your independence and possibly send you back into the workforce.

Another good idea is for you to regularly (at least annually) update your Net Worth and determine your asset drawdown rate.  This will tell you whether you’ll be able to meet future financial needs and your position in building inheritance assets.  This exercise will require you to reassess your health and reforecast your possible lifespan.

In summary, budget and net worth tracking, with regular expenditure analysis and adjustment, continue to be an important exercise in retirement.  Together, they will help assure timely response to changing circumstances and continuation of your current lifestyle.