Live on Less Than You Make

Written by Skip Fleming.

Live on Less Than You Make

I know that you think this is so simple, that anyone can do it. Then why are so many Baby Boomers approaching retirement worried about having enough money?

Many in our generation seek the advice of a Financial Professional when they believe they need their investments to perform better. A real Financial Planner will look at the entire picture and not just the investments. The key to living a more secure retirement is living within your means. This begins while you are still earning, as well as when you stop.

I see a pattern among many of my generation who have completed a successful Military career. During those Military years, they were cautious and lived within their means; they kept to a budget, knew where every dollar went, and meticulously saved for their eventual retirement. However, upon leaving the service and landing that good paying second career, some of these good habits may fall by the wayside for a few years and in some cases for too many years.

So where do we start if we need to rekindle that budgeting habit?

First, you have to determine your monthly income. Add up the net retired pay, net salary, spouse's net salary, plus any other regular income such as rental income, dividends from investments not reinvested.

Second, determine your base expenses. Most people call these fixed expenses, the ones that don't fluctuate very much throughout the year. Examples include mortgage or rent, insurance premiums, loan repayments. This also includes regular contributions to your emergency cash savings or emergency fund as well as contributions to your IRAs.

Third, determine your variable expenses. This is what some people refer to as their discretionary expenses. Some of these we have control over and some we do not. Examples might include groceries, utilities, dining out, gifts, clothing, entertainment, vacations, travel, and cell phones.

Fourth, set priorities for those expenses you can control. For every item on your variable expense list ask yourself; is this a necessity? If not, then eliminate it. If it is then, give it a number ranking. Do you need unlimited text and talk for those cell phones? Do you need that high-priced Bundled package from the cable company? Do you have to dine out three nights a week?

Fifth, build your budget. Give every dollar a purpose. Identify ways to reduce expenses or earn more. Allocate your income to where you should be spending it, not where you have been spending it. Record your income and expenses every month and compare them to your budget. If you're overspending in some categories, make adjustments. Ensure you are setting aside enough money for annual expenses, like insurance or property taxes. Remember the seasonal items like Birthdays and Christmas and make sure you have the funds to cover these.

Lastly, review your budget at least monthly, revise and adjust as necessary. No budget is perfect. Your budget should be flexible. Life changes and so do your priorities.