How a Spending Plan Can Give You Peace of Mind in Retirement
November 4, 2022
One of the most essential principles of wealth creation is to plan your spending so your income can be used to save and invest, while also covering your lifestyle.
This becomes ever so crucial in retirement when we shift from building wealth to spending it. For some, this transition is more difficult than it sounds. But a unique and effective spending plan helps ensure your wealth can last your lifetime and enables you to enjoy retirement with a sense of financial peace.
But First, What Is a Spending Plan?
You can look at a spending plan as a more thorough and thoughtful budget. But where a budget can feel restrictive, a spending plan allows you to decide how to distribute your income for everything from daily expenses to debt reduction to saving for retirement.
Your spending plan is a tool that helps give you control over where your money goes. Instead of stress and confusion from not knowing how to divide your finances, you’ll get clear about how much you can spend or how much you need to save.
It also gives you permission to spend on what you think is important and makes you happy. If in the process you find unnecessary expenses or costs you forgot about, like recurring subscriptions, then you can cut these out and put money back in your pocket for savings or other more practical needs.
A Spending Plan Gives You More Control of Your Money
We all have certain emotions when it comes to money. While some of this might be unique to our natural temperament, much of it depends on our experiences with money over the years.
How did your parents teach or talk about money, if at all? What was the financial environment like in your home? Did your family experience a reversal of fortune, from wealth to scarcity, or vice versa? These factors create unique money emotions within each of us and can impact our financial decisions.
You may be a saver by nature and money represents a feeling of safety in your life. For others, money can be a measure of power and success because it affords a certain status. Some need to track and keep records of every expense, while others may be more free-spirited with their money.
No matter how you view money, the important thing to understand is that it is a tool to be used for some purpose. And there are only a few things you can do with money: You can spend it, save it, give it away, or help your family with it. A spending plan can help you decide how best to use your money for the things that are most important to you.
How to Create a Spending Plan
First, you’ll want to add up your income and earnings to calculate your inflows. Next, review your expenses to determine your current spending, saving, and debt payments. A good guideline to follow is the 50/30/20 rule. Divide your income into three spending categories: 50% for fixed expenses (needs), 30% for discretionary expenses (wants), and 20% for saving or paying debt. This will help you live within your means, save for the future, and pay off your debts.
Keep in mind, there are no rules for how your spending plan is structured. Whether you use an app, spreadsheet, or good old-fashioned pen and paper, the goal is to decide how you want to allocate your financial resources so they can work effectively and efficiently for you.
However you do it, you’ll need to update your spending plan periodically to ensure it accurately reflects your stage of life and how you want to spend your money. Expenses change, as do priorities, and your plan should reflect current needs, wants, and goals.
Why a Spending Plan Is Important for Retirement
During your working years, it’s important to manage expenses, so you can save for a comfortable retirement. And this doesn’t stop when you retire. While your investments and retirement income play a key role, your spending can make or break your financial security once you’re no longer working.
Creating a spending plan can help you estimate how much you’ll need during retirement to support your lifestyle and answer the big questions, such as:
- Can the money I’ve saved last my lifetime?
- Can I do what I want in retirement without worrying about running out of money?
- Can I sustain the lifestyle I am accustomed to?
Your spending plan in retirement will look a little different from your plan while working. For most of us, our income in retirement is not enough to cover our expenses. This means we will be relying on our savings, investments, and retirement accounts to supplement our income.
Your spending will determine if your savings and investments are enough to meet your goals. If not, you may need to adjust expenses or increase your income. On the other hand, you may be able to achieve new goals, like buying a second home, taking a dream trip, or helping family members.
If you haven’t retired yet, having a strategy can help determine when you will be able to retire with financial security. Retirement ages are unique and should not be driven by an arbitrary number. Instead, you need to know that your savings can support your spending needs and for how long.
Plan Your Retirement with Trinity Wealth Management
We all have unique financial needs and wants, so everyone’s money needs to work differently. Creating a spending plan can help clarify what your money needs to do for you, so you can focus on doing the things you love now and in the future.
Let us help you create a retirement plan that reflects your unique spending goals. Contact us today to get started.
The commentary on this website reflects the personal opinions, viewpoints, and analyses of the Trinity Wealth Management, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Trinity Wealth Management, LLC or performance returns of any Trinity Wealth Management, LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Trinity Wealth Management, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.