Planning for retirement is not a subject you dwell on every day until you realize it’s closer than you think. However, there are various components for you to consider when planning for your “golden years.” An important piece of this planning requires you to calculate your current spending so you can make wise financial decisions for your retirement years.
How much do you spend?
Some families track their spending using software, online tools, a homemade spreadsheet, or simple paper and pencil. If you have been tracking your spending, congratulations! You have some solid spending history to use when estimating how much you will need to spend each year to pay your bills and do the things you want to do to enjoy your retirement.
What if you do not track your spending?
Many families that are easily able to pay their bills and accumulate healthy balances in their savings and investment accounts have never felt the need to track their spending. However, as they get within a few years of retirement they realize they do not have any spending history to use for projecting whether they can afford to retire soon. They do not know if their investments will provide enough income to support them with the same lifestyle they have always enjoyed. Fortunately there is a solution.
How to calculate your current spending?
Before you decide to turn off your income from employment, you want to be confident that you know how much money you need for retirement. What you don’t want to do is not have enough income at the time of retirement to provide for you and your loved one. Therefore, it is best to use pure facts when calculating your current spending.
- You make A.
- You give B to the government for taxes.
- You save C.
The rest is what you spend.
A – B – C = what you spend
It’s that simple. Don’t let the fact that you have not been tracking your spending delay your retirement planning. You can use this simple calculation to estimate how much you spend currently. And track your spending going forward so that you can more accurately estimate your spending needs in retirement.
Tracking your monthly spending today is important to do in the last few years before retirement. If you haven’t started, it’s okay. Start now. When you have an accurate picture of your expenses today, you’ll be better off in your future.