Managing Your Money on a Fixed Income

Budgeting is one of the most important parts to really managing your money. Many people don’t like the thought of a budget. It is associated with restrictions, stress, and  headaches. However, budgeting can actually save you money, and allow you to have more to spend by helping you make the most of your money. 

It is especially important to budget when you are on a fixed income. You need to be prepared for when the unexpected happens. An emergency fund and paying off your debt can free up more money for you to enjoy your retirement, while giving you peace of mind. 

Living on a fixed income has its pros and cons. By definition, a fixed income doesn’t change, at least not by much. The downside to this is that inflation could impact its value, which is hard to predict. At the same time, a fixed income is very easy to predict for weeks, months, and even years into the future. Budgeting on a fixed income can help reduce stress, build security, and put yourself in control of your money.

Budget Worksheet

Step 1: Determining  Your Monthly Expenses

To safely manage your money on any income, you will need to live within your means. Typically, this means you will want to live on 20-25% less than your income. Everything you pay for regularly, such as a mortgage, utilities, groceries, loans, and credit cards are essentially fixed. These are the expenses that you can’t simply cut out. If your income doesn’t outweigh your expenses, you are just adding to your debt. A good budget can help you reach a more comfortable position. It won’t happen quickly, but you might refinance a loan for a better rate, cut back on utility usage, and even negotiate for reduced interest on credit cards. Everyone’s situation are different, but generally, experts recommend the 50/30/20 budget plan. Fixed expenses should be no more than 50% of your income on this plan.

Step 2: Non-Essential Expenses

Anything that you don’t have to spend money on is non-essential. Dining out, vacations, spending money on landscaping, or shopping trips  are all expenses you can change if you need to. This is the most challenging part of creating a budget, since non-essentials are sometime difficult to track, and can be quite surprising when you add them all up. Using the 50/30/20 plan, you will want to trim non-essential expenses to no more than 30% of your income.

Step 3: Saving Money

Saving money is not only important for those planning for retirement. Everyone needs the security of a savings for when something unexpected happens. The 20% portion of the 50/30/20 plan is dedicate to savings. You want to be able to put 20% of your income into a savings. You also want to avoid adding any new debt. If you’ve had troubles in the past with bad financial decisions and impulse buying, stay away from anything that might cause you to overspend. It may seems like a good idea at the time, but breaking your budget can have a lasting impact that may lower your means of living significantly. Practice controlled spending. Occasionally set aside some of your discretionary income to go shopping. 

Tips for budgeting

Consider moving/downsizing
Retirement income tends to be less than pre-retirement. Some states are more retirement-friendly, offering no income tax, no Social Security tax, or no sales tax. If you are living in your family home, you may want to consider selling for a smaller, more manageable home. It not only saves you money in the long run, but it also gives you an substantial amount of money to save, pay off debt, or invest. By selling, you may also lower your property taxes or have to pay none at all, if you choose to rent.
 
Find fun for free
There are numerous ways to enjoy yourself by spending little to no money at all. If you are eligible, you can take advantage of senior specials, also check local publications and website for free activities in your area. Museums, zoos and botanical gardens often have complimentary admission days just for retirees. You can also consider volunteering, Many organizations reward volunteers with free passes to events.   
 
Work to stay healthy
A healthy lifestyle can reduce the risk of illness, which lowers medical bills and prescription expenses.
  • Eat nutritious meals
  • Get plenty of sleep
  • Exercise regularly
  • Spend time with family and friends
  • Keep an active mind
Every month is different
Some months may have more expenses than others. You’ll have to budget for things like holidays, medication refill schedules, doctor visits, or routine car maintenance. Even seasonal utility usage changes will need to be considered. You may spend more on utilities on the winter months than you do during the summer. Regardless of the occasion, make sure you prepare those expenses in your budget. Remember to adjust your budget every month as things change.
 
Prioritize an emergency fund and debt repayment
If you have revolving debt or lack financial security, any plan for discretionary expenses like family vacations or home renovations need to be put on hold. Despite the high cost of debt, it is very important to get your emergency fund started before you turn your attentions to any amounts owned. Getting out of debt won’t help much if you incur an unaffordable major unexpected expense soon after. The amount needed for a proper emergency fund varies depending on your unique situation. Some experts say you want at least $1,000, while others list a minimum of $500 for lower-income families. The ultimate emergency savings goal would be to have 3-6 months of expenses saved incase the worst should happen. Meeting with a financial advisor can help you figure out what is most important for you to do first. Some banks offer customers financial planning services for little to no additional cost. There are also government services that can help for those eligible. 

Once your initial emergency fund is established. You can transition your focus on eliminating your debt. There are several methods/plans out there that can be quite helpful. Many experts tend to point towards some version of the snow ball method. This encourages people to pay off their debts in a way that keeps them most motivated until all debt is wiped out. The snow ball method works by listing all of your debt from smallest to largest (except your mortgage). Make minimum payments on all debts except the smallest. Pay as much of the smallest debt as you are financially able to do. Once that debt is gone, take its payment amount and apply it to the next smallest debt while continuing to make minimum payments on the rest. Repeat this process until you move your way through all of your debt. The more you pay off, the more your freed-up money grows. 
 
Budget as a team
If you’re married or share expenses with another, it’s very important to talk with them about money – especially the budget. Sit down once a month to go over the budget together. The important thing is that you are both on the same page and are working towards the same goal. 
 
Have clear objectives
Budgeting for budgets sake won’t get you too far. Research shows that you are less likely to stick to it, if you do not have a clear goal to put all the effort towards. Whether it is simply seeking to improve financial awareness or determining exactly where your money goes each month, understanding your ultimate goal enables you to customize your budget to your specific needs and increase your chances of success.
 
Establish realistic milestones for meeting your objectives
A clear goal will also give you a way to measure your progress. This could be a certain amount of money saved over a period of time, reduce spending in a particular category, or getting out of debt. The specifics are up to you, but it’s important to set these sub-goals before starting too strong, or you may be discouraged when your expectations are tainted by initial results. 
 
Utilize programs you are eligible for
There are resources all over, especially for those 65 or older. BenefitsCheckUp is great resource created by the National Council on Aging. You just put in your zip code and answer a few simple questions. The site will provide you will a list of money-saving programs in your area that you may qualify for. Some of the program categories available are medication assistance, food & nutrition, income assistance, housing & utilities, veterans, tax relief, and many more. Similarly, Eldercare Locator is another government resource that assist seniors and caregivers with finding programs in their area. These assistance programs can help you trim your budget, especially if you have a fixed income where every penny counts. 

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