Tag Archives: Budgeting

Three Retirement Expenses to Avoid at all Costs

Budgeting, Retirement Plan,

If you are reading this blog you are already considering retiring, and you have put into place or are putting into place your plan for being able to do so. This post will set forth three expenses that you should avoid in retirement if you are to be as comfortable and secure as you wish.

This might be considered advice along the lines of “tough love,” but if you are not going to hear it here, who else will tell you? Know that as you approach retirement you are going to be perceived as financially-secure, and you might be approached for financial help by family members. Of course, de minimis gifting is always appropriate – it is the large financial commitments we want to avoid.

Three Retirement Expenses to Avoid at all Costs

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Do Not Cosign Student Loans

If you have children or grandchildren hoping to attend college and needing to take out student loans, do not offer or agree to cosign those loans. Why? Because student loan debt is the only debt you can not get rid of, through bankruptcy or any other means, and if your child or grandchild later defaults on the loan, that debt will haunt you for the rest of your life.

Of course, the student has the best intentions when taking out loans to attend college, but the economy and job market are in flux right now and there is no guarantee that he or she will be employed and able to make student loan payments when they fall due. Your loved one may fail to make student loan payments as agreed through no fault of their own.

If this happens, and unfortunately it often does, the lender will surely pursue you as well as the student for payment. Penalties will accrue if payments are made late, and if you refuse to pay, the lender can garnish wages and social security payments and can levy on your bank accounts. The lender can even place a lien on the home you are working so hard to pay off!

Nothing can derail your plan for a financially-secure retirement more than a student loan in default. You must think of yourself first and if you don’t take care of yourself, who is going to? It  is difficult to say no to a loved one, but you must explain that you don’t have the resources to back up a promise to pay if the student fails to pay. Again, tough love. 

Affordable Ways to Help a Loved One with College Expenses

We are not saying you can’t help a child or grandchild attend school, just that you shouldn’t put your financial well-being at risk by co-signing student loans. There are alternative ways to help your loved ones attend college or post-secondary training if you wish, that involve less risk to you. 

What you might offer instead of co-signing for loans, if you can afford it, is some financial contribution to education expenses in an amount that matches the student’s earnings over the summer. Or, you might offer cash incentives for achieving a certain GPA. 

If you are planning to contribute to a child’s college expenses and you have some time to save, explore the possibility of opening a 529 college savings plan. A 529 plan is a state-sponsored tax-deferred account that allows you to save money for college, for yourself or someone else. The money may later be used to pay any and all qualified higher-education expenses, including room and board.

While a 529 plan does not offer any tax break for you, as contributions are made with post-tax funds and are not tax-deductible, it grows tax-free and will not be taxed to the student when withdrawn. If you start saving while a child or grandchild is very young, even small contributions will grow over time and provide a tidy sum when the child is ready to attend college.

Of course, you can and should help loved ones attend college if you can afford it, but you should help in a way that is prudent, responsible, and in keeping with your retirement plan.

Do Not Support Other Family Members Financially

Again, this is tough, especially as the pandemic has the economy in a downward spin and so many are out of work.

In emergent times, such as sudden illness or unexpected job loss, it is natural for parents and grandparents to want to help their loved ones. We are not suggesting that you withhold all help, rather, that you carefully consider how much assistance you can afford, and that you avoid providing so much assistance that you are actually supporting that person or family unit.

Providing financial support is a slippery slope. Unfortunately, family members come to rely on and expect that support if it is given regularly and in a significant amount. And needs seem to always increase, not decrease.

Tips for Helping Loved Ones in Times of Financial Crisis While Avoiding Risk to Your Financial Security

Of course, you can and should assist your loved ones when they fall on hard times, if you are able. Here are some tips to help you give only what you can reasonably afford, and to manage your loved ones’ expectations:

  • Do not allow family members to move in with you. It is very difficult to get them to move out if you do. Offer instead to help with the rent or mortgage if you can afford to.
  • If you fail to take this advice, a resident loved one should contribute to household expenses from whatever income or benefits they have, and should do chores around the house and perform errands for you. Be clear that this is a temporary visit, that way all parties involved will be able to enjoy it rather than resent it.
  • Be sure to tell loved ones that whatever you give them is all you can afford, on your fixed income. Be firm and consistent about this.
  • Rather than giving cash, buy them groceries, or pay their electric bill, or put gas in their car. This ensures whatever assistance you can afford to give is spent on necessities.

Avoid Taking Out Life Insurance You Don’t Need 

If you are nearing or have reached an age where you can retire comfortably, you may also be thinking about what legacy you can and will leave for your loved ones. That is admirable, but you must be careful not to fund your legacy goals to the detriment of your current and future financial security.

You probably had term life insurance when you were a young family, to provide income-replacement for your spouse and children should something happen to you. This was relatively inexpensive at the time, but as you got older, premiums necessarily increased because the insurer’s risk of loss increased. 

Having a life insurance policy when your children are grown and independent and you have enough saved for retirement is only necessary if your spouse requires income-replacement. Otherwise, a small inexpensive policy providing for funeral expenses is all you need. 

Your legacy will be whatever is left of your estate and retirement funds when you pass, and even more valuable, the lifetime of prudent financial modeling you provided to your family. 

This informative and well timed post for today’s environment was contributed to Leisure Freak by Veronica Baxter

V Baxter Leisure Freak Contributed Post About the Author

Veronica Baxter is a writer at assignyourwriter, blogger, and legal assistant living and working in the great city of Philadelphia. She frequently works with and writes for Boonswang Law, national life insurance beneficiary attorneys based in Philadelphia.

 

Budget-Friendly Resolutions To Better Yourself

Budgeting, Early Retirement Lifestyle, ,

It seems that New Year’s resolutions tend to be centered around ways to make yourself healthier, a better person, or how to save yourself money in the upcoming year. The truth is: this isn’t something that just feels common; the most popular resolutions actually center around one of these themes of health, self-care, or budgeting.  

The best news is that you don’t have to overwhelm yourself with new tasks to complete all year round to try to make a better life for yourself. There are ways you can be healthy, practice self-care, and be eco-friendly all while saving yourself money. 

Budget-Friendly Resolutions To Better Yourself

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Making eco-friendly changes

This year, strive to make changes that will help you and the environment. Being retired, you have more time to focus on things that really matter, like making the planet a better place so it makes sense for your resolutions to not just be focused on yourself. I am sharing some eco-friendly changes to make to your lifestyle that can actually save you money too! 

Reusable water bottles – If you are still using single-use plastic water bottles, 2020 is your time to make a change. Reusable bottles are a great investment. They may be a pricier one-time payment, but they can prevent you from spending money on water bottles and wasting plastic every week for years to come. 

Contact lenses – You may think that something as small as your contact lenses wouldn’t matter. However, just like water bottles, you have to think about how the small amount of plastic you use daily can add up quickly. Switch your contact lenses to a brand that uses less plastic and is affordable! You can’t go wrong.

Clothing – There are even ways to be conscious of the environment with your clothing. Shop from sustainable brands that source their materials naturally and ethically, as well as brands that are mindful of their carbon footprint and employee treatment. To save yourself even more money, you can shop second-hand. Thrift stores are a good way to save money on clothes while giving a second life to clothing that others no longer wanted.

Budget-friendly health changes

Being retired means there is more time to do things you enjoy – and it’s a plus if any of those things include exercising and being active. Oftentimes, people waste money on gym memberships they don’t use or seek out classes and don’t end up enjoying them. Fortunately, there are alternatives to these typical go-tos! Make better use of your funds and keep yourself motivated by doing things you actually have fun doing. If you like tennis or golf, then you should do those things to get your daily exercise in if that’s your plan for the new year. 

Another option is to invest in items for a home gym so you don’t have to leave your home to get a good exercise into your day. Simply dumbbells, yoga mats, and resistance bands can offer a great workout. However, you can take your dedication to fitness a step further this year and invest in a product like a stationary bike. There’s the top of the line exercise option the Peloton bike which can give the feel of a workout class in your home. But there are also lower cost options like the Schwinn IC3 Indoor Cycling Bike and  L Now Indoor Cycling Bike that can be purchased at a reasonable price! Both have a media shelf and if you crave that interactive workout class feel and motivation then you can still get Peloton’s classes via their app.

Make sure you’re investing your money and your time in something you enjoy doing for any health changes you consider in 2020. There is no point in spending money on a gym membership, classes, or workout equipment if you aren’t having fun while doing it! 

Self-care practices for the new year

Self-care is another practice that is important to better ourselves and is often a focus of New Year’s resolutions. The eco-friendly and health resolution ideas we’ve discussed are actually both forms of self-care in themselves – it’s important to feel good about yourself and the life choices you are making.

Budgeting – Yes, budgeting in itself is a form of self-care. Being smart with your finances can give you peace of mind, help you spend your money more wisely, and encourage you to save money for things that are important. It’s especially wise to budget around the holidays, when we tend to spend a lot of money at once. 

Be outdoors – Something as simple as being outside for 30 minutes every day has a lot of positive benefits. Whether you choose to work out, go for a walk, or just bask in the sun, be sure to get outdoors every day for a free way to boost your health and mood! 

Journaling – Writing in a journal is something that can help your mental health by expressing gratitude and working through any feelings of stress, anxiety, or depression. It can also help increase memory capacity and comprehension. Writing is a simple, free practice that many people aren’t doing on a regular basis after retiring. 

 

Health, self-care, and living a green life luckily all go hand-in-hand. If you’re looking to make a New Year’s resolution for 2020, consider some of the budget-friendly options on this list to better yourself, the planet, and the people around you too! 

Keeping the Holidays Happy: Making and Sticking to a Money Plan this Christmas

Budgeting,

The holidays are supposed to be a time to relax and celebrate with family and friends. Images of decorating a tree, enjoying hot chocolate by the fireplace, and gathering around the table for turkey come to mind. 

Unfortunately, this time of year can be anything but relaxing for many people. In fact, it can be pretty stressful. Finding time to shop, navigating crowds, and dealing with the financial pressure of buying gifts for your nearest and dearest can put a drain on the holiday magic — not to mention your bank account. 

The truth is, even the most money-savvy folks need a financial plan for dealing with the season. Here are some ideas to help keep spending in check so things stay merry and bright. 

 

Keeping the Holidays Happy: Making and Sticking to a Money Plan this Christmas

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Build Christmas Into Your Monthly Budget

You know those people who earn modest incomes but always seem to have their finances in order? If you ask them their secret, I bet their reply will involve the word budget. 

Having and sticking to a plan for your money is the best way to ensure you address all your financial priorities. And these days, there is no shortage of budget templates available to help you tackle the task. It doesn’t matter if you use a pen and paper, learn how to make a budget in Excel, or opt for a budgeting app, as long as you make a plan for your money and track your spending relative to that plan. 

So what goes into a budget? It isn’t enough to include just your regular bills like mortgage or rent, utilities, and groceries. It isn’t even enough to add in your savings goals (although that’s a great start). To really master budgeting, you need to think ahead to the expenses you expect to incur and plan for them.

You can see where I’m going with this. If you know you typically spend $600 on Christmas gifts, you can start budgeting for it in January. I know that sounds like overkill, but think about it: $600 over 12 months is only $50 per month. What’s easier: putting aside $50 every month or coming up with $600 in December? 

Set a Gift-Giving Budget

If you’re building Christmas into your budget, that means you have a plan for how much you’ll spend. Sticking to that plan when the season rolls around can be a different matter. 

It’s important to set a realistic gift-giving budget and then stick to it. If you decide you can afford to spend $600 on Christmas, then that $600 has to cover all your gifts, no exceptions. That might mean opting for less expensive presents or paring down your list. Enter that amount into your budget template and hold firm.

Need ideas that don’t cost much? Homemade baked goods! You can whip up a few dozen cookies for about $10 and gift them to people. Homemade gifts are personal and usually inexpensive to make.

Put a Cap on Per-Person Spending

A good way to reinforce your gift budget is to set a maximum amount you’re comfortable spending on any one person. This can be in general or specific to your relationships. 

For example, you might say that $50 is your max for anyone. Or you might decide that you’re comfortable spending $50 on your immediate family, but prefer to keep gifts for extended family and friends at $25 or less. 

Try Secret Santa

A great idea that I see is secret Santa. You each draw a name and buy a gift for only that person. Then you plan a night when you all get together to exchange gifts and try to guess the identity of your secret Santa. 

It adds a fun, mysterious element to the gift exchange and saves you a ton of money because you buy only one gift. I’ve seen professional teams and even large extended families do this, too. It can really work in any group!

Pay Your Credit Cards in Full or Don’t Use Them at All

Credit cards are a great way to earn rewards on your regular purchases, but they can be dangerous for some. There are basically three rules to follow when using credit cards:

  • Only buy what you know you can afford
  • Always pay your bill in full by the statement due date to avoid interest charges
  • Ensure you use the card enough to justify the annual fee, if applicable

Credit card issuers love the holiday season because it’s when cardholders are most likely to violate the first two rules. If you don’t budget for Christmas, you’re likely to overspend, which is much easier to do with a credit card than with cash. And if you overspend, you may not be able to pay your bill in full by the due date, meaning you’ll incur interest charges. Credit card interest rates are notoriously high and can be difficult to recover from.

Even if you haven’t overspent and can pay your bill, you’re more likely to forget to make a payment during the busy holiday season. So if you’re using plastic to pay for Christmas gifts, make extra sure to pay your bill in full and on time. Set a calendar reminder so you don’t forget. Or better yet, automate the payment. And if you tend to overspend when using credit cards, it’s best to forego them altogether. 

Capitalize on Discount Codes, Cash Back, and Other Deals

Sales abound during the holidays, and whether you’re shopping online or in-store, there are deals to be had. 

Some people are avid couponers and save an incredible amount of money that way. I tip my hat to them, but I don’t feel like that’s something I have time to get into. However, when shopping online, I always check for cash back offers and discount codes before heading to the checkout. Browser extensions like Rakuten and Honey take the work out of doing this and help ensure you never miss a deal. 

A real life example? This week I got a check for $25 from Rakuten for cash back I earned from shopping through its online portal this quarter. That’ll cover a Christmas gift! 

Final Thoughts

The holidays are an expensive time of year, and it’s easy to let things get out of control if you’re not careful. It’s important to set limits for your spending so that a joyful occasion doesn’t become a stressful one. I hope these tips help you keep things in check. Happy Holidays!

This timely and informative article was contributed to Leisure Freak by Sandra Parsons

Sandra Parsons is a freelance writer for Club Thrifty, a website dedicated to helping people dream big, spend less, and travel more.

 

The Common Post-Retirement Risk That Bit Me, Medical Scare  

Health, Protect Assets, Retirement Shock, ,

When planning our retirement we have to consider many financial and non-financial aspects. But retirement planning must be flexible because there are a lot of unknowns when it comes to the future. Knowing that and experiencing it are two different things. A lesson I learned when recently bitten by a common post-retirement risk, having a major medical scare. Ten years into early retirement and now my plan and the way I think about retirement may go through major changes. 

The Common Post-Retirement Risk That Bit Me, Medical Scare  

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Medical Scare – Probably The Most Common Post-Retirement Risk

There are a few post-retirement risks that we can encounter. Unlike inflation or a recession that can impact our retirement finances, a health threat can dig deep into finances, lifestyle, and sometimes even our life expectancy. Although we do our best to avoid long-term harm from any post-retirement risk, sometimes our best isn’t enough. Especially a sudden and serious medical scare that can hit anyone at anytime. 

This is a cautionary tale about how little things can get overlooked and written off when something silently lurks but needs immediate attention before it’s too late. Something we should avoid for both financial and non-financial aspects of retirement. Sometimes a sequence of seemingly random little things are interconnected, turning into something large and dangerous to our lives and plans.

Making Health A Retirement Priority

I have made my health a priority in my early retirement. I hike, bike, weight train 3 days a week, and do cardio workouts on an elliptical 5 days a week. Basically with everything else I do I’m pretty active. I have never smoked, have my medical physical every year, bi-annual dental cleaning, and take my prescribed medications along with several vitamins and supplements. Moderation is used for alcohol, red meat, fatty foods, and sweets. Even so, I recognize now there are areas of improvement needed.

A Minor Injury, Just Like Hundreds Of Times Before 

It was more of an inconvenience or annoyance than an injury. While working on my car I slightly strained my knee by hyper-extending it. It was sore for a couple of days like any similar injury we casually write-off in life. The only thing remarkable about it was that my leg also felt tight. It eventually felt better other than a slight pain in my calf. It didn’t slow me down and it too passed after a couple of weeks. I was over it and never gave it another thought.

Ten Weeks Later Something Else Odd and Discounted

My wife and I were talking and walking through our Art Festival when I had to stop to catch my breath. It lasted all but 5 or 10 seconds and then everything was fine. The next day another few second episode while exercising on the elliptical. Odd, but I still just powered through it and went on with life. A few days later I wake up to that same leg injured many weeks before being swollen with pounding pain. I called my doctor’s office and it was recommended that I immediately visit the emergency room. 

Big Bad DVT and Right Lung PE

Once in the ER, blood work, ultrasound, and CT scan eventually found I was lucky to be walking the earth. My right lung was plugged up with clots from top to bottom and basically offline. I was living on one lung at 6,200 feet elevation’s oxygen levels. Fortunately my left lung was clot spared and up to the task. All of this because I hyper-extended my knee causing a bleed and clot many weeks before. Something I would have never considered happening to me.

Treatment and Surgery

Life has since revolved around heavy doses of blood thinner that included 25 days of miserable stomach injections every 12 hours. There was also a two day surgical procedure to clear the large clot in my leg and spending three days in the ICU. My retirement life at this time still revolves around blood thinner medication, compression socks, and avoiding any chance of getting scratched, cut, or bumping my head. The long-term treatment verdict is still out for a few months. There’s a 50/50 chance I will be on one of those expensive blood thinners for life. 

Will My Medical Scare Change My Retirement?

It certainly has opened my eyes to my mortality. I have had a lot to think about while taking it easy as directed to me the past 3 months. I was cursed in one way and blessed in many others. Cursed because the clot didn’t present itself as a clot for so long. Blessed because when it finally did I still had a chance. I also felt blessed to be retired and have the time to concentrate on recovery. 

Things will and have changed in my retirement lifestyle and potentially even some financial aspects 

At this time long-term treatment decisions are still months away as we await evaluation of my healing. If it’s determined that I need to stay on one of those new safer and effective blood thinners for life then my retirement budget will need to be addressed. It will need to cover a new expense of over $400 a month until deductibles are met for the medication once the manufacturer $10 co-pay coupon I got expires.  

I will also have to rethink some of my lifestyle activities if on the medication. I have taken many minor bumps and falls while mountain biking. That could cause serious problems if on blood thinning medication. Possibly limit biking to my slow lane beach cruiser bike. All the things I do that I have found it impossible to never bruise myself or bleed because of a cut or scrape to my hands or arms will have to be rethought. Including working on my car, major landscape, and house maintenance or improvements. That will bring another adjustment to my budget to cover paying for work done that I used to do myself. Much earlier than my previous old age budget plan.

Things that will definitely change –

More than ever I see that we kid ourselves into thinking we can control everything. Life is finite, my retirement freedom is valuable, and I want it to last with quality as long as possible. It was a real bummer when this all happened. There’s a slight feeling of loss because I really loved the early retirement lifestyle I’ve created. But having to make changes and even sacrifices is part of countering any post-retirement risk that we encounter. I think I have moved past lamenting any loss, kicking myself for ignoring little things that grew into a giant threat, and I’m now looking toward my future. 

I’m not as tough as I used to think I was 

When something doesn’t feel right I can’t just power through it. I’ll need to change the way I approach my health and do a lot better about seeing my Doctor. I shouldn’t ignore any kind of lingering pain or odd events like a quick bout of shortness of breath.

I will definitely limit time sitting or standing still for too long. 

I’ve always limited extended sitting because of back pain. But now I will get up even more. Standing still waiting in long lines will also end. I also have a new appreciation for limiting anything that I don’t want around me or don’t want to waste time with. The top of the list are rude, pushy, and bullying people. I also have an even lower tolerance towards traffic, unwanted obligation, and manipulation. Life is too short to put up with crap.

Other lifestyle and health change on tap that have been put off or half-assed

I am really motivated to hit my long made weight loss goals. I hope this will also reduce the chances of a repeat DVT. Since this all started I am 40% towards my overall goal. Without exercise it’s all been about portion control and food choices. Once I can start doing more physically I should be able to hit my target. 

I’ll also pay better attention to my hydration. Something that slips past me when I am busy or playing hard. I think I will find many other little adjustments that will add up to big health benefits. 

It’s Easier To Miss Signs Of A Post-Retirement Risk Than We Think

Mixed signals and overlooked or discounted negative events can lead us to miss threats to our retirement and life. Occasional budget overruns, a poor investment return, cloudy economic signs, and issues associated with our health can sneak up on us. 

Optimism and confidence are welcome attributes but not when we let it blind us. I can’t help but remember how we all took a big hit with the market collapse in 2008-2009 and the recession. That is how it felt when the post-retirement risk of a health crisis hit me. There were mixed signals and overconfidence that had me power through it on my own when I should have had professional assistance to possibly catch what was coming my way. 

It’s a reminder that even with the best of plans and proactive retirement sustainability countermeasures, things can happen and throw everything into question. There are no guarantees, so we should do everything we can to enjoy what we have and to keep it.

Ditch The FIRE Movement? If Dissatisfied Then You’re Doing It Wrong

Budgeting, Frugal Living, Retirement Plan, , ,

It’s one thing to be a conforming consumer. Blind to the trappings of debt and undisciplined spending. Least forget the unending cycle of unrewarding work needed to support it. But it’s another thing when folks walk away from FIRE dissatisfied after they’ve been awakened to the possibilities of financial independence and maybe even an early retirement. If you’re dissatisfied and have decided to ditch the FIRE movement, then maybe you’re doing it wrong. 

Ditch The FIRE Movement? If Dissatisfied Then You’re Doing It Wrong

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There’s a lot of impressive FIRE stories to be found. 

The FIRE pitch is seductive. A glorious freedom lifestyle awaits all who dare challenge society’s consumption, employment, and retirement norms. We can be inspired by other’s FIRE success. There are some amazing people who are in their 20s, 30s, and 40s saving as much as 70% of their incomes to build a portfolio that’s at least 25 times their annual lifestyle expenses. 

They hit their numbers and retire early to live off their chosen safe withdrawal rate doing whatever their passions direct them to do. Many even taking on side hustles or other paid opportunities aligned with their interests. After all, a FIRE Retirement is the absence of needing to work, not the absence of working. It’s easy to fall in love with matching their success formula. 

Stop Keeping Up With The Jones’s and FIRE’s Most Famous

FIRE walkers fully accept the concept of not wasting time and money trying to keep up with the Jones’s. But sometimes that concept is ignored when it comes to creating a FIRE strategy. Especially if trying to reach the common FIRE before age 50 goal. 

The problem is that not everyone can match what some of FIRE’s most famous have done in a long-term sustainable manner. Either because of income or frugality. It’s clear that a plan that goes too soft will mean little seen as financial progress. But pursuing an aggressive FIRE plan based solely on the success of our FIRE superheroes can be a recipe for disillusionment. Go too far for too long and feelings of a living a deprived life creep in. The thought of living that way for the rest of one’s life can be daunting. 

Don’t Ditch The FIRE Movement. If you don’t like the taste, just change your recipe

There are no FIRE rules but you can still be approaching FIRE the wrong way. Not wrong as far as anyone else is concerned, there are no FIRE police. Just wrong as far as how your approach to FIRE impacts you. I came across a post by Ben Le Fort that lists the Ten Commandments of FIRE. Personally I prefer to use Tenets over Commandments but it captures in detail the following for anyone who wants FIRE:

The 10 Commandments of FIRE
  1. Thou Shalt Calculate your Savings Rate
  2. Thou Shalt Track thy Expenses & Create a Budget.
  3. Thou Shalt live a Frugal Life
  4. Maximize your Income
  5. Thou Shalt Not fall Victim to Lifestyle Inflation
  6. Clear your Debts
  7. Thou Shalt max out your tax-Sheltered Accounts
  8. Minimize your Investment Fees
  9. Thou Shalt not try to time the Market
  10. Talk About Money

There’s nothing pushing FIRE walkers to unsustainable extremes other than themselves

These FIRE tenets are not extreme unsustainable principles. But it’s easy to push too hard when being fueled by not only what we see others have done, but also the intoxicating thrill of watching the snowball effect destroy debt and grow wealth. However, we must logically define what we can realistically support and want for the long-term. Our limits in income and frugality need to be leveraged to our full advantage. But that must also come with the goal of living a happy life. 

From the stories I read of folks who decide to ditch the FIRE movement, I see in their complaints that everything they did was concentrated on numbers. They lamented cutting and living without things that brought them joy. Their plan left out that very personal component of a happy and enjoyable life of which only we can test and measure.

Create a plan that allows you to still enjoy the ride

Forget about having a take no prisoners plan. 

FIRE includes making lifestyle choices to optimize our savings rate. We decide what brings value to our life and cut the waste. Figuring that out isn’t always clear. We should push hard against our frugal thresholds without overly breaking them because it leads to feeling like we are living a deprived life. 

I know from experience that I won’t always know what that frugal threshold is until I break it. Then it’s time to adjust and back off a little until the real threshold is revealed. 

The idea is to create a sustainable lifestyle for the long-term that we want to live with now and after we ditch the rat race. Some of us aren’t happy or ready for a life where we never go to a coffee shop, out for a meal, attend a concert, or hit a movie. We should have a plan that allows for the little things we enjoy doing, but done in a thought out balanced way. Constantly test your frugality thresholds. 

FIRE and career can be worked on at the same time.

It’s OK to enjoy and even love what you do for income. Our jobs are key to reaching FIRE. Make decisions that best leverages your personal finances, career moves, and your life’s happiness when pursuing FIRE. We should be driven to improve our career prospects but don’t let numbers alone drive you. Watching a growing portfolio will not make you happy if you hate your budget and/or job.

Stop comparing and trying to keep up with FIRE’s most famous

Sometimes it seems like there’s a race to see who can retire the youngest or spend the least. Extreme stories are amazing and inspirational. But those stories aren’t going to be a one size fits all FIRE solution. Instead they should inspire ideas that can be used in a sustainable way for your own plan. 

We all have unique parameters to work around from income and frugal thresholds to the cost of where we live and family size. You can’t buy back years of regret, for either going too soft or too hard in your FIRE plan. Find your own sweet spot.

Create a FIRE Optimized Lifestyle You Look Forward to Living

I’m no certified expert, just someone who retired early at age 51 nearly a decade ago with an ordinary FIRE story. We did use frugal living to boost our savings rate. Over my 10 year early retirement plan we cut waste and tweaked our budget. We kept the things we valued that added to our happiness. In some cases we found that some things we cut was actually worth paying for and brought them back. Through it all we created a smart frugal and balanced lifestyle that got us the increased savings rate to retire early while still living the lifestyle we wanted to live. Both during the FIRE journey and now in early retirement. 

If in your FIRE journey you have apprehension and concern of forever living a deprived life by pursuing FIRE, then you’re just doing it wrong. Instead of deciding to ditch the FIRE movement, make necessary tweaks when feelings of austerity and deprivation hit. Always make sure that any tweaks are well thought out so that they don’t overly undercut your savings rate. For most of my tweaks it was just a matter of using sometimes instead of never or always to find the right balance. 

FIRE Is A Worthy Goal 

Even if you can’t win a race for the earliest FIRE age, doing the best possible for you is always financially better than doing nothing. Your Future You will certainly appreciate it.

Frugal Not Cheap: 3 Important Differences

Frugal Living,

There are many differences between being cheap and being frugal. Someone who is cheap does not want to spend money on anything, regardless of its value. Someone who is frugal understands the value of things but wants to cut costs when possible. It is important to understand these differences in the following situations.

Frugal Not Cheap: 3 Important Differences

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Short-Term Versus Long-Term Savings

Initially, it might seem like a good idea to brew your own coffee at home to cut costs. Cutting short-term costs such as coffee, fast food, or groceries is always a good start. It can save you a few dollars here and there, of which can add up if sustained. But it’s unlikely to affect your financial situation significantly on its own. Much of these kinds of costs are a great target for disciplined reduction. But since they can play a role in your social life, may cause reason for the cheap label. That’s why the frugal minded will also consider long-term savings.

Many people focus on cutting short-term costs but fail to price-shop for things like auto loans, mortgage rates, and all of the different insurance policies that we need. Price-shopping can be a hassle. But being frugal means considering the long-term and finding ways to reduce their insurance premiums, interest payments, and repayment fees. 

Another long-term savings target are the services you use. Phone, internet, and cable or satellite TV are areas where price shopping can provide long-term savings. Also consider only buying the service level you really need. Frugal thinking asks why pay for unlimited when it’s not needed or is it even needed at all. 

The amount of money you will save by price-shopping on larger purchases and other monthly services is incomparable to what you will save when just cutting a few dollars here and there.

Risk Versus Reward

Financial risk is sometimes necessary to see a profitable gain. People who are cheap might hold onto their dollars so tightly that they fail to take any necessary risks. Frugality is about considering the bigger financial picture. Consider your plan for retirement. One of the most common ways to increase your retirement account funds is to place them into well-researched low-risk investment accounts that follow the market. There are different degrees of risk, but someone who is cheap is likely to avoid these types of investments altogether. 

Although having ready cash available in an emergency fund and for short-term needs, investing the savings generated from disciplined cost cutting is a hallmark of frugal living. Frugality has a strategic mindset where you aren’t just holding onto your money, it is put to work for you. 

It includes investing for a better future. It requires having an open mind and learning about all of the ways to add value to your life and savings. There’s a lot to learn, from passive low-fee ETF investing and dividend investing, to active real estate investing and using technical analysis to make informed trade decisions with swing trading. But if you are being cheap with a closed mind and never advancing your knowledge about what’s available, how would you even know about them? Being frugal means doing the research and making informed investment decisions.

Frugality has you looking for ways to not only cut spending costs, but also how to best leverage your savings for the highest returns within your investment risk tolerance. Being cheap and avoiding taking risks entirely will make it difficult or impossible to increase your profits or to save the funds you require to retire comfortably.

Quality Over Quantity

Someone who is cheap will only consider price whereas someone who is frugal will also consider value. Someone who is cheap might choose to purchase clothing items from a discounted retailer. While your initial purchase might cost less, keep in mind that quantity usually does not indicate quality. The clothing items you purchase from a low-end retailer are going to fall apart much faster than something made with better materials.

Frugality, in this case, would mean finding ways to save on higher-quality items instead. This might mean buying secondhand goods or using discount cards. Otherwise, when you add up the cost of purchased items, you might find you’re paying more over the long-term for the items of lower quality.

Cheap and frugal are often used synonymously to describe the same type of person when they are actually very different things. 

While cheap people tend to focus on the price of something, frugal people look at the bigger picture and cut costs to afford more important things. Important things that include becoming debt free, having financial freedom, and saving for retirement. Understanding the difference between the two is key when preparing for your financial future.

5 Feasible Funding Options to Fulfill Your Dream Vacation  

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All of us deserve some time away from our life grind at least once, every year. Whether it’s a solo trip, a relaxing vacation with spouse, or a full-fledged family getaway, the mere thought of traveling is rejuvenating – until it all comes down to calculating the cost of flight tickets, hotel bookings, food, shopping and more. So if you are tight on budget but your brain is craving vacay time, then these are the only 5 tips you need to finance your travel dreams.  

1 – Rack up Reward Points on Credit Cards and Fund the Travel to Your Favorite Destination

Credit cards come with big discounts on airlines and hotels and offer attractive rewards on travel-related purchases. While the trips are not free, the reward points can cover almost 70% of your costs! So research credit card offers and maximize your benefits.

 

However, the average interest rate on credit cards is around 15%; a personal line of credit for traveling is a more affordable way to quench your wanderlust. 

 

2 – Consider a Collateral-free Personal Line of Credit for Travelling Worry-Free!

When you need money on an urgent basis, a personal line of credit makes for a viable option. Just like a personal loan, a personal line of credit is an unsecured loan but it comes with flexible EMI options and convenient payment periods. And the best part is – unlike a personal loan, a personal line of credit charges interest only on the amount you use!

So, if you don’t know the exact amount of money you will spend on your vacation then taking a personal line of credit for traveling makes perfect sense. With a personal line of credit, the money will always be handy. You can borrow any amount you need anytime, anywhere without having to pay interest on your entire approved limit from day 1!  

 

3 – Take a Personal Loan to Avoid a Big Upfront Payment

Personal loans impose no restrictions on the usage of funds. Taking a personal loan for a vacation needs no security and the repayment tenure can be extended for as long as 5-10 years. However, in case of personal loan, the interest rate is charged on the entire amount that is disbursed to the borrower. Also, the closing cost may be relatively higher than a personal line of credit due to higher interest rates.  

 

4 – Start a Savings Account in Advance to Pay for Your Holidays

If traveling is your life-long plan, then you need to save in advance. Stash a portion of your pay every month into a savings account and when you have accumulated adequate cash, you can take a vacation! It is surely a smart move to save first and spend later but your life may not always go as you have planned. So, use these 6 money-saving tips to create your travel budget.   

 

5 – Opt for Travel Payment Plans to Take a Vacation on a Tight Budget  

Travel payment plans have gained a lot of popularity and preference in the recent years. People are now taking vacations even on a tight budget with travel payment plans that are offered by independent travel agencies. Travel payment plans are also available directly through cruise lines, resorts, and online travel agents.

You can book your vacation up to 10 months in advance and repay the outstanding amount over time if you are using travel payment plans. These plans have a fee for spreading out the repayments but there is no interest charged like there is, on personal loans and credit cards. However, travel payment plans only cover accommodation so you may need to bear the entire cost of the airfare upfront depending on the channel that you choose to secure your travel plan.

 

In today’s fast-paced, demanding life, refreshing vacations are an absolute necessity. So if you want to go on a vacation, don’t let the cash crunch hold you back. Choose any of these 5 financing options and make your dream holiday affordable.

Just in time for the start of travel season! This informative article was contributed to Leisure Freak by Shiv Nanda.   
5 Feasible Funding Options to Fulfill Your Dream Vacation  Author Bio:

Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics. 

My Early Retirement Spending Miscalculation, It’s Less Than Expected

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I was looking at my retirement budget calculations. Just a quick glance at the planned long-term numbers I used pre-retirement to ditch the rat race at the age of 51 on December 17, 2009. I’m happy to see that after 9 years of monthly retirement budget tracking I made an early retirement spending miscalculation. Happy because it’s in my favor.

Overestimating early retirement spending is certainly a good thing. When we plan for retirement we have to figure out how much retirement income we need. It comes down to estimating what our retirement budgetary needs will be and applying inflation to the equation. To get our starting number we guess what costs will go up and what costs will go down once we dance our way out of the workplace. But it’s all an educated guess. We won’t know until we are actually living our desired retirement lifestyle and the real inflation rate is revealed down the road.

My Early Retirement Spending Miscalculation, It’s Less Than Expected

Photo by Andre Hunter on Unsplash

It’s Easy To Make A Retirement Spending Miscalculation

The default advice is you’ll need 70% to 80% of your salary in retirement. That didn’t make sense to me as I was saving a high percentage of my income for retirement. I also expected to pay less taxes. I took the approach that I needed 100% of my pre-retirement frugal living budget minus estimated savings of work related costs like commuting, clothes, and the alcohol I had depended on to counter work induced stress. Then I added 10% to cover my tax obligations. That final estimated figure was far less than using the salary based calculation.

Once I settled on the budget amount I then applied a reasonable yearly inflation factor of 3%. That is except for healthcare. I pulled that amount aside and applied a 6% inflation factor against it to get a closer estimate. Running the numbers through a retirement calculator and coming up with good results is the green light to take the leap.  

The high level retirement spending miscalculations –  

My early retirement spending reality is that healthcare went way up over that 6% inflation amount each year while some others were less than the 3% I used. Some things I initially budgeted for have even disappeared. That’s because things change as we live and experience retirement doing the things we want to do. We settle into an entirely new way of living and our taste for certain things changes over time. Here’s some of my early retirement spending findings.

Healthcare – Medical Insurance

Nobody should be surprised that this went way higher than inflation for everything else. It’s my biggest retirement spending budgetary item and pre-retirement miscalculation. When I retired in December 2009 my retirement health insurance benefit cost $476 a month. For 2018 it was $1,064 and in 2019 it will rise to $1,340. Ouch! The difference between 2010 and 2018 is 123%. That’s a huge healthcare cost increase over 9 years. It should be easy to see how this one will skew anyone’s retirement spending calculations.

I thought doubling to 6% would be high enough when I separately calculated inflation costs for this item from everything else. I figured it was a reasonably obscene inflation percentage to make sure this expense item was covered. The reality is it should have been calculated using a 12% inflation rate. Aside from the company killing this retirement benefit (as they occasionally threaten) and our going on ACA if it still exists, I see little relief from this until our medicare years. I have adjusted future budget projections to reflect that realization.

Cable TV and Entertainment

When I retired we had a basic cable plan. That was our family’s frugal living compromise. Our retired parents all said with more time in retirement you will want to have a good paid TV package. Thinking our basic cable plan was plenty, I included it in our retirement spending calculation. When I retired my cable cost $35. Over the first 6 years of my retirement the same cable service slowly climbed to $92 a month with all their higher channel and fee increases. That increase was well above the 3% inflation rate I used.

We found in our retirement the opposite of our parents retirement experience. We were satisfied with local TV viewing and really only watched a handful of cable channels. It didn’t justify the cost. The nationwide analog to digital TV transmission upgrade and new antenna designs made cutting the cord easy to do. Streaming development also made paid cable or satellite service an easy retirement cost to eliminate.

We have also eliminated other entertainment cost.

We’ve started using our library where DVDs are free to check out. We also connected to our community’s event online calendars to get event email notifications and have enjoyed free concerts near us. Having time also allows us to go to the movie theater or other venues during off hours at a discount.

Retirement brings more spare time but it didn’t raise our TV and entertainment cost. It instead lowered them.

Mortgage

I retired with a modest mortgage still on the books. I calculated our monthly payment into our retirement spending calculation without thinking I would ever pay it off. But then I started a short but sweet encore career. Since I was basically living off of my retirement funding I simply directed 100% of my paychecks to the mortgage and cleared it within 18 months. This move is what made the insanity of rising healthcare cost a near wash for my early retirement spending miscalculation. This is a case of you won’t know what will impact your retirement budget until you are retired. You simply don’t know what you will do until you do it. I had no idea this would happen when planning my early retirement.

Eating Out

Even with all the free time, restaurants didn’t call our name any louder than they did before. In fact they are even harder to hear. Initially we took advantage of happy hour discounts but soon got over it. We prefer home cooked healthy meals and we now have the time to make them. We spend 50% of what we initially modestly budgeted for this.

Travel

We had a decent travel budget. We try to save money when we travel and have done that for decades. With retirement we have time to look for deals and can travel off-season. We also can make reservations and lock into deals months in advance. Another thing we have experienced is our appetite for travel has decreased over the 9 years of retirement. We simply like where we live and play. As far as travel goes we prefer quality experiences to quantity of travel. Although the cost of travel has increased over the years, I’ve found that we travel as much as we want to but are spending the amount we started with. Our travel spending has seen a near 0% inflation increase over these 9 years.

Fuel

I calculated a 50% drop in fuel cost once I retired. Simply thinking that I would be using some of my extra free time to go places but also subtracting out my 20 mile (200 miles a week, whoa!) work commute costs. In actuality the drop has been closer to 75% of our pre-retirement cost. We shop local and travel shorter distances and prefer to spend most of our time outdoors, not driving somewhere. We are lucky that we have outdoor recreation and everything needed within 5 miles of our home. Not only is fuel cost down but so is all auto maintenance like tires, brakes, oil changes, etc.

Taxes

I was paying a large percentage of income in taxes when working so I calculated 10% for my retirement income tax obligation. The reality is when I am not working it is actually only around 5% of total retirement income. Some of that is due to using a more tax efficient withdrawal strategy that I hadn’t considered before I retired.

The Takeaway From This Early Retirement Budgetary Exercise

This exercise wasn’t a yearly spending study.

I merely looked at our initial retirement budget at the end of 2009 with my planned yearly projected increases using our applied inflation estimate. Then I compared that to our spending for 2018 to see how it tracked.

I was happy to see that we are 14% less than what our calculated long-term 2018 budget projection was.

2018 was a year where we did everything we wanted to do. It was also a normal year without any catastrophic events.

For the between years there was one that did go over budget projections. It was a bad year due to a medical crisis. But the other years came in under spending calculations, some much more than others depending on retirement life events. For instance the year we paid off our mortgage and a couple of the following years before health insurance had risen so high came well below the earlier budget calculations.

Having a plan matters.

I believe this shows that having a reasonable plan along with purposeful living and spending discipline, even crazy stuff like obscene healthcare increases won’t necessarily derail one’s retirement plan.

It’s good to have an emergency fund or access to other funding in retirement.

Having the means to carry us through a bad spending year is important. The medical crisis year that we experienced could have caused problems if we only had a fixed monthly income to depend on. We need funds beyond our sunny day budget projections to get through any rainy years.

Retirement life happens and things can change.

During retirement we will do things, stop or decrease doing other things, and make decisions that we couldn’t know to plan for. In my case starting that encore gig and casually paying off my mortgage was a decision that had huge implications in the outcome of this exercise. Had I instead invested my salary, my retirement spending would have been ratcheted higher by healthcare. I would however have more money in my portfolio. Hopefully doing that would have provided higher income to counter the retirement healthcare spending increase. I think I made the better choice.

Inflation is tricky to predict but plays a huge role in planning and outcome.

I admit that my first nine years of early retirement came with many lifestyle cost items having an actual low inflation rate. Healthcare’s massive increase ate solidly into what should have been a stellar lower than expected retirement spending amount. However, had I correctly applied the higher 12% inflation rate to my healthcare calculation the results of this exercise would be off the charts in my favor. The opposite is also true. If we begin to see hyper inflation increases across the board then we have to recalculate our budget going forward. Hopefully investment income can keep up but if it can’t then spending control or possibly returning to a paid opportunity is our best defense.

Having more free time doesn’t necessarily mean spending more to fill it.

I thought we would spend more than we are for travel, entertainment, and all else we do when we are out and about. Although this was partially true in the first couple of years of our retirement, it didn’t stick. In our case having time allows us to save money while still doing everything we enjoy doing.   

Retirement Comes With All Kinds Of Spending Variables

Everyone’s retirement experience will be different. Things like retiring with a child at home that causes spending changes as they age, experiencing a health crisis, or finding out during retirement that you are a passionate travel freak, can throw all projections out the window. If that happens it will hopefully be short-term and you can find yourself back on track or find a way to adjust your budget to meet your retirement’s new spending needs.

Retirement lifestyle cost is a concern for most people when they decide to retire.

What I have found is that as long as there is a reasonable plan based on the lifestyle we want to live and can afford to live, we have a retirement funding cushion available for any bad years, and we  monitor our spending, we can overcome most challenges before they become a huge retirement financial nightmare.

There are no guarantees in life or budgets, but worrying too much about things does no good. Instead know that planning well and tracking our spending gives us the best chances. If the worst should happen then it won’t be due to head-in-the-sand financial recklessness.

Retirement 2019 Tax Planning: It’s A Good Time To Start Bean Counting

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I’m always trying to use both my non-taxable accounts and taxable IRA income to keep my tax rate as low as possible. It amuses me when people will get a rise out of a killer 8% gain on an investment but give little thought about the retirement taxes they pay. The new tax brackets are from 10% to 37%, so saving on taxes for retirement distributions is a big deal too. But before you can do any retirement 2019 tax planning you have to know where you stand within the new tax laws. That’s the only way you can possibly structure your retirement income in a tax efficient way to stay below desired taxable income thresholds. Here are the recently released 2019 income tax details.

Retirement 2019 Tax Planning: It’s A Good Time To Start Bean Counting

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Retirement 2019 Tax Planning Details To Factor In

The big tax overhaul of questionable benefit to us regular folks went through last year and has a few tweaks for 2019. I’m looking forward in the coming months to seeing exactly what, if anything, the peanuts they tossed to low-income and middle class taxpayers works out for our 2018 tax filing once we put our final numbers to the 1040. No matter how the tax burdens and benefits shifted, we have to live with it and pay up. Knowing where we sit income-wise and looking at any options we may have to keep as much of it as we can is always a prudent retirement planning move. Once estimating our 2019 income and its taxable/non-taxable sources we can begin forming the basis for our retirement 2109 tax planning.

Deductions Were Moved Slightly Up

The taxes we end up paying are all about Taxable Income, therefore deductions are the logical starting point.

2019 Standard Deduction

Who can forget how they touted how their Tax Cuts and Jobs Act doubled our Standard Deduction but quietly said little about the elimination of personal exemptions which used to be $4,050 a piece. So much for a huge tax break. If you didn’t pay attention last year then may I be the first to say, SURPRISE! Your “Schedule A” goalpost was moved farther away. The Standard Deduction did adjust up a little from 2018.

Single Standard Deduction – 2018 it was $12,000. For 2019 it will be $12,200

Married Standard Deduction – 2018 it was $24,000. For 2019 it will be $24,400

Head of Household Deduction – 2018 it was $18,000. For 2019 it will be $18,350

2019 Retirement Contributions

For anyone still picking up a paycheck the amount that can be set aside tax deferred for retirement has also increased slightly for 2019.

401K – For 2018 it was $18,500. For 2019 it will be $19,000. Age 50 or older can add another $6,000 to that.

IRA – 2018 it was $5,500. For 2019 it will be $6,000. The age 50 or older catch-up contribution stays at $1,000.

Schedule A Deductions

Last year’s filing of 2017 will most likely be the last year I will ever be able to file with a Schedule A to save money. Increasing the Standard Deduction at the demise of Personal Exemptions only made filing long-form with Schedule A harder to benefit from. Add to that the other sweetie highlights of Tax Reform and depending on your state property tax and income tax rate, there will be some federal income tax filing pain ahead.

The new Mortgage Interest rules and caps from 2018 remain. Homes bought after 1/1/18 caps deductible interest at a $750,000 loan value. Equity loan interest remains non-deductible with no exceptions.

State and Local taxes are still capped at $10,000.

Medical Deduction is 10% of AGI (Adjusted Gross Income).

2019 Individual Income Tax Brackets

This is where the rubber meets the road. Retirement tax planning means trying to fall within the lowest tax brackets possible.

2019 Individual Income Tax Rates Single-Taxable Income Married Filing Jointly – Taxable Income Head of Household – Taxable Income Married Filing Separate – Taxable Income
10 percent 0 – $9,700

Pay 10% of taxable income

 0 – $19,400

Pay 10% of taxable income

 0 – $13,850

Pay 10% of taxable income

 0 – $9,700

Pay 10% of taxable income
12 percent $9,701 to $39,475

Pay $970 plus 12% of the amount above $ 9,700

 $19,401 to $78,950

Pay $1,940 plus 12% of the amount above $19,400

 $13,851 to $52,850

Pay $1,385 plus 12% of the amount above $13,8500

 $9,701 to $39,475

Pay $970 plus 12% of the amount above $ 9,700
22 percent $39,476 to $84,200

Pay $4,543 plus 22% of the amount above $39,475

 $78,951 to $168,400

Pay $9,086 plus 22% of the amount above $78,950

 $52,851 to $84,200

Pay $6,065 plus 22% of the amount above $52,850

 $39,476 to $84,200

Pay $4,543 plus 22% of the amount above $39,475
24 percent $84,201 to $160,725

Pay $14,383 plus 24% of the amount above $84,200

 $168,401 to $321,450

Pay $28,765 plus 24% of the amount above $168,400

 $84,201 to $160,700

Pay $12,962 plus 24% of the amount above $84,200

 $84,201 to $160,725

Pay $14,383 plus 24% of the amount above $84,200
32 percent $160,726 to $204,100

Pay $32,749 plus 32% of the amount above $160,725

 $321,451 to $408,200

Pay $65,497 plus 32% of the amount above $321,450

 $160,701 to $204,100

Pay $31,322 plus 32% of the amount above $160,700

 $160,726 to $204,100

Pay $32,749 plus 32% of the amount above $160,725
35 percent $204,101 to $510,300

Pay $46,629 plus 35% of the amount above $204,100

 $408,201 to $612,350

Pay $93,257 plus 35% of the amount above $408,200

 $204,101 to $510,300

Pay $45,210 plus 35% of the amount above $204,100

 $204,101 to $306,175

Pay $46,629 plus 35% of the amount above $204,100
37 percent $510,301 and up

Pay $153,799 plus 37% of the amount above $510,300

 $612,351 and up

Pay $164,710 plus 37% of the amount above $612,350

 $510,301 and up

Pay $152,380 plus 37% of the amount above $510,300

 $306,176 and up

Pay $82,355 plus 37% of the amount above $306,175

The additional deduction for aged (65 and older) or the blind is $1,300. It is increased to $1,650 if also unmarried and not a surviving spouse.

2019 Brings One Less Tax Penalty

For those who dare live on the edge without medical insurance, the ACA non-insured penalty will no longer apply for tax filing year 2019. It was still in effect for the 2018 first year of Tax Reform.

 

The IRS notice for tax year 2019 is full of all kinds of tax details, much more than talked about here. Hopefully the short list provided above helps you get an idea of what to look at for your retirement 2019 tax planning.

Level Setting: What Should Your Post-Retirement Spending Habits Look Like?

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Level Setting: What Should Your Post-Retirement Spending Habits Look Like?

One of the major factors that will determine how enjoyable your retirement will be is how much you planned for it. There are, of course, many variables that you cannot control (say, how much you will be earning from returns on your investments). However, there are also some you can.

 

Perhaps the most important thing that you can control is your post-retirement spending habits. Understanding your financial situation as a retiree won’t just help take away the stress of knowing what you can and cannot afford, but will also allude to when you can consider retirement in the first place.

 

To get an idea of what you’ll need to make the most out of your golden years, consider saving up enough money to account for the average annual costs you can expect to see as a retiree.

 

Housing: $15,864

 

A recent report from the Bureau of Labor Statistics shows that housing is the largest expense among American retirees—even accounting for those with no mortgage payments. This is likely due to the regularity (and costliness) of household-related expenses, like state property taxes, homeowners insurance, utilities, and repairs that do not go away even after your mortgage does. It’s generally advised to factor at least 1% of your home’s total value into your budget for yearly maintenance. You never know what alterations you might need to make your house more accessible in your old age!

 

Transportation: $6,804

 

The cost of transportation was the second largest expense among retirees in the U.S. On average, individuals at the age of 65 and older spend approximately a third less than the average household on transportation in the U.S. Without the need to make your daily commute to work, you’ll save big overall. Nonetheless, the regular maintenance and upkeep of automobile ownership (which includes gas, car insurance, repairs, etc.) can put strain on a retiree’s budget—especially if you plan to buy a new one.

 

Health Care: $5,988

 

Health care can be a volatile expense as you age, especially in lieu of increased need and current market conditions that have catapulted insurance premiums. You can expect to pay around $6,000 per year on average for health care, but even more should you have the misfortune of developing a medical condition in need of attention. Some reports even suggest setting aside a whopping $280,000 to cover your total health care expenses throughout the duration of your retirement.

 

Food: $5,796

 

Say hello to senior discounts! Your grocery bill and restaurant budget is one area where you can expect to see a decline in spending. Albeit, food remains a constant expense whose amount can increase quickly if you fancy frequent social gatherings with your family or friends. That said, with the extra time available to you in your new life as a retiree, it might be a great opportunity to polish off your culinary skills!

 

Miscellaneous: $3,000+

 

Miscellaneous costs include any unexpected or infrequent costs that may amount to little when factored individually, but a lot when factored aggregately. Therefore, it’s necessary to make sure they’re accounted for. Some of these expenses—like charitable donations to a nonprofit organization—are of benevolent intention and are encouraged in your retired life. However, other expenses—like bank fees—are entirely unnecessary. According to Bank Fee Finder, Americans spend an average of $329 in bank fees every year (many of which go unseen by the account holder). However, you can eliminate this cost entirely by switching to a no fee bank alternative. But that’s just one example—and another reason why keeping track of what you’re paying for can help you save big in your retired life.

 

Entertainment: $2,364

 

One of the best parts of retirement is saying goodbye to the hustle and bustle and living your life how you want to! But since you probably won’t be staying indoors all the time, you’ll need to factor entertainment costs into your budget. You probably can take a good guess at how much you’re currently spending on hobbies, but if you’re ever wanted to do anything more grandiose—like travel the world or buy a motor home—you’ll have to budget accordingly. For a full list of exciting things you can look forward to when you retire, click here.

 

This informative food for thought post was contributed to Leisure Freak by Chime