Best Ways for Senior Citizens to Budget

Forget about reacting to four-letter swear words. Most people cringe more when they hear the six-letter word budget! Why? The term budget can sadly carry the same negative connotation as the word diet. Truthfully, most people don’t like either word because they sound restrictive. Let’s set the record straight on what budgets really mean – and why (like a healthy diet) they are good for you!

What is budgeting & why should I do it?  

Per Oxford Languages, as a noun, budget refers to an estimate of income and expenditure for a set period. As a verb, budgeting means allowing or providing a particular amount of money in a budget. Parts of speech aside, budgeting is a process that puts you in charge of what you save and what you spend. You are in the driver’s seat, and your passengers include your income, fixed and flexible expenses, savings and investments, and your obligations (debt). You pick the direction – you can safely drive on the road by making good decisions or get stuck in the mud by making poor ones. Simply put, budgeting well puts you on a safe path and equals forward progress.

The Foolish Diet Comparison

Many people compare budgets to fad diets – believing it calls for tight restrictions and unhappiness. Thinking that way sets people up for failure. Budgeting does not mean you have to sit in a room with a calculator and say no to everything. Rather, sensible budgets, like sensible diets, are guidelines for healthy living. Whether budgeting (or eating), there are important decisions to make. Just as making appropriate food choices influences wellbeing, so too does proper budgeting.

Advantages of Budgeting

So far, we’ve learned that you can oversee your own budget and put yourself on a productive path. Ahead of discussing methods of budgeting, and best ways to do it, let’s examine why seniors should budget their money.

Groundwork for success  

Budgeting is the main foundation of financial management. It essentially details all sources of income and expenses, from basic needs to discretionary spending. Per National Institute of Securities Markets, budgeting is a way of allocating funds that allows you to live by your means. “In other words, budgeting is an exercise of telling your money where to go rather than wondering where it went. Consider going to a restaurant and looking at the menu, which may have many items, but the customer would only choose what they wanted to eat and ignore the rest.”

Making wise and personalized money decisions is especially important for senior citizens or folks who:

• Live on limited or fixed incomes
• Face rising costs and inflation
• May experience unpredictable medical costs
• Need their money to last

There are many benefits of budgeting. Here are five main reasons why people should create a plan for their money:

1. Reducing debt: Two main ways to lower debt are to increase income and reduce spending– with the intention of allocating money toward paying down bills. For some seniors, increasing income (going back to work for example) may be challenging due to possible physical or other limitations. Income aside, people with debt are well served by choosing to spend wisely. This can be done by eliminating wasteful expenditures and selecting causes worthy of your money. When it comes to making big money decisions –always consult a financial professional for advice. Downsizing one’s home to move to a less expensive area or shifting money around to completely pay off debt are examples of big actions where professional financial advice is golden. Subtle lifestyle changes can also help cut expenses and pay off debt over time. Examples of these changes can include cancelling useless subscriptions, using utilities wisely, being resourceful by cooking at home, taking advantage of free neighborhood events, or waiting patiently for sales before making purchases.
2. Improving credit score: Most people know that a credit score is an important three-digit number. Lenders like banks, mortgage companies, and credit card businesses look at this number to determine credit worthiness. A credit score is calculated using information from a person’s credit report detailing their payment history and debt. This includes records for paying bills on time, amount of debt and available credit, length of credit history and payment patterns, types of credit cards and loans, and new credit. A high credit score is desirable as it indicates less financial risk for the lender. Credit score impacts a person’s ability to secure a loan for an automobile or mortgage or get a credit card. Additionally, lenders charge interest rates to reflect the likelihood of someone repaying borrowed money on time. They may charge a higher interest rate to some individuals to discourage borrowing too much money or being late with payments. People who budget well, don’t overextend themselves, and pay bills responsibly and on time are likely to experience improved credit scores. Assisted living facilities, as part of the application process, may look at credit scores before approving individuals. This is a clear example of why senior citizens should care about personal credit scores.
3. Increasing savings: Due to advancements in medicine, sanitation, and focus on health, people in the U.S. are generally living longer than in the past. Building savings is an important strategy for achieving financial security to cover long lifespans. Budgeting helps people do that. Having savings for the retirement years, particularly when people stop working, is a must. Many people begin saving money for retirement in their late 20s or 30s to build up an appropriate nest egg. However, people in retirement who failed to save enough early on, or are concerned with making their savings last, can still budget to improve their economic environment. Effective budgeting equals keeping more money in your pocket. And the more of it you have, the more you can save. People can use budgeting as a tool to determine how to allocate their money to increase and strengthen savings during their golden years. Savings can be obtained using wise tactics like reducing wasteful spending, avoiding strenuous debt, and taking advantage of senior programs such as National Park discounts and Medicare health coverage. Seniors may also join AMAC to obtain exclusive member discounts at shopping retailers, restaurants, movie theatres, hotels, car rentals, cruises, insurance and more. 
4. Preparing for the unexpected: Planning for retirement means being ready for expected expenses as well as unexpected ones. The latter may include desperately needed home or automobile repairs or surprise medical or dental bills. Proper budgeting helps people prepare for both. It enables them to set aside money for regular expenses as well as establish an emergency fund to be used when necessary. Emergency funds should be easily accessible and have low or no penalties for withdrawal. Experts at Bankrate suggest keeping emergency savings in an account that not only offers easy access, but also ones that offer competitive interest rates, such as high-yield savings accounts. Experts at Bankrate share, “Avoid keeping emergency savings in cash, in illiquid accounts such as certificates of deposit or in risky investments such as stocks.” Failing to have an emergency fund can force reliance on credit cards (some bearing high fees/interest rates) or loans. Per Investopedia, “Accruing debt during retirement can be particularly dangerous, as limited income makes it more difficult to pay down debt balances quickly.”  
5. Lowering stress: Worrying about money can have a negative impact on people. Per Calm.com, “Money anxiety – frequent worry over your finances – can be disruptive to your mental health. It may also strain your health, relationships, and decision-making abilities.” Gaining control over your money delivers peace of mind that it is being properly allocated and used. There are smart practices that senior citizens can apply to reduce money anxiety. They include gaining financial knowledge through self-education and finance classes, paying attention to where money is going, setting financial goals, swapping bad financial habits for good ones, and relying on financial professionals for guidance along the way. Budgeting can help make money last, in turn helping people achieve financial freedom, stability, and peace of mind.

Best ways for seniors to budget

Seniors who face fixed incomes and rising expenses can thrive with a comprehensive budget, but it is vital to look at both the intricacies and the big picture. Per Morada Senior Living, “The first step in effective money management for seniors is to create a detailed budget. This should include all sources of income, such as pensions, Social Security benefits, rental income, and investments. List out all monthly expenses, categorizing them into necessities like housing, utilities, groceries, healthcare, and discretionary spending such as entertainment and travel.” They recommend that people use a budgeting tool or spreadsheet to make the process easier, allowing for adjustments like expenses or income change. In doing so, people can track spending and identify areas where costs can be cut without compromising quality of life. Folks are fortunate to live in the modern digital age where they can take advantage of finance apps and online banking and bill paying. This helps to ensure that payments are made on time and that nothing important is overlooked.

Actual budgets that work  

There are many different types of budgets that seniors can use, depending upon their financial situation and comfort level. Unsure which is right for you? Contact your financial expert for guidance to determine which type of budget is best for your personal needs.

Examples of common budgets include:

• The 50/30/20 rule: This type of budget is simple and straightforward. It means that 50% of your net income goes to needs, 30% to wants, and 20% to savings and debt reduction.
• Zero-based budgeting: This type of budget is helpful for those seeking tight control. This assigns every dollar of income to a specific expense, saving, or debt category and provides granular control so that everything stays within expectations.
• Bucket budgeting: This type of budgeting offers unique flexibility. It’s a way to allocate funds by creating different “buckets” or categories to meet spending and saving goals.
• Envelope Budgeting (Less common): This is an old-fashioned method for cash users. Funds are put into physical envelopes based on categories. It is not practical for everyone, but it is mentioned as financial experts say it can be adapted to digital apps.

Living your best life  

When it comes to finances, don’t bury your head in the sand. Be bold and take charge by budgeting. Understand that budgeting is a wonderful tool that helps you live your best life. In fact, it can turn negative finances around by giving you control to reap a multitude of benefits. Contrary to negative thought, budgeting is not a restrictive measure. Rather, it puts you in the driver’s seat of your finances. When creating a budget, it’s important to track and detail all income and expenses, apply financial strategies, set long and short-term goals, review and adjust payments as needed, and reduce major and/or minor expenses accordingly. One may also rely on budget tools to manage finances and seek out senior-specific programs to save money.

The bottom line

Regardless of age and monetary status, budgeting is an absolute must for everyone with income and expenses. It is particularly important for senior citizens to live within their means and make their money last. Being in control of financial affairs is much better than ignoring them. When asking, “What are the best ways for senior citizens to budget?” Truth be told, there are lots of great ways that seniors can budget, but one size does not fit all. Therefore, it is best to consult your financial professional to determine your right path.

Disclosure: This article is purely informational and is not intended as a substitute for professional financial advice nor is it an endorsement for products or services. Please consult a professional to discuss your own personal finances and best ways of budgeting.