One of the most significant risks to a successful retirement is underestimating your expenditure.
Get this wrong, and you could find that you have to deny yourself the things that bring you joy, and that you might regret having stopped work.
The queen of decluttering is, without doubt, Marie Kondo. Her books have collectively sold millions of copies, and her profile raised by the success of the Netflix series Tidying Up with Marie Kondo, released in 2019.
What would Marie Kondo tell us to do if we asked her to declutter our budgets before we retire? Here’s what we think she would say:
Step 1: Get into the right mindset
First, stop calling it a “budget”, as it sounds like the financial equivalent of a diet, and we immediately start thinking of depriving ourselves of beautiful things. Instead, call it a “spending plan.”
The idea is to find out where every Pound is going right now, checking if that matches your goals and values, and reassigning each wasted Pound to a new purpose.
A spending plan shouldn’t make you feel restricted or deprived. The idea is that you’ll minimize surprises and still have wiggle room for the unexpected. You won’t suddenly realize there’s no money left for birthday gifts because you spent it servicing your car.
Step 2: Select your system
Whether you use our expenditure spreadsheet, track your spending in a notebook by hand, or use an app like Money Dashboard, the most important thing to do is start.
Pick a method of tracking that feels easy and intuitive to you, so you don’t mind returning to it again and again. And if you find you don’t like a system, try another.
Step 3: Start tracking your spending
Think of this, in the form of “money in, money out.”
“Money in” is your total income, which is likely to come from multiple sources if you have retired.
“Money out” falls into three categories:
• Unavoidable costs: These expenses include things council tax, utility bills, food, drink and clothing.
Include regular savings in this category too. While the total you pay each month may vary, you know for a fact that you’ll have to pay regularly for these expenses.
• Everything else: These expenses fluctuate more because they don’t necessarily happen monthly, and what you spend can vary substantially – restaurants, entertainment, holidays, birthday gifts. “Contactless” has made this task a whole lot easier. But, to make life easy, don’t try to account for cash spending – include “cash withdrawals” as a line in your spending plan.
If you can, look back over your bank and credit card statements for the previous six months to see where your money goes each month.
If you can’t face doing that, then start doing it, at a frequency, with which you feel comfortable. If you do it every week, it will be a small task, that doesn’t take long. If you do it monthly, it can feel more like a chore. But make sure you stick to a plan.
Gather this data without judgement — this exercise isn’t intended to make you feel guilty or cause a row; it’s merely to see where you started and where you finished.
Step 4: Take a look back at what sparks joy
Now that you’ve gathered data on how much money went toward different expenses, it’s time to ask yourself which of those expenses don’t enhance your life.
The point of a spending plan isn’t to deny yourself dinners out or designer clothes. The point is to begin anticipating these upcoming costs and to make room in your spending plan for them.
Step 5: Make adjustments going forward
When your weekly or monthly budgeting day arrives, think about what spending is coming up. Do you need to buy a gift? Do you want to buy concert tickets?
If something comes up, that wasn’t in the plan, that’s okay. Put it into your plan and see what the effect is.
Once you commit to planning your spending, you’ll start to naturally become more mindful each time you face an opportunity to spend your money.
You may realize you didn’t plan to spend money on a particular item, and, more importantly, that you didn’t get any joy from the spending.
And you may find that there are triggers that cause you to spend money on things that you didn’t enjoy.
Marie would say that your spending plan will set you free. And that there’s power in knowing that your money is going where you want it to, and in minimizing the unexpected costs.
Creating a spending plan helps you free up your money so you can put it toward the things that make your life better, instead of just letting money always push you around.
A special thanks to Ashley Dixon of Gen Y Planning in the USA whose client inspired a blog post when she told her she was “Marie Kondo-ing her spending.”
