If asked about preparing for retirement, most people would automatically think money and many would say yes, we are prepared or we are preparing. But even from a financial aspect, are we prepared?

The government and financial institutions are certainly advising that we need to save for our retirement and there is the intention to raise the compulsory superannuation contributions passed the current 9.5 per cent level over the next few years. This is one aspect of the financial side of retirement that is being addressed, although some people argue that it is a bare minimum.

It is good that we are putting money aside for retirement but in retirement there is another serious aspect that needs to be considered – controlling expenditure. This, unfortunately, is not something that we seem to do very well with many people living on credit card debt.

Before we retire and certainly in retirement, we need to be able to live within our means. No longer will we have a regular pay going into our bank account to meet our credit card debt.

Mention the word budget and many people have negative connotations but our attitude towards budgeting needs to change. We need to embrace budgeting in the lead up and also in retirement. Budgeting needs to be part of the financial preparation for retirement just as is a savings program.

Do you have a budget and if you do, how often do you review it?

In the lead up to retirement, do you have any debt such as the debt on house or investment loans, car loans or credit cards? Do you have a plan to pay out these debts before retiring or to significantly reduce the debts? Carrying debt into retirement will place additional stress on most people, knowing that they have limited income and the repayment to be met on their loan before they can afford any living expenses. Some people plan to pay down debt by selling some assets and some plan to use a lump sum from their superannuation to do this.

A debt reduction program, prior to retirement, will help to reduce your debt but also condition you to live on a lower income in the lead up to retirement.

How many credit cards do you have and do you pay the total amount owing each month? With a fixed income likely in retirement, do you need the number of credit cards that you have? Is it time to review those that you have and compare which one is likely to offer the best benefits going forward in retirement? What are the annual fees, what interest free period is there and are there any benefits if travelling overseas such as travel insurance if buying airline tickets on the credit card? Do merchants charge a higher fee for using a particular credit card for example Diners Club or American Express?

How do you current pay for your purchases? Do you buy everything on credit cards? In retirement, without a budget, this can be dangerous and lead to a debt spiral. Alternatively, why not try using a jar system? Select the areas of expenditure that you could pay by cash for example groceries, fuel, dining eat / coffee. Allocate an amount for each jar, based on your estimated expenditure in your budget and then once a fortnight; allocate the money to the various jars.  When you go shopping, take the money from the jar and after shopping return the unspent money plus the receipt to the jar. The receipt is useful for keeping track of where the money has gone and may also help in the future for allocating money in future budgets. You may find it useful to set up a spreadsheet and split the purchases over various headings. This may indicate areas that you might be able to cut back on your spending. Too often, we spend on items that may or may not be needed. One area that might be useful to focus on is any wastage in fresh fruit and vegetables. If you have fruit and vegetables that aren’t used because they have gone bad, do you need to consider buying in smaller quantities?

Preparing a budget can be an eye-opener as to where your money goes. After doing your initial draft of the budget, you may or may not be overspent that is having more expenses than income. Regardless if you are overspent or not, the next step is relevant for everyone. Too often, we receive an invoice for the car or house insurance and normally payable within a relatively short period of time. With busy lives, we often pay the amount requested without doing any comparisons.

Start being proactive and contact various suppliers for a comparison quote. As well as insurance, this could also apply to telephone, internet, electricity and even any variable loans. You may be surprised at what savings you can make by making a few phone calls.

As the title suggests, this is part 1 on this subject and is a small part of our Holistic Retirement Planning.

I look forward to any comments that you have on whether we are preparing sufficiently for retirement.

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