Budgeting for Every Season of Life

Financial wellness can mean different things at different life stages, but one principle is universal — you need to have and follow a budget!

Whether you are budgeting a small or large amount is fine. What matters is that you stay aware of how your budget should change as you age.

Here are several tips to keep you and your budget grounded at every age and stage.

Lay the Groundwork

When young adults graduate from college, they typically leave the nest literally and financially as they pursue their budding careers. This is the perfect time to plant habits that can take root over the coming years.

1. Write it down. Create a budget by writing down what you earn and what you spend. Whether you use a modern budgeting tool or old-fashioned paper and pencil, knowing how you spend, save and invest your hard-earned dollars is an empowering step. Once you’ve established your plan, monitor your monthly expenditures to stay on track and make changes if necessary.
2. Spend less than you earn. Once you know how much remains, only buy what you can afford. This principle seems simple, but it’s essential (and not always easy) to put it into practice.
3. Pay off student loans or consumer debt. One reason you should spend less than you earn is that those debts could cost you more than you borrowed, so pay them off quickly.
4. Start an emergency fund. Life will throw you a curve ball, so prepare for it now by saving for an emergency. Start small but build up to a $1,000 reserve as quickly as possible so you’re not sunk when you suddenly need to replace a tire or a household appliance
5. Start contributing to a retirement plan through your employer or an Individual Retirement Account (IRA). Industry experts recommend working toward saving 15% of your income in a retirement account. But even if you can start contributing with only a small percentage of your income, it can help make a difference as you work toward that goal. You can increase that percentage over time.
   By the way, don’t leave money on the table! If your employer offers matching contributions to your retirement plan, be sure you contribute enough to be eligible. This is a great way to substantially increase your retirement savings at a potentially minimal additional outlay. Think about areas where you can cut back on your budget — such as making lunch at home instead of eating out — because little expenses can add up. Also, thinking ahead can help you make good decisions when saving opportunities arise. If you receive a raise at work, immediately direct it to your retirement plan. That way, you won’t even miss it.

Adjust to Changes

Midlife earnings (typically 35-55 years old) should be some of your highest, but this is also a season when many unexpected financial setbacks can occur. Have some tools in place to prevent your savings from depleting.

1. Re-evaluate your budget. Whether you’ve received a raise or decided to have someone stay home, if your income changes, your budget should change, too. This is another prime opportunity to map out a budget and make adjustments where necessary.
2. Pay off debts as quickly as you can and stop incurring more. This is when you need to become as financially free as possible to best prepare for the future.
3. Increase your emergency fund. Work toward having three to six months of essential expenses in savings should a major emergency occur, such as a job loss or a health crisis.
4. Increase your retirement contribution by a percentage — not a dollar amount — to help your savings keep pace with inflation. You will likely spend 20 or more years in retirement, and inflation can cut into your savings during that time. By automatically putting a percentage of your income into retirement savings each month, increasing it as you can, you’re more likely to stay on track toward achieving your savings goal and keep up with inflation. This may mean that whatever is getting in the way of saving for retirement has to wait, whether it is a new car, that long vacation or even the children’s college expenses — remember, you’re not doing your kids any favors by being dependent on them when you retire. Your future self will appreciate the sacrifice.

Remain Consistent but Flexible

If you’re nearing retirement, apply some of the same principles to your budget as you did in your early career, mixing in elements to keep your savings on track.

1. Write it down — again. Write down what you have (savings), what you need (expenses), what you will continue to receive (income) and what you want to do (plans). Financial professionals say retirees will need approximately 80% of their pre-retirement income in retirement.
2. Keep saving. Maximize your retirement contributions every year for as long as you can. The IRS allows larger “catch-up” contributions to your retirement plan for those age 50 and older.
3. Plan ahead. Review your overall financial plan periodically and consider how long you can live comfortably in retirement based on your savings so you can plan to retire at the right time. Our Retirement Budget Worksheet can help you prepare. Plus, utilize our Retirement Readiness Assessment for a more in-depth review of your progress and check if you are on track or need to save more to reach your goals.
4. Delay retirement or work in post-retirement if needed. If you realize your savings may not provide enough for a secure future, then be realistic about changing your retirement plans. Delaying retirement may also allow more time for your Social Security benefit to increase and your retirement account to grow. Use our Retirement Shortfall Calculator to evaluate if you’re on track.
5. Prepare a sustainable retirement withdrawal strategy. Before retirement, you should take time to accurately calculate your retirement income need — or how much income you will need each month — and whether your retirement income sources will leave you with a surplus or shortfall. Our Savings Distribution Calculator and Retirement Income Solutions Workbook can help you get started.

No matter the season, a robust budgeting plan and well-cultivated habits can help you tend to your financial plan with care.

Need more help with your budgeting or savings strategy? GuideStone® is here for you every step of the way on your journey to retirement. We have additional resources to assist you, such as our articles, videos, calculators, FAQs and webinars. Plus, check out all our helpful calculators to estimate your investment and savings goals.

For more information, contact us at Info@GuideStone.org or 1-888-98-GUIDE (1-888-984-8433), Monday through Friday, from 7 a.m. to 6 p.m. CT.