Many people come to us and they say, “Why do I need a budget?” Or more importantly, they say, “How do I put one together?” Well, today, you’re going to see how why you need a budget and how to put one together are so much intertwined.

Why do you need a budget? That’s several things that are involved there. The biggest question is, do I have enough money coming in, especially in retirement? Do I have enough money coming in to pay the bills? Now, let’s talk about the biggest fear in retirement. Study after study after study says that people who are in retirement have the biggest fear of running out of money before they pass away. So you see, the biggest question and the biggest fear are so aligned with each other. And the key is therefore to deciding, am I going to run out of money? Do I have enough money? Is it going to last?

All of that goes back to the step by step monthly calculation of, what do I need on a monthly basis to make ends meet, and to really live a good life? That’s what putting together a budget, it’ll solve that why question as to why I really need one to give you that contentment that, “Hey, I think I have enough money to last for the rest of my life.” Or if you’re still working, do I have enough money to make ends meet and I run out of month before I run out of money. Versus running out of money before I run out of month.

So there’s three factors to putting together a budget here. I’m going to unbutton my sleeve here, going to roll up my sleeves. We’re going to get to work. Okay, how do you put together a budget? And we’re going to talk real practical, so that’s why we’re rolling up our sleeves. Number one, you got to decide, how much income do I have coming in? Now, doing a budget right now is pretty easy because you can go back over the last month, two months, three months and say, “What kind of income do I have coming in?” You can go to your pay stubs and see what you’re making. So you’re rolling up your sleeves, you’re saying, “What kind of income do I have?”

Do your parents still send you money? Hey, I know people who are in their 50s, their parents still send them money. I know people in their 70s who’ve got an inherited IRA from their parents. In essence, even though their parents are gone, there’s still money coming in. That’s income. You need to total it all up. And that’s on the positive side. Where is your money coming from on a month to month basis? And don’t go to sleep on the things that might only pay you out every quarter or every half year or every year. But how much income do I have coming in.

Now, sleeves are rolled up. You ready? Now, how much are my expenses per month? And again, don’t just go to each month, don’t go back one month and say, “That’s my expenses.” Because you might not have paid for car insurance. You might not have paid for homeowner’s insurance in the past month, or renter’s insurance if you’re still renting. You might not have paid some of those things that you only have to pay every quarter or every six months or every year. And you might not have taken a vacation in the past month. And you say, “Oh, well, we take a vacation every single year and it costs about $4,000, $5,000.”

Again, we’ve got the sleeves rolled up. And the two biggest factors are your income, what’s coming in and your expenses, what’s going out. Now, the biggest thing you’re going to discover is a third thing. Is there a gap? Now the gap could be on the positive side. You could have a surplus, and hey, that’s good. You’re in good shape. You’ve got a surplus, so you need to think about, “Am I just going to blow that money or maybe do I start saving that money for a better retirement or a better future?”

But if you’ve got a gap, and particularly if you are in retirement and there’s a gap between maybe your social security or two social securities that are coming in, a big pension or a little pension or any kind of pension. Or maybe you’re renting out a room to somebody in your house because it’s a big house, you don’t want to move and there’s room to have somebody. So, for seven or 800 bucks a month, you rent out your house to somebody or a room in your house to somebody.

So you’ve got to figure out, is there a gap? And if there is a gap, then what the budget itself is going to do is allow you to begin to say, “I need to figure out where that money’s coming from.” Or if you’ve got an excess, “I need to make sure and not squander that, but put that in the right places because I’ve got a surplus.”

Now some of you are saying, “I’d really like to know if I’m going to run out of money in retirement, but I’m not retired yet. So, how do I know what I’m going to be spending in retirement?” Well, that’s budget related as well. When we have our seminars and people come to our live events, we give them two budget worksheets, because a lot of them are not retired yet. And we tell them, “Go build a worksheet and a budget from the known, from what you know is happening right now.” And you can see that from your checkbook and the other things that we’ve talked about in the previous segment of the show. You can put together what’s coming in, what your income is. You can put together what your expenses are. So, that’s your known. You know what’s coming in now, you know what’s going out now.

Once you get that, be scientific about it. Work from the known to the unknown. And what you do then is you say, you go through every line on that budget worksheet and you say, “When I retire, I won’t have that expense. I will have an additional expense here. I won’t have that expense.” So on the budget worksheet for retirement, you do the pluses and minuses. What changes, what specifically changes? Some people say, “Well, I won’t have car expense anymore.” Yeah, you will because you’re probably going to live 20, 25, 30 years in retirement. And the car you’ve got right now won’t last that long. So, you’re still going to have car expense. You say, “Well, I’ve got my house paid for.” That’s good. That’s a big nugget that you’ve got taken care of. But you’re still going to have home repairs, you’re going to have home insurance, you’re going to have taxes on that house.

There’s all expenses that you’re still going to have. There’s a lot of expenses you’re still going to have in retirement. So, you work for a retirement budget from the known to the unknown. And then to build a retirement plan, here’s what’s key. To build a retirement plan, the first thing you’ve got to solve in building a big overall retirement plan, the very first thing you’ve got to solve is if there’s a gap in my income, how am I going to solve that gap every single month?

Now, let’s talk about what happens to that budget as you live through retirement. A lot of people say, “Well, I’ve got a budget. I’m going to set it and forget it.” Wrong. It’s not going to happen that way. There are a lot of changes that go through retirement. For instance, if you retire at 62, you got to deal with your own health insurance somehow some way, until you’re 65 and you’re able to get on Medicare. And if you don’t want to turn on your social security until your full retirement age, you’ve got to deal with that lack of income until you’re 66 or 67 or somewhere in between. So, that budget has to be flexible all along.

And we know in these last few years, we know inflation has to be considered. So that budget not only has to be set right there, but you’ve got to add in what is it going to be? Three, four, 5% inflation? Is it going to be nine like it was a few years ago? What kind of inflation are you going to have to deal with? So, there’s got to be flexibility. You’re going to have income changes. A lot of people retire and they make a major purchase. You say, “Really? What’s a major purchase?” A fifth wheel, a motor home, a cabin in Big Bear? Those are major purchases. Okay? So, how’s that going to impact the pile of money that I’m taking to fill that gap through retirement.

Health issues. Your health could change through the years. It will change likely, through the years. Market fluctuations. There’s going to be ups and downs of the market. Emergencies. Hey, I’ll just say it this way, in retirement, stuff still happens. You’re going to have to add in your vacations, you’re going to have to add in travel. When you’re in the go-go stage, you might most likely have a lot more travel going on. Is there going to be a social security reduction in 2034? Are there going to be tax increases? Probably. Am I going to live a long, long time? Is it going to be a 30-year vacation? So, a 30-year retirement. It’s not going to be a 30-year vacation, but it’s going to be a 30-year retirement.

So, here’s my point. My point is that budget gets set, but it also has to be adjusted as you live through life. This is where I’m going to be real personal here. I think most people at this point in their life, could use a real financial planner to help them build that retirement plan to address all of these budgeting issues. You need to have somebody who understands the landscape of retirement. It’s just a different set of eyes.

I always joke around with people and say, “Thelma and Louise, they drove the car off the cliff. If there’d have just been one more person in that car, maybe with a little more sense, they might not have done that.” They would’ve had to have a different ending for the movie, but they might not have driven off the cliff. And I think a lot of people sometimes, if they just had another set of experienced eyes, somebody who’s not just going to be a little league parent and say, “Good job. I mean you missed the pitch by a foot, but good job.” But they’re going to tell you the truth and they’re going to say, “Maybe you need to work a little longer. Maybe you need to get a part-time job. We need to do this to make sure that the money lasts.” Somebody who’s going to be another adult in the room, who’s experienced with other people who’ve retired to help you build a real financial plan. The foundation of the financial plan being your budget, your income, your expenses, and your surplus or your gap.

Hey, the budget is the foundation of a retirement plan. If you want to know what the whole retirement plan is, check out our “How To Build A Retirement Plan” video and it’ll give you lots of information about that. Hey, and if you’d like to see how we could help you specifically contact us on our website, get on our schedule, we’ll be glad to talk to you about building you for free, a complimentary retirement blueprint, just for you based on your numbers and your life and your goals.

I tell you every time, if you’ll give me eight to 10 minutes, I will do my best to increase your financial knowledge. Until next time!