How To Budget For The Different Stages of Life

Even with its well-documented benefits, fewer Americans are budgeting. In’s 2019 poll, only 67 percent of respondents were implementing budgeting for themselves and their families. Furthermore, a mere 25 percent believed that everyone should be practicing budgeting — regardless of their age. While the younger generation has increased their affinity for better money management thanks to useful fintech tools and apps, the effects of budgeting your money can be throughout different stages of your life, including the good and bad times. From planning to buy your first home to sending your child off to college or trying to increase your savings, here is what simple budgeting should look like at all stages of your financial life.

Early Career-Building Years: Focus On Kickstarting An Emergency Fund And Practicing Financial Mindfulness

In your early years as an adult, one of the main goals of budgeting is simple: practicing good financial habits. While 67 percent of people draft a budget for themselves, a common complaint is always that they find it difficult to stick to them. As a result, many argue that budgets do not work for them. Therefore, a better starting point for young consumers is to get accustomed to ‘conscious spending’ and how to make better financial decisions. Get used to allocating your money to meet your expenses before beginning to work on kickstarting investment and savings goals. 

One of those early goals? Having an emergency fund. An alarming 60 percent of millennials cannot cover a $1,000 emergency, highlighting just how important it is to have a financial security net, even before you become a mother. Once you know where your money is going every month, you can begin to make small changes to your allocation ratio towards an emergency fund, general savings, and long term investments.

Mid-Life And Family Life: Amp Up Your Budget For New Goals

Many families during this time focus on raising their children and achieving family goals like buying their first home, buying a family-friendly car, or upgrade their family home for more space. With such investment heavy financial goals, budgeting becomes an even more essential part of family finances. When preparing a budget for your young family, a spending plan will be one of your best tools. Frugal living tips such as meal planning or automatic savings into children and retirement savings accounts will also come in very handy.

During this stage, families are spending significantly more on housing, childcare, and other fixed costs — housing accounted for 33 percent of household income in 2018. While more mothers are joining the workforce than ever before, the costs of raising a family are still steep. To make the task easier, parents can rely on family budgeting tools to track their finances throughout the month like spreadsheets or simple apps like Mint, EveryDollar, and, Personal Capital.

Pre- Retirement Years: Focus On Growing Your Savings And Income

As you enter the home stretch towards retirement, it may be time to recalculate your budget using your retirement expenses instead. As your career ends, most find that their income declines and they must supplement using their built-up savings. In preparation for this, consumers must answer one question: how much will I need to retire? This is also the time to practice minimal spend budgeting- looking for savings wherever you can carve it out. Simply put, your budget should be adjusted to larger allocations towards your investment and savings categories. 

One of the exceptions when it comes to new expenses during this time should be the addition of end of life and estate planning costs like life and long term insurance premiums and funeral costs. Some of the most common questions when budgeting here are: how much does funeral insurance cost? This is followed by whether funeral insurance can be afforded. A burial insurance policy covers less than a life insurance policy and, therefore, can command smaller premiums.

For instance, a burial insurance policy of $10,000 rings in at $46 per month. It eliminates the possibility of your family not being able to afford the $7,000 to $12,000 price tag if unprepared. Similarly, while life insurance is recommended as early as possible it should seriously be considered as soon as you have children or progress towards retirement. Like life insurance and Medicare, funeral insurance helps you to prepare for those costs without the heavy burden of large payments.

Retirement: Time To Downsize Expenses And Make End Of Life Financial Decisions

When preparing a retirement budget, the general rule is that you should estimate your expenses to be 70-80 percent of your expenses before retiring. While you may have income in the form of social security or investment dividends, you will also on built up savings. Therefore try to map out a plan that ensures you do not blow through your savings too fast while still meeting any essential expenses- your retirement budget. This is the perfect time to look at your outgoings and consider where you can reduce them. For many, they choose to downsize their cars or homes. 

Most retirees choose to start their budgeting by determining what their monthly income from their pensions, Social Security benefits, investments, and savings will be. After knowing your income, work on separating your essential and non-essential expenses to get your minimum spend each month. Finally, make adjustments for changes in your tax payments. Less income would mean less taxes paid but you should also still account for income from any other income sources you may have set up like stocks or real estate investments.

Regardless of the stage of life you are currently in, budgeting can be a useful tool to help you meet your goals. While those goals and the way you budget may change, the message remains the same: staying in control of your finances.