Finances are a fact of life, and that's something that doesn't change as you age or when you retire. Whether you're considering your options (staying in your current home or moving to an assisted living community, for example) or just managing your income while enjoying life in your assisted living apartment, money is still an important factor. One tool seniors might find helpful, no matter where they are, is a zero-based budget. Find out more about this option below.
A zero-based budget is one that doesn't leave anything on the table. You account for every dollar of your income each month and give it something to do. That doesn't mean you're necessarily spending all your income. Sometimes, the job the dollars have to do is associated with savings.
For example, perhaps you get Social Security income of $1,500 a month. You might already cover your major living expenses — such as assisted living community costs or a mortgage payment and utilities — from your retirement savings. So, your zero-based budget for the SSI income might look like this:
• $150 for car insurance
• $200 on entertainment, such as dining out and tickets to events
• $200 for prescriptions, medications and other wellness products
• $150 in medical insurance premiums
• $400 in food, clothing and other personal items
• $250 to be put in your savings account
• $150 in charitable giving or tithing
Having a budget puts you in control of your funds and your spending. It gives you goals to work toward each month and helps set limits on how and what you spend. When you're following a budget, you limit spending in some categories to make room for others, which can help increase responsibility with money while ensuring you get optimal enjoyment out of your income.
A specific benefit of the zero-based budget model is that you assign every dollar to a specific task. That means you don't end up with left-over money in the budget that can disappear without you even realizing it. For example, if you don't assign some money to savings, you could easily spend it here and there on things you might not even need before you realize it.
This budget model is also easy to update. You might change it during certain seasons or months when you know you're going to have unique expenses, and it only takes a few minutes of your time. You could even make a new budget plan for each month with little more than 30 minutes of your time.
This is an easy budget model that only requires basic addition and subtraction skills and gathering some information about your income and spending. You can use a computer and spreadsheet to create it, but it's also easy to do on paper with a pencil or pen. Gather your supplies and follow the instructions below if you're interested in trying out this model.
Make a list of all your income types with how much you expect from each within a given month. You can just write things down in a notebook, but if you want to use an online calculator, Dave Ramsey offers a program called Every Dollar that helps you through this process. It's an online calculator and budgeting tool you can try for free and cancel anytime, but do note that if you remain a user, it does come with a fee.
Once you have your total monthly income, you need to do the same for expenses. Start with a list of repeating bills, such as car payments, insurance premiums or assisted living fees. These are easy because they may be the same every month.
After you list those, start working on other types of expenses. How much do you spend on food, clothing, entertainment, medication and other items a month? Do the best you can to come up with a realistic estimate. You might consult your old bank statements if you simply have no idea what to put here.
Make sure you create a line item expense for savings. Perhaps you want to put $200 into your savings account each month. Even if you already have a retirement savings account, putting a small portion of your income into an easy-to-access savings account can help you cover unexpected expenses quickly and without a great deal of stress.
Some expenses only come up once or twice a year. Make a list of those separately and then allocate a certain amount of money each month that you can save toward those expenses. For example, you might know you have $300 a year in insurance deductibles to pay. If you divide $300 by 12 months of the year, you only have to save $25 of your income each month to ensure you have that money covered. Do this with other seasonal expenses, such as birthday and Christmas gifts, property taxes or subscription renewals.
Subtract the total monthly expenses from the total income. If you have any left, make a plan for it, such as adding it to the grocery or savings number. Remember: The goal is to be left with $0 unaccounted for in your budget.
