Tracking Expenses Is Critical to a Safe Retirement

Looking ahead into the retirement unknown can be a little bit scary, but it's often only scary because it's the unknown. If you've tracked your expenses for any decent amount of time however, and have a general idea of where your money is going and in what amounts, your retirement really shouldn't be all that frightening because you'll likely have a pretty good idea of just how much money you'll need and the financial situation you'll be facing.

Of course you can always be surprised by the unexpected. Market downturns, health issues, and other unforeseen catastrophes could put a major beat down on your retirement lifestyle. But if you've gauged your expenses over the course of several years before you retire, provide a reasonable cushion between your expenses and income, and have a few backup plans in your back pocket, you can better ensure a safe retirement when the time comes.

Getting Started

While I've benefited from 15 years of tracked expenses, and plan to continue to gauge my spending, you don't necessarily have to make a lifelong endeavor of watching such progress. I enjoy doing it, and glean important information from what I see or sometimes don't see in my numbers, and it therefore doesn't seem like a hassle to watch where my dollars go.

To many people however, having to keep track of their purchases and expenditures might seem a gargantuan endeavor; one to be undertaken not with pleasure or even with cautious optimism regarding the valuable information it might provide, but with dread due to the amount of work in might entail.

If that sounds like you, don't despair. You don't necessarily have to track your expenses for decades to prepare for retirement. You can still get a reasonable idea of where your expense expectations lie by gauging your expenses in the period before you plan to retire. I mean think about it; if you're in your 30s, while tracking expenses can certainly be beneficial, there is an extensive list of things that could change in how and where you spend your money before you reach retirement. The most critical point at which to start buckling down and really getting a feel for your pecuniary outflow is at the juncture that comes with the end of your working career and the beginning of your retirement.

Retirement Benefits of Expense Tracking

I discovered early on in life, many of the benefits of expense tracking. Having to do this in college for my parents, was an eye-opening experience; one that taught me the value of understanding where my money went and how I could control the flow of that financial tap. In my opinion, the best thing about tracking expenses is that it largely takes away the unknown factors of your finances. With exception of certain unexpected emergencies, health issues, or repairs, you have an excellent grasp upon what you will be spending on a regular basis.

Tracking expenses before you get to retirement can provide you with an overall financial picture of just how you are spending. From utilities and food costs to healthcare and clothing, expense tracking can fill in the blanks on those unanswered questions about where exactly your money disappears to each month. Such tracking can help to build a budget and relieve some of the stress regarding retirement and where your costs will be once you hit your golden age. It can help you pinpoint what you could change should you need to reduce certain expenses, where you could cut and by how much.

As you move out of the working world and into retirement, your continued tracking can help provide answers to fill in those incomes gaps that you may have been questioning. It can help you determine how you are progressing compared to how you expected to progress, where you may have over or underestimated, and whether you need to make changes in your retirement spending habits or if you have a little more room to relax and enjoy the good life.

Potential Pitfalls

While tracking expenses before entering and as you enter retirement can be extremely beneficial to your planning purposes, there can be downsides. While I tend to believe that the benefits heavily outweigh any potential pitfalls, there can be situations where your tracking numbers might be slightly deceptive.

Many of us may encounter extreme spending adjustments in our retirement lifestyles when the time comes. Employer sponsored health plans can disappear. Entertainment and travel costs may skyrocket. Medication costs could increase significantly, and your overall spending habits could need an overhaul. This means that your expenses as they stood in the months or years before your retirement could be raised or lowered dramatically. On the other hand, they might stay much the same.

Therefore, while the expense numbers you tracked in previous years can provide a general idea of certain costs, they may not be the crystal ball that you can use to fully base your retirement cost expectations off of. This means you may still want to continue tracking your expenses during your initial retirement years to get a better idea of what expenses have changed, by how much and whether further adjustments are needed.

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Disclaimer:

The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. For financial advice, readers should consult a licensed financial advisor. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.