Senior Finances: Staying on a Budget

Aug 24th, 2010 | By Sharon Shaw Elrod MSW EdD | Category: Senior Finances

A friend complained last year about being unable to stay on her fixed-income budget.  She said no matter what she did, she always had to dig in to her savings and investments.  And she is increasingly concerned about those resources eventually drying up.  I asked her if she just needed to whine, or did she really want to do something about it.  She replied that she was serious.  She told me why she had been unsuccesful living on her pension and Social Security:  she just gets tempted to buy something she doesn’t need, but wants.  It’s called impulse spending.  So I made the following suggestions:

  1. Make a list, and include the amounts, of budget items that are absolute essentials.  These are the things your ‘life depends upon’.  Those usually include items like rent or mortgage, groceries, medical insurance/medications/supplies, taxes and auto expense. 
  2. Make a list of budget items that you consider essential, but really could eliminate if you had to.  These are really important expenses, but your life doesn’t depend upon them.  Those usually include items such as house or renters insurance, personal care items, professional fees.
  3. Then make a list of everything else she spends money on.  That is the non-essential list, the expenses life does not depend on, and are either simply non-essential or perhaps even frivolous. 

I suggested she review the last 12 months of expenses for all three lists and figure the average amount spend monthly on each item.  At this point, she has to determine how far her income will go with the essential and really important expenses; if all those are covered, then and only then can she include items on the non-essential list.  The list she comes up with includes the items that she can actually pay for from her Social Security and pension checks.

Then, it is absolutely essential that she cut up all credit and debit cards.  Every single one.  Throw them away or shred them or burn them.

With the three lists in hand, her final step is to get one of those great plastic envelopes that has dividers for a dozen or more slots; she found one at the local office supply store.  Then when her pension check came, she cashed it and divided the money in the dividers identified for each expense category that she was able to include in her budget.  She did the same thing with her Social Security check, paying cash for every item she purchased during the month, and not making any more purchases in that category if she ran out of money. 

A couple of months ago she called me in a panic.  She had an emergency and needed to spend money on an item not budgeted, and she didn’t have the money in any of her plastic divider slots to pay for it.  We talked about it for a while, and she decided it really was an emergency, and she withdrew money from her savings to cover it. 

It’s been a little over six months now, and she is thinking about returning to using a checking account.  She has totally given up on using credit cards, realizing they are a tempting non-essential.  She tells me she is very happy and content just using cash, and most important to her, she is no longer relying on her investments and savings for non-essential purchases.

The plan doesn’t work for everyone, but for those who are determined to change spending habits, it may be worth a try.



Tags: , ,

One comment
Leave a comment »

  1. Staying Motivated in a Busy World…

    I found your entry interesting thus I’ve added a Trackback to it on my weblog :)

Leave Comment

You must be logged in to post a comment.