How to Be Less Wrong in Your Budgeting

Most of the women I encounter feel stress about having enough money to be able to retire. It’s my job to help them come up with a plan. We consider different courses of action, make sure their dollars are working efficiently, and to take steps to protect against what might go wrong.


Figuring out what we will need in the future is a complicated equation. There are many variables. Most are impossible to predict, so we make guesses. How long will you live? What will happen to inflation, taxes, and Social Security?

One of the key pieces of information we need to guess is your future income need. What will it cost you to live in retirement? Then we can figure out, by looking at your projected Social Security benefit and any pension plans or other sources of income, how many dollars per year you’ll need to pull out of your savings and investments.

Most people don’t know how much money they’ll need to live on in the future! So we start with – what does it cost you to live now? From there, we think about what will change. (Maybe your mortgage will be paid off or you’ll move to a lower cost-of-living situation. Maybe you’ll need more money because you plan to travel a lot. Maybe your costs will go down because you’ll only need flip-flops, sunscreen and a library card.)


So – do you know your current cost of living? What you actually spend in a year? If the answer is no – you’re not alone.

When pressed, people start listing their monthly bills. Mortgage, utilities, homeowners’ association, car payments, gas, cell phone, gym membership, and so on. They guesstimate how much they spend on food and other necessities. Then they multiply the monthly number by 12, and figure that’s their annual spending amount.


The more clients I work with, the more I live my own life, the more I realize this way of calculating never works.

Think about how much is missing from the calculation methodology I just described.

  • Stuff you pay once or twice a year like insurance and taxes
  • IRA contributions
  • Holiday spending (Personally, it’s hard to resist spending on my loved ones and experiences in December.)
  • Birthdays and other once-a-year occasions
  • Graduations, weddings, new babies and other once-a-lifetime celebrations (We won’t talk about what I spent on a graduation party last year!)
  • Vacations
  • Charitable contributions
  • Home maintenance and repair – plumbers, electricians, handymen

Then there’s all the unexpected stuff that can throw us off. Among my clients are multiple retired women. When we estimated how much they would need to live on in retirement, we underestimated their actual ongoing expenses. And it was always the

Some of the things that have come up:

  • tree work
  • fence repair
  • pool leaks
  • deck damage
  • dental bills
  • car repair or replacement
  • financial support for grown children
  • unexpected visits to ailing parents
  • helping pay for care for ailing parents
  • helping kids buy a home
  • helping kids start a business


My lesson is that we cannot treat these expenses as UNEXPECTED. They are inevitable. We need to expect them, even if we don’t know what form they will take year to year. We must plan for them, both NOW and in retirement.

What’s the solution? Here’s what I recommend for the things we can predict.

  1. Think through your once-a-year stuff. Look at the past few years and see what bills you pay once or twice a year.
  2. Chart them out on a calendar so you know the dates and approximate amounts
  3. Make a plan to cover them.
    • Divide the total by 12 and add it to your monthly “budget.” I like to put it into one or more dedicated accounts for these purposes. You could have a Tax account and a Vacation/Holiday account for example.
    • The GOAL is to save regularly so when those bills come due, you’re ready.
    • Maybe you have once-a-year income that helps, like a bonus or tax refund or other payment. REMEMBER that some or all of that is dedicated to a purpose and set it aside so it doesn’t get spent on a splurge or just day-to-day life.
  4. Yes, this means you have less discretionary money each month. But it also means you’ll be prepared and not go into the red when they come up.

For those unpredictable outlays, you also need a plan. First, accept that, as the bumper sticker says, sh*t happens. If you are financially ready when it does not only will you be more secure, your stress level will much lower.

  • Double-check what the deductibles are on your homeowners and car insurance, and make sure you have that amount sitting in a savings account somewhere.
  • Rules of thumb for estimating annual home maintenance costs range between one and four percent of the purchase price of your home per year. Whatever number you think is reasonable, work toward getting that amount in savings. And if you have to tap the account, replenish it.
  • Be aware of the lifespan of items you own that will need to be replaced. Cars, roofs, heaters and air-conditioners, dishwashers and washing machines, mattresses.
  • 3-6 months living expenses
  • MORE if your job is tenuous
  • MORE if you have erratic income – cover leaner months.

Maybe you want to have an Emergency Fund, a Home Maintenance Fund, and an Opportunity Fund. Name them what you will, but assigning roles to different pots of money can mentally help us.


Money is a tool. Depending on how we use it, it can cause us massive amounts of worry, or it can make life go much smoother. The trouble is that to go smoothly, we need to put some prior planning in place. We are forever balancing today’s needs with tomorrow’s possibilities.

I advocate taking a bit of time and care to plan for tomorrow’s needs. Your future self will thank you!

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