Thursday, April 18, 2013

On Savings and Earning in Retirement-Ask The Readers

Life is to be lived and enjoyed in retirement-or anytime. This has always been my goal, even on a fixed budget. I started this post to talk about budgeting for the fun stuff in my downsized life-travel, entertainment, books and movies,hobbies, pets, and all those other non fixed expenses necessary to life. It occurred to me though that terms like savings and earning mean logs of things to different people, so it might be worth talking (and getting opinions on) budgeting, saving, and earning money in retirement-especially on a fixed income.

To save or to earn?  Personally, I  almost always look at savings as my first fixed income alternative, rather than producing income. I say that as a woman who has been blessed to move a hobby to a business that brings in extra income, so that would probably seem to be conflicting. The bottom line though, is that cutting expenses saves me more. Even with a fun business that I manage out of my home, there are costs. Self employment costs, time costs, energy costs. The dollar I earn is not all mine by any means, but the savings is.  Realize that I understand I am talking about me, and me only. Some folks need to save and earn at a higher rate, and some may choose only to earn. I choose to cut expenses that are not as important to me because I prefer that my time be mine. Call me lazy.  Would you prefer so save, earn, or a combination of both?

Now, when it comes to that savings, one could argue the definition on end. Some might say that "savings" are only saved if they go into the bank.  Saving in one area to spend in another area is simply diverting expenses. I won't argue semantics on this one. I will say that I consider lowering, say a cell phone bill, to have meant that I saved money on that purchase. What I do with that saved money afterwards is a different issue. Do you see savings andas something that is banked for the future only?

One commenter on my blog has suggested has suggested that short term savings can lead to over spending in another area. While it's obvious that some prices are rising, I'm going to suggest that depends on values and needs (and income level, obviously). My cell phone family plan costs exactly the same as it did when I got rid of my land line. I had a plan that allowed unlimited phone and text and paid data. The only thing giving up my land line did was not allow me to use the fax portion of my good printer.  So in my case the general answer to that has been "no". Yes, my grocery bill increased a tad when I started buying gourmet ingredients, but it has never been close to the cost of eating out that I eliminated. So for me cutting back in those areas have in fact "saved" me money and allowed me to be more joyful in living. I am however, curious about others. If you've cut expenses have you found another expense increased dramatically-not by choice?

The deprivation factor-this is something I bring up mainly based on questions from non retirees. I need to emphasize that most retirees I know (even those with tighter budgets than mine), manage to live joyfully through a variety of alternatives. I would not say that there is not poverty in retirement. I will say that the definition of poor is relative and that many folks with less income than I manage to live full lives. There are a host of scare tactics out there. Certainly one should be prepared, and I have made some huge mistakes. To put it another way, you can have what you want, but not everything and not at the same time. This is true outside of retirement. So if you are person who must eat in the best restaurants, AND have all the newest fashions bought new, AND first run movies and plays, AND all the cable channels including pay per view, AND travel only to the best places and stay in the best resorts...................well, then my style of savings will probably not work for you. Truth told though, that's not a retirement issue-it's a lifestyle issue and I don't know too many people who can have all that in the real working world. Does having to budget or cut an expense in a specific area make you feel deprived?  Even if it frees up money to spend on stuff that is more important or fun?

Budgeting on a fixed income is a tad different than budgeting when one is living off investments (yes I understand that's fixed income living as well, to an extent). A fixed income means you don't have to, or get to, decide how much to spend each month. My budget is based on my monthly income of pension and social security. This includes adding money to savings, if desired, which I'll talk more about later. I base my budget on that monthly income, subtracting those fixed expenses (which have lowered significantly), before budgeting non fixed expenses and savings. Some may say that savings should be a fixed expense, which I'll address in my "banking savings in retirement missive".

I'll also add here, for budget folks everywhere, that my figures are loose. I am not a budget person. I have a good idea of what things cost and a knowledge of my income and I go from there. My best budgeting method is tracking past expenditures to know what I need to do now. Yes, somewhere many of my fellow bloggers are cringing at this one. But I live below my means and without debt with two small exceptions. Also, I don't have "sinking funds" or "envelopes". In other words, I pay my fixed expenses and savings, and the rest goes into a single pot of money. I track actual spending in Quicken to know where I am every day or so. Yes, I know I will hear about the budgeters, long term planners and list makers on this one!

Finally, some of my estimates may be a bit wonky because I get many "rewards. I'd be VERY interested to hear how budget people would deal with this one, if anyone would like to share. To be specific, I use Amazon gift cards earned by using swagbucks as my search tool.  I belong to a site called my points where I earn points for buying gift cards at a discount, and the points I earn by buying the cards go into a pot where I redeem at the end of the year for more gift cards. I'm unsure how to budget this, and unsure how to enter those categories in quicken. The annual out of pocket dollar amount is small (right now I just track as "groupon" and "my points", to have a frame of reference).  Thoughts anyone?

Here's just a tiny example of my freedom budget (should I use that name)....with the rest to come next time.

When it comes to books and movies  lowering costs have been easy and mostly painless. And yes, these get their own category rather than being put under entertainment or recreation. What that says about me I am not sure, but here it is.. When it comes to books, I rely on the library with occasional free or extremely low cost kindle expenditures. My experience when it comes to book series is that the early ones are free on kindle, with the prices rising on later novels. I started the Kate Shugak series for free, and the prices have slowly moved up. Although I mentioned it before, here's my tip for not waiting behind five hundred people for two copies of a book for movie: Reserve these items as soon as you have knowledge of when they will be released. The new John Sanford mystery comes out in May-I could have reserved it at my library the date they ordered it, which was well before Christmas. Not sure what new books are coming?  Go go popular pre orders on amazon, or visit a book club site and look at their coming soon choices. Finally (and to be honest) I have a son who buys and sells books as a business. I get first look at any item that is not high ticket.

I don't have Netflix ( if I streamed I might), and tend to think on a regular basis how I wished I had thought of the Redbox idea first. Other than Redbox I rely on the library for my more classic movies (my son is still on the top 100 films of all time and WWII films). The library is worth every tax dollar it receives from me.  I do still go to movies a few times per year. Generally these films are those that I feel really  should be seen on the big screen. Inception, Star Trek and Prometheus come to mind.  I generally see these during the early hours with discounted prices. I also am a rewards customer at my local movie theater and get weekly free food coupons that I can use if I so desire. Although, right now both the Great Gatsby and the new Tom Cruise sci fi movie are calling me. Bottom Line, don't in theory budget for movies and books as such.   A single movie from Redbox is a dollar twenty and I do that perhaps once a week. I get books from my son, and I earn free amazon cards throughout the year.  My movie and book purchases are rare enough that they simply come out of other cash on hand that is not spent out of that pot I mentioned. I feel it is so minimal that it does not need it's own category, but does deserve explanation, I suppose.

Unfortunately my hobbies are not as simple.  Some hobbies such as walking and photography take minimal expense (mainly because I already have camera, tripod and such).  Art related and cooking hobbies tend to be more expensive, with no happy medium. These hobbies require regular purchases of ingredients as well as often expensive supplies and equipment. Whenever possible I pursue additional learning or skills through free meet up groups, quilt guilds and the like. My first solution here is to reinvest the stuff I make by selling quilts, pictures, and cookie bouquets and the like back into a fund specifically for this stuff. The second solution has been to put out the "word". I have a large family and we all share gift lists. The lists range from small to unique (I already know I'm getting my sister in law Texas Rangers painted shoes for Christmas). I shared with family of all ages long ago that I don't NEED anything but would love hobby items or gift cards.  Oh, and I also engage in swaps and barter for equipment, and go to yard sales and estate sales the last day. So I do not budget for most hobbies but rely on gifted items and items that I sell to take care of this category. I require a fifty percent deposit on custom orders in order to pay for the fabric up front. Note: garage sale budget comes out of my clothing pot or unused food and personal item budget.

I'll share more about my projected downsized budget categories (entertainment, travel, pets, and the like) later. I'm still working with costs for my new location. A few of the items mentioned in this post and the next had disappeared from my budget during my house poor days-when replacing or repairing a sprinkler system would have meant no non essentials at all!

Meanwhile , life is good and getting better-although I am certainly ready to move to a new place and "get my stuff". I even have planned where it will all go. I just need a little more patience!

And please do share your thoughts on the budgeting and savings continuum.

7 comments:

  1. Q - Do you see savings as something that is banked for the future only?
    A - Well, there is saving, and then there is reallocation. If I don't spend the money at all, that is saving because it means we withdrew a lower percentage of our portfolio as a result. If I redirect the savings elsewhere, that's simply a reallocation. I prefer the later over the former by the way!

    Q - If you've cut expenses have you found another expense increased dramatically-not by choice?
    A - No, because I don't make penny-wise, pound-foolish type of cuts. Like cancelling an insurance policy - I would consider that foolish. Raising my insurance deductibles however? I would consider that wise given the amount we saved by doing so vs our claim frequency (0 claims in 30 years).
    Or cutting cable and our landline - savings of $1200 a year, vs adding HuluPlus instead ($96 a year).

    Q - Does having to budget or cut an expense in a specific area make you feel deprived? Even if it frees up money to spend on stuff that is more important or fun?
    A - No. Everyone has a monetary limit they need to adhere to, even the ultra wealthy. We are conservative in some areas of our lives so we can be extravagant in others, so no, I do not feel deprived.

    Regarding your informal budget process - if it works for you, it works. If you are not overspending, then it really doesn't matter how you choose to oversee your money. I would, however, suggest you consider tracking your spend to the penny for a month or two, simply to make sure you are actually aware of where your spend occurs and find your choices to be well made in hindsight. You might be amazed at what you find, and you might discover you have even more to funnel to travel.

    And finally, I allocate "found" money as I see fit within my budget. Usually it all goes to travel, but sometimes I drop it in a different bucket.

    (And any chance you'd consider allowing comments to show up in real time? I enjoy reading what others have to say, and sometimes like to add to a comment someone else left :-)


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    Replies
    1. Regarding point one - I should clarify that while I do understand the traditional usage of "saving" as meaning funds are added to your portfolio, in our case, we are now retired, and we now longer save in the traditional sense. We "save" by withdrawing less from our portfolio than we actually could. Our portfolio should continue to grow rather robustly as a result of that under-withdrawal.

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    2. I tend to agree that at this point many if most retirees are not actually putting money into savings in the traditional sense of banking for the future. I'm just never sure what other ter to use.

      As for the real tiem, I'm working on it, just trying to figure out how to elmnate the spam pile at the same time. I really hate to add a code before people can comment, so Im still working on this.

      In truth there has been a dearth of comments in the past week, I expect many of us have been otherwise busy or glued to the television.

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  2. I'm recently retired and plan to put 10% of my pension into savings. I have a considerable savings now and like it that way; you never know when the pump in the well will need to be replaced and other such emergencies. Also, I think that we need to be cautious of some savings or sales. If an article is bought because it's on sale but never gets used, I don't call that a bargain.

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