Do I really need a budget?

There are few things more despised in the financial world than a budget. It’s a complex tool that is wrong 99 percent of the time. It’s no surprise people don’t actively want to budget. Especially later in life, after the kids have moved out and you have more discretionary income. But when it comes to planning for retirement, a budget is one tool you can’t live without.

See, when it comes to understanding the lifestyle you’re currently living, and the lifestyle you want to live, a budget is a concrete manifestation of that. It’s a precise way to understand how you live today, and how you’d like to live in the future.

It’s difficult to plan for something that you don’t have a definition on and a budget is the first step to understanding what you need in retirement. Because what you budget for is ultimately what you’ll get to spend. And with retirement, you’ll have more spare time, you’ll have more trips, time with family, and other activities you’ve been dreaming about, but many of these activities cost money. So it’s important to understand what you’re actually spending each month while you’re working because in retirement you’ll most likely spend more.

Remember that a budget isn’t a straight jacket. A budget or spending plan gives priority to the things that matter most. It creates clarity on your household’s cash inflows and outflows so you can know how to plan and create goals effectively. Try to view a budget as a goal enabler, rather than a restrictive undertaking.

It’s important to include all recurring expenses, like your mortgage. But it’s even more important to include holiday expenses, birthday expenses, and other items that don’t happen each month.