Question: “l am concerned about a budget. I am 70 years old and a widow. I currently have $6,700 to work with monthly. My spending every month is $1,200 paying my tithes. I have three subscriptions to Viki, Amazon and Costco. My 2016 Honda is paid for, I just need to start balancing my spending and I’ve never had a budget to direct me. I’m not sure where to begin other than writing this letter. Where should I look for help and how much will it cost?”
Answer: It’s smart you’re thinking about a budget now — and you may want to have a financial planner assist you with that and other financial questions (you can use this free tool to get matched with a fiduciary financial planner, from our partner SmartAsset, as well as tools like CFP Board and NAPFA).
Statistically speaking, a woman who is 70 years old today is expected to live about another 17 years. “Your location, health, family history plus other variables will impact that number,” says Deborah W. Ellis, a certified financial planner at Ellis Wealth Planning. “I usually like to plan until 100, unless there are extenuating circumstances as there’s nothing worse than to plan to live to 90, run out of money and live longer.”
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As far as making a budget, Ellis recommends looking at your interests, goals and hopes for your next phase of life. “Will you need a new car? Will you need funds for healthcare? Where are you living? Will you need to move and pay more for housing and utilities? If you’re interested in setting up a spending plan, prioritize your values, goals, dreams and wishes,” says Ellis. “Look at your current income, expenses, investments and savings. Evaluate whether more is coming in than going out or vice versa. See if your spending aligns with your values, goals and wishes and if it doesn’t, look into how you can adjust that.”
Another important consideration to make during this process is inflation, adds Ellis. “With 3% inflation, everything doubles in approximately 24 years. You might not see prices double in your lifetime, but they can increase every year. If you’re spending less than your $6,700 a month, are you saving and investing what you don’t need so that you can keep up with inflation? A budget should be more than the spending limits for certain categories. It should be a spending plan that includes paying yourself first so you can save and invest to be able to make changes in the future as the economy and world environment changes,” she says.
Indeed, you may be able to DIY a budget — but you will need to have a detailed understanding of your income, expenses and spending. There are several apps that can help you track your expenses and budget automatically, some of which are free. “I don’t recommend those because free options typically sell your information to credit card companies rather than serving you directly,” says Alonso Rodriguez Segarra, a CFP and CEO at Advise Financial. “You’ll receive thousands of offers, some of which are very good and the temptation to use the card is powerful. For this reason, it’s much better to look for a company where you pay for this service. Many financial planners prefer Monarch, a platform we pay about $10 a month for, but there are multiple options available.”
If this seems too complex, consider opening an online checking account that doesn’t charge for leaving the account balance at zero. “Apply the digital envelope method. This involves depositing money into a specific category,” says Segarra. “Suppose you want to eat out at restaurants without feeling guilty, you can deposit an amount into this account at the beginning of the month and spend it on restaurants. At the end of the month, you can check if you have any money left over or if you’re running low and only have enough to visit a less expensive restaurant. This approach allows you to manage your finances without feeling constrained.” (Other categories you might consider allocating funds to include car insurance, car maintenance, healthcare costs and an emergency fund. Having at least a few months’ worth of expenses saved up in case something unexpected arises will help you stay debt free and usher you through what might otherwise be a difficult financial time.)
If the $1,200 a month in tithes is money you’re paying directly to the church, you might consider reducing that amount, if you feel comfortable, as you’re currently handing over about 18% of your monthly income, which is more than the typical 10% most people give. If you were to reduce your tithes to 10%, or $670 per month, you could put the remaining $530 per month into an emergency savings fund in either a high-yield savings or money market account.
What about a financial adviser?
The other best place to start is with a financial planner, says Joe Favorito, a CFP and firm principal at Landmark Wealth Management. “I would suggest you either work with a financial adviser or work on a more detailed budget for yourself that looks at all of your bills and discretionary spending,” says Favorito. “Creating a budget is not necessarily about restricting yourself but rather getting an understanding of where the money goes and what you could cut out if you needed to,”
A planner can help you create a clear spending plan, make sure your income is being used in the best way for your goals and values and provide ongoing guidance as things change, says Joey Casolaro, CFP and associate wealth adviser at Highland Financial Planning.
“Several organizations allow you to search for qualified advisers like XY Planning Network, which connects you with fee-only planners — many of whom specialize in budgeting and retirement planning; Garrett Planning Network, which offers access to fee-only planners who often work on an hourly or project basis which can be a more affordable way to get started; the CFP Board, which lets you search for CFPs in your area or virtually who meet education, experience and ethics standards; and the National Association of Personal Financial Advisors, an organization of fee-only fiduciary advisers committed to acting in your best interest,” says Casolaro. You can also use this free tool, from our partner SmartAsset, that can match you with fiduciary financial advisors.
If you go the route of working with a financial planner, know that the costs associated with planners can vary depending on the type of support you’re looking for. “Some work on an hourly basis often starting around $200 to $400 per hour while others offer ongoing planning for a flat annual or monthly fee. Many advisers will discuss your needs in a free introductory call so you can see if it’s a good fit before committing,” says Casolaro.
Have an issue with your financial planner or looking for a new one? Email questions or concerns to picks@marketwatch.com.
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