What are my monthly or yearly living expenses? It sounds like an easy question, but getting a somewhat accurate answer can be a little difficult. Over the course of a year, you may spend money on 20 different categories of expenses. You will have your typical living expenses like mortgage, rent, electric, etc.; then you will have some non-recurring expenses like a special medical procedure, new roof, a special gift, or a loan to a child that you know won’t get paid back.
If you had easy access to all your expenses over the past five years, you could take an average, but few have that data, or time to compile it. There are many tools available to help capture your living expenses. Your bank or credit card company may have categorized your transactions for you. Mint and Quicken are two products that help build your financial picture. Without some of these tools, you can use your own spreadsheet or even a pencil and paper. You might be astounded at where some of the money goes.
When preparing your budget, be honest with yourself. Estimate your future spending based on your past spending habits. Your expenses may change up or down in retirement depending on your lifestyle. Some expenses like commuting may go down. Be sure to budget for the unexpected. If you own a house, plan on at least one major improvement per year. Are you expecting a baby this coming year, or do you need a new car?
If you want a ready-made spreadsheet with multiple categories, click this Living Expense Budget to get you started. Use the Household form on the retirement calculator to enter the information. Consider if you plan on leading a more frugal or a more extravagant lifestyle in retirement. The calculator lets you adjust your pre-and-post retirement living expenses via a “Living Expense Factor”.