Is Your Retirement Budget Failing You? Try These Smart Money Methods!

Hi, friend! How are you? How’s your day been going? Please make yourself comfortable because I’m about to share everything that helped me regain my financial freedom. Are you curious to find out more? Then, read on.

Did you know that Elizabeth Warren was the one who popularized the 50-20-30 budget rule? In her famous book, “All Your Worth: The Ultimate Lifetime Money Plan,” she describes a smart budgeting method that involves splitting your after-tax income into three categories of spending: your needs, your wants, and your savings.

The author believes that this simple rule can help you establish a routine that lasts over time. The budgeting method can help you achieve your financial goals while still enjoying your basic needs. Sounds great, right? Let me know if you’ve tried it before.

I have to admit that, for me, it was the only budgeting method that worked. It helped me find my balance and regain my freedom. Transitioning to retirement was not as simple as it seemed, and I had to research to reach the lifestyle I always wanted.

It wasn’t that simple to just rely on a fixed income and move on. I used to miss my friends, the opportunities that my job offered me, and most importantly, I was missing my financial stability. It was scary when I acknowledged that I had to relearn how to manage my finances, but I never gave up. I knew that my path would most likely be filled with ups and downs, and I took every challenge as an opportunity to learn something new.

3 Budgeting Methods You Need to Try ASAP

1. The 50/30/20 rule

Although the name sounds complex, in reality, this method is simpler than you imagine. All you need to do is split your spending into three categories. So, 50% of your after-tax income should go to your needs, 30% to your wants, and 20% to your savings.

The ”needs” category is formed by the bills that need to be paid and are necessary for survival. You should think that all the needs and obligations should be covered by half of your after-tax income.

If you’re spending more than 50% of your income on your needs, you need to consider cutting down on wants or trying to downsize your lifestyle. The remaining half should be divided into 2 parts. 20% should directly go to your savings, while 30% should be left to be spent on things that you want to buy but don’t necessarily need.

This rule helped me a lot to manage my money, and I was finally able to understand that there are truly things I keep buying even though I don’t need them. Learning all these tips and tricks about my finances helped me become more aware of the importance of smart management.

50% Needs

Whether we like it or not, usually about 50% (or more) of our income goes to things that are necessary for survival. There are some specific things you can do to cut down the expenses as much as possible, especially if you are spending more than 50% on your needs. Some of the most popular choices among retirees include downsizing. Many retirees prefer to downsize their homes or opt for a modest car model.

If you don’t really know which expenses fall into this category of needs, here are a few examples: rent or mortgage payments, car payments, groceries, insurance and health care, minimum debt payments, and, of course, utilities.

30% Wants

We all spend money on things that are not absolutely essential, am I right? Well, believe it or not, there are a lot of things we could sacrifice in order to save more, but let’s say that life is also worth living. We need to let ourselves enjoy fun activities even though they might be considered expensive.

You might feel the need to work out at the gym instead of working out at home, and that’s completely normal. The thing about the activities that make you happy and don’t get rid of the lifestyle you love. Cut the spending that is not directly affecting your mood. If you take your time and analyze your monthly expenses, you’ll definitely find categories that could be improved.

This category also includes the decisions you make while shopping, for example, you can choose between a modest car brand or a Mercedes, or between watching television using an antenna for free or spending money to watch cable TV.

Keep in mind that ‘wants’ represent all the extras you spend money on to make your life more entertaining. Here are some of the most common things that could be found in the ‘wants’ category: unnecessary clothing items, vacations, and the latest electronic gadgets.

20% Savings

Even though it sounds crazy, trust me when I say that you could easily allocate 20% of your net income to savings. Keep in mind that you should have at least three months of emergency savings on hand in case any unforeseen events occur. You should always focus on your long-term goals. Once you focus on your financial goals, you’ll see how your present decisions will become easier to make.

Some of the most important things you need to do with your savings are creating an emergency fund, making IRA contributions to a mutual fund account, and making debt repayments beyond minimum payments.

2. The 80/20 rule

Have you tried this one before? Even though the 50/30/20 remains my favorite, we shouldn’t underestimate the power of 80/20. This method flips the budgeting process on its head by starting with saving first and spending whatever is left over. It’s budgeting for people who want a plan but don’t want to spend all day fiddling with spreadsheets.

After 40 years of hard work, I was ready for the quiet. I imagined myself reading in the sun and living my best life in Arizona. But what I wasn’t prepared for was the constant money anxiety that followed me like a shadow in those first few months.

I don’t know if you’ve also noticed, but when you’re working, budgeting feels optional. If you make more next month, you catch up. But when you retire, everything changes. Suddenly, you’re looking at your savings and wondering, ‘How long will this last?’ or ‘What if I get sick?’. By far, one of the most stressful thoughts is that I don’t want to get sick because I fear that I would not be able to afford my treatments.

I have my husband and family by my side, but I don’t want to compromise their lives either. I have always wanted to be independent, which is one of the main reasons I started exploring budgeting. I tried countless apps and created spreadsheets, but I ended up disliking all of them. Then, I stumbled upon something simple and natural that felt almost like cheating: the 80/20 budgeting method.

How it works

First, the 80/20 might sound like almost too easy. Why? Well, all you need to do is take your total monthly income and immediately save 20 of it. So, you can live on with the remaining 80%. That’s it. There are no elaborate categories. No tracking every penny you spend. You don’t have to worry about the expenses that could be cut off. With this method, all you need to do is pay yourself first, and then enjoy the rest guilt-free. How does that sound?

How I made it work for me

This is exactly how I did it. So, each month I receive: $2,000 from Social Security, $1,300 from a small pension, $500 from occasional freelance copywriting projects (as you already know, I love to write and share my stories). That’s about $4,000/ month, right? So, as soon as I receive that, I move $800 (20%) into a high-yield savings account. I treat it like a bill I owe myself.

One of the biggest mistakes I used to make was waiting until the end of the month and seeing what was left. I used to end up without anything left because I simply love shopping. If I see some extra money in my account, I end up buying things I don’t even need. Before you judge me, I know that I’m not the only one in this situation.

So, since I learned that I have to save the 20% right away, I was able to understand how even small amounts matter a lot in the long term. In case you don’t really know what to save for and how to manage your savings, here’s what I did:

One month, the savings go to a travel fund. For example, that’s how I was able to fly to Istanbul with my niece last year. Another month, I put it into a medical cushion. I’m healthy, thank God, but I also want to stay ready for surprises.

Once that 20% is tucked away, I live on the remaining $3,200. And you know what? That’s plenty!

The emotional shift

The first time I tried this method, it felt strange. Not because I was spending more. I spent less than a month. But because I knew I was covered. I knew I had done something smart for the future me. And that permitted me to enjoy the present without second-guessing every purchase.

One of the little things I noticed was that when I took my granddaughter shopping for school supplies, I didn’t flinch at the price of the glittery backpack she loved. I was finally able to enjoy the little things in life without having to stress over each penny.

Can 20% feel too much?

Unfortunately, the answer is yes. Some retirees can barely save 20% of their monthly income. And I totally get it. Healthcare, rising rent, grocery bills, and life as a retiree are harder than anyone can imagine. It’s not cheap at all.

However, my honest advice for you is to start with something. Maybe 20% is too much this month, then make sure you try to save at least 10% or even 5%. Trust me, even $50/ month is better than nothing if it’s consistent. Keep in mind that when it comes to saving, the goal should never be perfection. The most important thing is to stay consistent.

Why it works for retirees (even more than younger folks)

One of the biggest advantages is that this method works with your life, and never against it. It respects the fact that your income is likely fixed and doesn’t force you to calculate every penny you spend. Let’s say that the 80/20 method builds in breathing room for joy, not just survival.

And don’t forget that you’re never too old to start budgeting! You’re never too late for anything! You are exactly where you need to be and if you start today, you’ll start seeing the effects right away.

I am not a financial advisor. I’m just a retired old lady who wanted to stop letting money stress rob me of my golden years. So, if I can pass on one piece of advice to any retiree reading this, it’s this: Never underestimate the power of saving!

3. The 60% solution

When I first retired, I thought I had budgeting all figured out. Unfortunately, retirement scared me. The regular paychecks were gone. Inflation was creeping in. Healthcare premiums were a monthly stressor. I quickly realized that my decades of hard work didn’t mean anything in this new chapter of life. I needed a smart method, something to help me regain my strength.

Even though the 60% solution might seem simple, it’s surprisingly powerful. The idea is this: you use 60% of your total monthly income for committed expenses, and the stuff you need to pay, such as: rent, utilities, insurance, groceries, transportation, prescriptions, etc. Then, the remaining 40% is divided into four ”freedom categories”.

• 10% for retirement savings or long-term investments
• 10% for short-term savings or emergencies
• 10% for fun spending
• 10% for irregular expenses

Once you establish this method and incorporate it into your life, you’ll see how rapidly you’ll build balance. You will not just survive, but also enjoy your life and save for later.

Why this method worked for me

I can’t consider myself rich, but also not broke. Just stable (or so I thought), but stability in retirement is only comforting when you’re not white-knuckling every trip to the grocery store or ignoring your plumbing problem because ”you’ll deal with it next month”. I needed a method to help me find the peace of mind I dreamed of. I was tired of making plans.

When I first tried the 60% Solution, I printed out a blank page and simply wrote down every committed cost: rent, groceries, utilities, internet/phone, medications, health insurance, transportation, and of course, subscriptions. Once I wrote all these things down, I was able to understand which categories made me lose a lot of money.

This type of list can also give you room to bump up a few categories, especially if your total amount of spending doesn’t exceed 60%.

My monthly 40% breakdown (the fun part)

Do you wonder what my ”freedom 40%” looks like now? Well, 10% are for long-term savings. I send this amount to a Roth IRA account. Even though I started late, growing the nest egg gives me a lot of confidence. Then 10% went to my emergency fund. For example, last winter, my radiator died, but guess who didn’t stress for one second? Ha, ha.

Let’s move forward to my favorite category, which is guilt-free spending. I usually use this category to book my trips. I also use it to buy gifts, spoil myself with some good coffee, and even take some cooking classes now and then. No shame, no debt. Just joy.

Last but not least, I allocate 10% for irregular costs, such as dentist visits, birthday gifts for the grandkid, and apartment maintenance. These aren’t monthly, but they always show up eventually.

By dividing my money into clear and emotionally safe categories, I stopped fearing the mailbox or panicking when the fridge needed replacing.

The emotional benefits of saving

What no budgeting book tells you is how emotions affect your money habits. In my working years, I coped with stress by shopping or eating out. In retirement, I found myself over-saving out of fear, denying myself anything remotely indulgent because I didn’t trust the future. Once I began saving, I felt like I was treating myself with kindness again. I finally felt in control.

You need to remind yourself that retirement isn’t a pause, it’s a new era of your life. You need to stay organized when it comes to finances and build a flexible little blueprint that’ll keep you sleeping peacefully at night.

If you’ve been struggling with budgeting in retirement, trust me, you’re not alone. You just need to find the budgeting method that works best for yourself. Good luck and see you soon on my porch!

Before leaving, here’s another article, waiting to be discovered: 6 Hobbies That Turn Into Income for Retirees (Yes, Really!)