Living on a Tight Budget: Strategies for Retirement Savings

As an accountant by day, I deal with budgets and financial plans on a regular basis, but my own family budget teaches me valuable lessons about living on a tight budget and saving for retirement.

Current Household Budget

My monthly income of $2,200 is currently stretched to cover a modest apartment that costs $590 per month. The rest of our budget is allocated as follows:

Food: Beans, rice, and fresh vegetables amount to approximately $2.50 per day, totaling $75 per month. Shopping at the dollar store and local fresh markets keeps our food budget under control. Gas: $100 per month to commute to work. Clothing: A mere $5 per month for necessities at Family Dollar. Medication: A $2.50 copay for prescriptions. Telephone: $41 per month for mobile service. Internet: Satellite internet at $10 per month. Bed: A purchase of $150. Television and Table: A second-hand purchase at Goodwill for a total of $25. Sheets and Towels: $5 from the dollar store. Auto Insurance: Purchase a dilapidated car for $3,000, with insurance costs estimated at $95 per month. Laundry Supplies: Borax and a bit of white vinegar for washing by hand, costing $20. Haircuts: Do your own! A bottle of color from Sally’s for $19.

This expense breakdown totals approximately $1,137 per month, leaving $1,063 to be allocated to savings. By contributing $60 annually to a 401(k), we save $792 in taxes over the course of 30 years of work, amounting to a $419,760 nest egg. If we further consult and deduct $57,000 annually over 10 years, we can possibly save up to $989,760. Dividing this by 20 to sustain ourselves until the end of our lives leaves us with a comfortable $49,488 per year. With some extra funds, we have the luxury to travel and enjoy life.

Detailed Budget Management

I manage our budget using a spreadsheet that includes three critical components:

Calendar: A detailed calendar tracks daily account balances, including estimated cash flows, salaries, bills, and other expected payments. This helps us forecast our available funds for the next few months, though accuracy decreases as the forecast period extends. Outstanding Debts: We maintain a list of unpaid debts, primarily credit cards, but also other obligations like loans or money owed. Regularly updating this list is crucial for managing our finances responsibly. Spending Analysis: At the end of each month, we analyze our spending from bank statements to identify trends and compare them to the previous month. This exercise helps us plan and maintain a stable financial outlook.

In the future, I plan to add a worksheet for our mortgage payments, ensuring our financial planning is comprehensive. As an accountant, I am meticulous and enjoy spreadsheets, making our budget management a continuous and evolving process.

Liquid Health and Future Flexibility

Our current budget doesn't require stringent limits, although moving into a new home and starting remodelling will inevitably affect our finances. We have a clear understanding of our available funds, necessary expenses, and savings goals. Within reasonable limits, we can spend on leisure and personal indulgences because we are still relatively young. Additionally, my credit card limit is substantial, which provides a safety net for future purchases if needed. Regularly using a credit card with a good rate and maintaining a good credit score can be a strategic move.

Information is key to managing our finances successfully. Regularly reviewing and adjusting our budget ensures we stay on track for our long-term financial goals.