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  Develop a Spending Plan  

A spending plan (often referred to as a "budget") should probably be fairly detailed for at least 12 months into the future.  The degree of categorization should be sufficient to allow you to truly identify sources of spending, and to highlight areas where savings could be realized if needed.  These goals can usually be achieved using one to two dozen different categories of expense.  The AARP offers a useful monthly expense checklist and worksheet for ensuring that you have considered the range of routine expenses.


Your expenses over the length of your retirement will essentially be the sum of a series of annual spending plans.  Looking at your spending plan in one-year periods and monitoring it throughout the year allows sufficient warning if you are exceeding your budget so adjustments can be made.  Furthermore, it allows you to project expenses at the same time that you are able to reliably project your income for the next year.


Finally, for your spending plan to be completely useful, your payment mechanism should allows for categorization of actual expense versus. planned expense.  This can be done via entry into a manual or electronic spreadsheet (a fairly laborious process).  Or better yet, with electronic bill paying, payments can be assigned to a plan category so that all calculation and reports are done automatically.  



 NOTE:  Your spending plan also underlies your “target income” for investment management purposes.

That is, by calculating your projected expenses, and subtracting the total of your recurring income sources, you will determine the "gap" or target income that must be provided by investment income.

Click here for a discussion of the Investment Management process.



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