This article is based on a section the best-selling book The Ultimate Guide to retirement in South Africa by Wouter Fourie and Bruce Cameron.
While many people are looking forward to the freedom of retirement, making ends meet during retirement can be a challenge. But it isn’t all bad news. While you are most probably saying goodbye to a steady income, there are many ways to reduce your expenses to assist in not withdrawing too much money from your retirement funds.
According to Alexander Forbes’s research on the largest retirement fund database, your retirement capital needs to be 12 times larger than your annual salary to achieve a replacement ratio of 75%. Unfortunately, only 6% of retirement fund members in fact manage to accomplish this. That is why most people will need to include the following tips in their monthly budget to reduce spending.
Start by dividing your budget into two parts, namely a ‘needs’ section for essentials and a ‘wants’ section for things you don’t really need or that are ‘nice to have’. Go through these expenses thoroughly to see what you can trim or leave out completely.
By doing this, a number of expenses can be cut, while at the same time discovering which expenses you will have to keep on paying. Let’s start by looking at your car. Many retirees will have two cars in the household. Ask yourself if you still need both cars or even any car at all. Cheaper options like Uber or public transport might be available to you and you could be saving on monthly payments and other expenses related to owning a vehicle, including insurance, fuel and technical services.
Next, consider your bank charges and avoid the pitfall of owning a prestige credit card just to impress others in the supermarket checkout queue. It is a waste of money and as a pensioner you do not need to spend just to earn loyalty points.
Grocery costs can easily spin out of control, so make a habit of comparing prices, be on the lookout for specials and avoid expensive convenience stores. Be sure that you really need the item with a ‘special price’ before you buy it. Don’t fall into the trap of ‘the more you spend, the more you save’-mentality. If you are not careful, you could save yourself out of all your money.
- Cancel your gym membership and exercise at home. Go for walks and try to avoid watching television too much. Advertising on various media platforms is designed to entice you to spend on items you don’t really need.
- Never spend on impulse. Shop with a list and never go shopping when you are hungry. Really. It works in keeping you from spending on unnecessary items like ready-made foods.
- Try to cut back on entertainment like movies, eating out and spending too much on luxuries like specialist coffee or smoothies at coffee shops. Buy clothing during sales and again watch out for the ‘the more you spend the more you save’ sales pitch.
Pensioner discounts are a sure-fire way of saving on expenses from places like hardware stores, furniture stores and supermarkets. Don’t be shy to ask at any place if there is a pensioner discount, even restaurants. It is amazing how one question will often get results.
Another way to ensure extra cash flows into your budget is by considering a downgrade on your home. Alternatively, you could rent out a room in your house, share your living arrangements with someone else or move into a cottage on your children’s property.
By reducing your expenses during retirement, the upside is that you need less money to live on and therefore you’ll require a smaller income. Having enough money to retire is not always achieved by earning more and having more income streams, but also by saving on your expenses.
Financial success starts with good saving habits. Our Financial Experts have been unpacking and providing practical advice on the best ways to preserve YOUR financial freedom. Contact our Financial Advisors to ensure that you are receiving Shariah-Compliant Finance advice.
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