Wednesday, March 11, 2020

Managing Your Cash Flow: A critical part of living on retirement income

My older son keeps asking me what advice I have for dealing with elderly parents and for retirement in general.

One thing that popped into my mind after our last conversation was that most retirees really need to get clear on when those non-monthly expenses will hit and how they will manage their cash flow to manage those. Then there are the expected but unplanned expenses like car or home repairs and other one time bills.

What approach do you use to manage your cash flow? Transferring money in and out of a savings account? Sinking funds? Cash envelopes? Credit card debt or installment payments? Live on last month's income so you are always a month ahead with cash flow? I'm sure there are other approaches that aren't coming to my mind right now.

Now that we are in our 3rd year of living on retirement income and savings with the ongoing expenses of our new home, I am really seeing our own financial pattern. First quarter of each year has predictable large annual and quarterly expenses. Then there are some other months that  have extra expanses that are unpredictable like car repairs. Plus the one time expenses we choose such as home improvements or travel.

We are extremely fortunate to have the end each so far with additional money to put our savings, but there are many months we would be in the red if we didn't have savings to transfer into our checking account. I've set up a table by month to show when irregular expenses are due so I can plan the next month's cash flow once I know the actual amount of each as they do change each year.

Something for those not yet retired or changing their living situation to consider.

10 comments:

  1. I use a table too! Monthly bills at the top (I write date & amount as I pay them so I don't forget anything), quarterly and annual further down the page with 'due' denoted in their months, so I have a visual reminder they are coming up. One-time and unexpected expenses get written in at the bottom, so I have a record and track what months 'stuff' seems to happen. :)

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    1. I hadn't thought about tracking monthly bills that way!

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  2. My long term goal..not quite there yet..is to live on last months money (without taking money from the sinking fund which is all one pile-I love people who have a car fund and a house fund and so on but it aint me). Obviously after a month if it's a bigger emergency they need to come from the pot. Second goal in progress is to pay everything i can annually (I guess insurance only allows six months maybe) that can be. I guess I do have my travel and fun sinking seperate from the replace the car need a new lamp fund. Oh and I also have a chart of those montly expenses like upcoming birthays and so on.

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    1. Glad to hear you are almost there with you living on last months money! What a great goal.

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  3. Managing cash flow? I do everything through my checkbook. Money magically appears in it every month and I write checks for most things except every 8-10 weeks I'll go to the bank to withdraw $500 in fifth dollar bills to use for small purchases and restaurants.

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    1. LOL. I wasn't thinking of actual cash as I do everything online or through our checkbook too with the same kind of exceptions as you make.

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  4. I have a number of strategies for ensuring that all my bills are paid each month and I have money available for larger or irregular bills. These strategies for me because all my income comes from pensions paid monthly at the beginning of the month. 1) For my savings, I use an online bank that allows a number of sub-accounts. Each month I transfer money into specific sub-accounts to save money for non-monthly expenses and my emergency fund. The money can be transferred to my chequing account in a bricks and mortar bank within a couple of days. 2) I also have a credit card from this on-line bank and at the beginning of the month I transfer enough money to it to cover the monthly expenses that I am able to pay by credit card (I don't put anything else on this credit card). As a bonus, the card pays 2% cash back on recurrent payments. 3) I use my regular cash back credit card like a debit card - each day I use it, I transfer money to pay off the purchase. It makes sense for me because interest rates are so low there is very little interest lost by not leaving the money in the bank for the month, and I am never surprised by a larger than expected credit card bill at the end of the month.

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    1. Interesting approach that obviously works well for you. Thanks for commenting.

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  5. Like you sometimes the savings account saves our butt. However we could easily manage on what is in the chequing account, except I like to keep that fairly high.

    God bless.

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    1. Before it was so easy to transfer money with the click of the mouse I used to keep the checking account high too. Had forgotten about that!

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