A budget is something that can be used for more than just saving money on your monthly expenses. You can also use a budget to help you plan for your retirement. Traditional household budgets are created by tracking and analyzing your income and expenses each month in order to maximize your monthly surplus. However, you can also use a retirement plan 
to back into creating a monthly budget. Here are some ways to use a retirement plan to help you create a budget.
Start With an Estimate of How Much Money You’ll Need to Save for Retirement
Find a financial calculator that can help you determine how much money you’ll need to retire. There are thousands of free financial calculators out there that you can use. Alternatively, you may have gotten an estimate from a financial advisor of some sort. If not, you can use the embedded spreadsheet below to calculate how much money you’ll need to retire. It is based on the 4% rule of thumb for retirement planning. To get a simple retirement savings goal, click the button that says “Click to Edit” and then fill in the two yellow cells. The figure at the bottom is the amount of money you’ll need to save.
Once you’ve made your calculation, it’s time to back into your retirement budget.
Estimate Your Monthly Budget Needed to Reach Your Retirement Goal
To create your budget that will help you reach your retirement goal, you’ll have to make note of a few factors that affect your monthly savings rate. The first figure you’ll need is the amount of money you currently have saved for retirement. Add up all of your retirement plans and non-retirement savings, but not any of your assets such as your house or cars. Keep this figure in mind as you’ll need to enter it in the planning for retirement budget calculator below.
Second, you’ll have to estimate when you want to retire. For example, if you are 35 years old and would like to retire at 65, then you would have 30 years left to save for retirement. That would mean that you would have to compute a monthly budget that would allow you to save your nest egg over thirty years. The longer you have before retirement, the lower the amount you will need to save each month. Calculate this number and then keep it in mind so that you can enter it in the retirment budget calculator below.
Third, you’ll have to calculate the expected rate of return you think that you will earn on your existing and future retirement savings. If you invest mostly in stocks, the return will likely be close to 10 percent. If you invest mostly in CDs, savings, and bonds, your return will likely be only a few percent. Determine what kind of investor you are and come up with an expected rate of return that will match your investing style. You’ll need to enter it in the budget spreadsheet below. Note that the average return for a portfolio of stocks and bonds over the last fifty years is around 6-8%.
The fourth input you’ll need to back into your monthly budget is your retirement goal. If you’ve calculated it above, enter that figure into the embedded budget spreadsheet calculator below, along with the other three inputs we just discussed. To use the following calculator, click the “Click to Edit” button and then change the yellow cells to the numbers that match your situation.
Once you’ve entered all of the numbers, the calculator will tell you how much you need to save each month in order to reach your retirement goal.
Incorporate This Budget Into Your Planning for Retirement
Now, after going through all of this work, you have an estimate of how much money you’ll need to retire and how much money you’ll need to save each month, on average. However, there are a few things you need to account for when using such a simple method to calculate these figures. First, most people’s savings rates increase as they get older. That means that while this calculator may tell you that you need to save $2,000 per month, you probably don’t need to save that much right away. Because most people’s incomes rise as they get older, they are able to save more in their later years. This is something to make note of. After all, if your retirement is a long way off things will change a lot by then. For example, if you are planning to retire in 30 years, just think back to where costs were thirty years ago. As time goes on, your savings goal will get easier and easier to reach.
From this point you’ve calculated a monthly savings figure. Now, use this figure to help you plan your budget. Start a list of your income and expenses and figure out if its even possible to reach your savings goal. If not, you’ll need to modify your budget by making spending and lifestyle changes in order to get closer and closer to the retirement goals calculated above. It makes sense to create a monthly spreadsheet with each months’ budget and then create another sheet that tracks your monthly savings rate. Make sure that you work toward increasing your monthly savings rate and, hopefully, you’ll have no trouble reaching your goals.
One other thing to note is that “surprise” expenses and “emergencies” will arise during your saving process. That means you’ll probably also want to adjust your monthly savings goal to account for such emergencies by saving more than your monthly budget each month. That way you can handle these surprises without pushing back your retirement goals.
Good luck budgeting!
