How to calculate the bank balance you’ll need to retire
When most people think about retirement, they foresee a need to make sacrifices and reduce their every day spending. For those of you still able to avoid quitting work just yet, it’s imperative that you begin a thorough check on the reality of your spending.
Do you know exactly how much you spend in a day?
Knowing how much you cough up before retirement is crucial in determining how much you will need when you’ve completely phased out of working. Budgeting for groceries and bills don’t cut it.
What are usually left out of budgets are things like: gifts, cash spending, and entertainment. These things are usually averaged out to an approximate number – which is all right when you’re still earning a full-time or part-time income. But when that stops, not looking at how much you really spend each year might leave you underestimating by 20 to 30 per cent.
Instead of a guesstimate, pull out your credit card reports and bank statements from the last three months and see how they stack up to what you think your average is. If you’re missing any annual expenses from these statements, add them in to your total. This will help you get a clearer picture of how much you spend on average across the year.
You can get an even clearer picture by doing this exercise for the last twelve months in order to capture everything.
Since there’s no guessing involved, and the numbers don’t lie, you’ll be armed with the knowledge of exactly how much you’re going to need once you reach full retirement – and whether you need to start cutting back your spending now in order to enjoy a more comfortable retirement.