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DEPARTMENTBy Scott SteinbergBudgeting for fun Welcome to the sweet life. Retirement is a time to rest, relax and do more of what you enjoy doing. But have you set aside enough money for your hobbies in retirement.Welcome to the sweet life. Retirement has become more attractive than ever, according to the Pew Research Center, with twice as many Americans having bid adieu to the working world in the last year alone.
But are you ready to cut off your steady stream of income?
Working toward that golden moment, you’ve planned your cost-of-living budget, paid off the mortgage and bought big-ticket items that should last you through the next decade or two.
But have you factored in funds to finance your free time? What will it cost to maintain your favorite hobbies? Investment into your pastimes is an investment into your future. Studies by the American Cancer Society find that individuals with higher physical activity and less idle time enjoy better physical and mental health overall.
Here’s how to factor the cost of your hobbies into a fixed-income budget.
Map out your finances Many variables — interest rates, inflation, taxes, etc. — impact retirement income, but the one you enjoy most control over is individual spending. To ensure that you can afford pursuing your passions, start by tracking your sources of income (pension, Social Security, investments, etc.) on both a recurring and individual basis.
Next, gather account statements, credit card bills and tax returns to assess monthly and annual expenses.
Armed with this information, you can break your spending down into four categories (remembering to also factor in dental, vision and health care costs, and allow a cushion for unexpected expenses, e.g. home maintenance or car repair): • Necessities: Food, housing, clothes, utilities, etc. • Nonessentials: Gym memberships, streaming services, cell phone plans, et al. • Periodic: Property taxes, insurance, auto loans, etc. – which can be divided by 12 to calculate your monthly costs. • Discretionary: Travel, cruises, entertaining, dining out and spoiling grandkids. Discover more details hereIdentify fixed and flexible costs Next, determine which of your costs are fixed (i.e. house and car payments) vs. flexible (annual vacations, weekend outings, etc. and other optional purchases) and total these expenses separately. Divide your total overall expenses by your fixed expenses to see what percentage of retirement income is going toward them and if this figure is consistent with your preferred retirement lifestyle and spending plan.
Oftentimes, we tie money up in purchases that don’t pay great emotional dividends. For example: Downsizing your house or forgoing a newer car can help you lower expenses and free up funds for your favorite pastimes.
Price your favorite pursuits Once you know your income and spending, it’s time to estimate leisure costs and how much of your budget that you can apportion to them. Start by researching your preferred hobbies’ fixed costs (supplies, equipment, gear), fees (classes, memberships, licenses) and any associated travel expenses (i.e., a trip to your favorite skiing resort or fishing hole). Then add a 20–30% cushion in case these costs unexpectedly increase or you decide to increase your commitment to the hobby.
When calculating spending on hobbies, don’t forget to incorporate the cost of travel and dining (among the most popular retirement pursuits) noting that you may wish to travel more frequently earlier in retirement while younger, healthier, and you hold more cash in-hand. Afterward, you can total these expenses and factor them into your budget.
Weigh opportunity costs Finally, make a point to list and prioritize your preferred leisure pursuits. Ranking your passions can help you allot the right funds toward them by importance. It can also help you determine how to better budget your time and where to reduce spending to make room for other retirement pastimes. Equipped with these insights, you’ll not only possess a better sense of where to save and spend, but also allot time to volunteer, mentor or even take a part-time job if you choose.
Keep in mind that interests, hobbies and lifestyles may change over time, impacting your potential spending. Millions of retirees are living longer than ever, leading fuller and more active lives, and becoming more purposeful about the pursuit of their passions.
These days, planning for retirement is as much about crafting a lifestyle that you prefer as it is about managing your money.