Stress about money in retirement is absent among those who approach the management of their finances as a "management" process every month. This involves reviewing how much money comes in, how much goes out and where the money is located in accounts each month, as well as checking to see if they spent more than they had planned on spending. Another aspect of a monthly routine is automating the payment of bills, making contributions to savings accounts and establishing an automatic limit for discretionary purchases (e.g., eating out and entertainment), which decreases the stress of mentally tracking these payments and decreases the stress of not making on time payments. Having the knowledge that one has a daily and monthly limit to their cash flow gives retirees a sense of confidence in the way they manage their cash flow. A budget is based on knowing what one has invested and spent over a time period of several months, along with accounting for future anticipated expenses. Retirees with this kind of budgeting process will feel less anxious about unexpected expenses. In addition, they will be better prepared for the unexpected because they will already have set aside money in predetermined allowances for emergencies, including but not limited to emergency medical expenses, home repair, and vacation. In addition to what I have mentioned above, I would like to point out that the vast majority of successful retirees have the habit of reviewing their financial condition on a regular basis, usually once a month. The habit of reviewing one's investments, retirement accounts and bank account balances monthly will over time develop a greater level of confidence regarding the management of one's finances and ultimately cause the retiree to perceive money as an instrument to accomplish goals rather than as a source of tension.
Calm-retirees look at systems versus frequently monitoring their finance. What sets calm-retirees apart from anxious-retirees is predictability; they know exactly what money is coming in, what money is going out, and how much flexibility they have. Most calm-retirees are very systematic in performing a simple cash-flow check each month. During the first half of each month, calm-retirees examine their sources of income, what bills are due, and discretionary spending amounts, which helps to eliminate surprises later on that lead to stress. Calm-retirees differ from anxious-retirees in the way they budget; rather than limiting their spending to a finite number of dollars, calm-retirees manage ranges. In other words, while calm-retirees limit their routine monthly expenses for necessities — housing, medical care, and other essentials — calm-retirees allow some flexibility to manage discretionary lifestyle spending. When you have an understanding of your cash-flow situation, it considerably decreases the stress associated with an unexpected event, such as an emergency. Calm-retirees often only check their spending and account balance a few times a month - fewer than other types of retirees. By reviewing their spending a few times a month, rather than daily, calm-retirees do not develop an emotional response to financial transactions. Therefore, they are less likely to make hasty decisions. Calm-retirees place a high value on automated systems. All of their bills, savings transfers, and investments are set up to make daily decision-making simpler and reduce decision fatigue, and the likelihood of second-guessing. Calm-retirees rely on money they have saved to create a buffer against future unanticipated expenses, such as home repairs, medical expenses, or other travel-related changes.
Question: How do they handle unexpected expenses without panic? Answer: My background in computational mathematics taught me that variables always change, but my work with retirees taught me that people hate surprises. I help investors figure out how to deal with market complexities every day to avoid these stresses. Calm retirees don't see unexpected costs as crises, they see them as maintenance that needs to be done anyway. The stress comes when you treat a new roof or a medical bill as a disruption to your plan rather than a predicted part of it. There needs to be a line item in your monthly budget for a "sinking fund" before you quit. Instead of just putting money aside for food and bills, set aside $500 a month for "future chaos." When your car's transmission breaks, you don't pull money out of your savings account because you already spent it on paper months ago. It changes the way you think from "How am I going to pay for this?" to "I've been waiting for this." That change in how you think about money is what makes the difference between stress and control.