How to avoid later-life budgeting traps

Making a budget might not be everyone’s cup of tea, but it’s a smart thing to do if you want to be able to relax and know your money is doing exactly what it’s supposed to be doing.

While – generally speaking – older generations are a more comfortable managing their finances, a study from The Financial Capability Strategy for the UK found: “Older people who do struggle with budgeting or find bills a burden tend to be between 55-74, suggesting potential difficulties with adjusting to a reduced income in retirement.”

So even if you're aware of an impending, creeping feeling to create a budget, or are struggling to adjust to a change in income, making a daily plan for your money – and sticking to it - saves you a world of stress. 

The good news is budgeting can start at any age and, with a small amount of preparation, you'll have an achievable plan that’ll give you the peaceful sense that you’re on top of your financial future.

Sonya Matharu, from brokers The Mortgage Mum, believes treating your financial wellbeing with the importance it deserves can improve your mental health. 

“I know people sometimes shy away from their finances and that can cause a lot of stress,” she says. “You might say: ‘Why start now?’ Maybe you think you’re stuck in your ways, but we have shifts in our lives and we need to adapt our finances at every age.

“Life is all about living, especially if you’ve spent years working hard and providing for your family: now it’s time to do what you want to do.”

However, before you start the necessary steps of figuring out how much you’ve got going in and out of your accounts every month, there might be some other things that can affect your ability to budget.

Perhaps it's support to stick with the changes you’ll make, needing to be truthful with yourself about the motivations behind some spending habits - or being fully aware of any money you're eligible for but currently aren’t getting. 

Thinking of anything that could halt your potential good plans in their tracks is the perfect way to stop them happening – and leave you free to get on with managing things every day.

1. Have a shared goal 

One of the fastest ways to derail a budget is if someone involved simply ignores it. If you’re going solo in money management then, yes, things are a lot more simple – but if you’re in a couple where one person’s a spender and the other’s a saver, then things can be trickier.

Attitudes to saving and spending can be ingrained from childhood, but it is perfectly possible to find a common ground even if you’re both approaching the plan from different directions.

Matharu recommends sitting down and looking at what you want in life, then working towards a shared plan. “Open communication is paramount, but once you agree on a shared financial goal you can work out what you need to achieve it,” she says. 

“What this does is opens a conversation so you can align your spending habits rather than making the other person feel bad or telling them off. 

“Sit down and say: ‘This is what we want to do, we need to pull together and compromise so we both get what we want.’ Having that shared commitment in mind can really help.”

2. Look at the bigger picture

Personal and family finance expert from Hoops Finance, Funmi Olufunwa, has practical advice to help give your budget a great start. By being open and honest with yourself about how much you’re spending and where – as well as how much income you have available – you can gain a real grip on what you need to do. 

“Most people experience a drop in income if they reduce their hours or retire, but you might have fewer expenses too, for example cutting the cost of your commute or becoming eligible for free travel, depending on where you are in the UK,” she says.  

“Consider all your income sources: do you know where all your pensions are and their value, as well as how much you’re entitled to from your state pension? Could it be topped up with any missing National Insurance contributions? You can check your record on the gov.uk website.”

Now, you might think claiming benefits is not for you, but you don't want to miss out anything owed that could help with the cost of day-to-day living. 

“Even if you’ve never claimed any benefits, there might be some you’re entitled to as you get to state pension age. The EntitledTo website is a good place to check as it has a free benefits calculator,” Olofunwa adds. 

“Pension Credit is a good example: it’s often called a ‘gateway benefit’ because claiming it could make you eligible for other things such as council tax reductions and cold weather payments. 

“It’s worth exploring what support is available and if you’re entitled to free prescriptions – or whether a PPC (prescription prepayment certificate) might save you money.”

3. Think about your priorities

Financial advisor and money coach Claire Sweet believes that people are often put off budgeting because they’ve not found a way that works for them – you might have tried to track your spending in the past and just found it too tricky to stick with.

“Everybody has their own priorities and you might be at the stage where you’re not paying a mortgage or rent so you don’t need to factor that in,” she says.

She recommends making sure you’ve got a handle on the essential spending –  council tax, energy and water bills and the like – and others can be labelled as ‘nice to have’. 

She also suggests that if you’ve got income that can change month to month – perhaps from smart investments you’ve made - then choosing an amount you can rely on receiving will make budgeting just that much easier.

“Think about where your spending priorities are and allocate money to spending pots,” Sweet adds. “Each month, I put some money into my ‘fun stuff account’, some money set aside for holidays and some for those big things that always come up each year such as your MOT or getting your car serviced. [This means] when that time comes, you don’t need to put the cost on a credit card.”

4. Look to the future

While it might seem straightforward enough to budget for the next few months, it’s worth also setting aside some time to think about the years ahead. If you’ve always planned to downsize at some point to reduce your outgoings, maybe think when this might be.

“If you’re fortunate enough to own your own home outright you might be considering downsizing to reduce costs and provide additional income when you move somewhere cheaper,” says Olufunwa.

“It may also be easier to look after a smaller property as you get older - and your bills are also likely to decrease.” 

However, while moving can bring some much-needed cash into your bank account, do think about the costs associated with moving – everything from solicitor’s fees to removal companies will likely be needed, and the price can swiftly mount up.

MoneyHelper actually has a useful calculator to help you work out the cost of moving – as well as advice on how much your house could be worth -  so you can get a more realistic idea of how much you could receive if you take the plunge and downsize.

It may be that you’ll need to do some saving now to afford the impending move – so adding in a ‘moving house’ category to your forthcoming budget can pay dividends when it comes to freeing up cash.

5. Plan ahead with shopping

One of the staples of any useful budget is working out how much you spend on things like groceries and clothing – and then getting realistic with yourself about how much you actually need to spend. 

Retail specialist and savvy shopper Polly Arrowsmith recommends planning your budget over the course of a year to spot the moments when you can shop more smartly. 

“[By planning ahead] you can take advantage of the sales if you know you’re going to need to buy something such as a new appliance,” she says. Buying crackers in January or winter coats you’ll need to replace isn’t being tight-fisted – it’s money smart.

We’re also creatures of habit, and can all get locked into spending a similar, regular amount at the supermarket -  but some small changes can make a big difference to our spending habits. 

“When you’re doing your supermarket shop, always look at products that are above or below eye level as they’re often cheaper,” says Arrowsmith.

“Frozen or tinned fruit and vegetables can be up to 50% cheaper than fresh - and check the world food aisle for savings on herbs and spices.” 

Getting into the habit of maximising these before beginning your budget can make the whole process so much simpler.

“Get loyalty cards to pick up points everywhere you shop, and fill up your car at supermarket petrol stations to earn even more,” she adds.

Using loyalty points to pay for shopping might not always be the most cost-effective way to use them though – yes, they’re ‘bonus cash’, but are often only worth 0.5p per point if used on your shopping. 

Look for offers to use the points in cafes, at the cinema or for days out – by mapping these offers to things you regularly spend, you feel smart that you’re using them to save even more.

Key takeaways

1. If you need to have any difficult conversations about budgeting, do them first and find a common, shared financial goal.
2. Be clear about what’s coming in and going out – and explore any benefits you might have missed.
3. Think about your priorities, and then consider what big categories you might need to prepare for – an expensive MOT or regular holidays need special attention.
4. If you think you’ll move in the future, consider when that might happen and be ready for the hidden costs.
5. Think about your relationship with shopping – are you stuck in habits that cost more? Could you use your loyalty points to save money elsewhere?