Money expert Pete Matthew urged Britons to understand a specific concept before they retire to ensure they can live comfortably. People need to “understand their spending” before they retire to properly plan for it and know if they can survive until they pass away.
On a video posted to his YouTube channel, Meaningful Money, Mr Matthew explained the three levels of spending that each person should know.
First, he mentioned basics. These are one’s essential spending habits, the things that “absolutely need to be paid” each month to ease life.
This includes anything to do with one’s home such as paying for mortgages, or rent, any utilities that keep the lights and heating on, any insurance, everyday travel costs and any basic maintenance costs such as food.
Food costs should be from supermarket and home cooking, not takeaway and restaurants, he suggested.
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“When added together, this should amount to you being able to survive pretty well. It’s what one needs to live.”
Secondly, the next level of costs mentioned were for leisure purposes.
These costs are for services that makes one’s life “more enjoyable”.
Finally, the last cost level that Britons should understand is the for luxury items.
Mr Matthew explained these are things that would “represent a full life.”
It’s for people who may decide to change the car more regularity or update to newer versions once available or go on an extra holiday each year.
Britons approaching retirement may want to use some of their savings to help with their grandchildren’s care costs, or university fees.
Mr Matthew stressed the importance of thinking about any event or milestones payments that may require “lump sums” of money such as going on a big holiday for an anniversary or birthday.
He continued: “The only money that makes sense is todays money. In other words what do these things cost now.”
Mr Matthew explained that peoples costs in retirement will most likely be identical to their basic expenditures currently with some exceptions as the mortgage might be paid off, and travel costs may reduce as one is not travelling to work anymore.
People’s current expenditure can be used to populate the basics and leisure categories of their spending.
With luxury costs, people can “let themselves go a little and dare to dream of a life in retirement that you really like,” he said.
He added: “Be realistic but push the boundaries a little bit.
“Without an understanding of how you spend your money, and how that is likely to change in retirement you’re going to be flying blind when you get to retirement.
“You won’t know how much to spend, or worse you’ll overspend early on to the point that you’ll run out of money all together potentially.”
To plan for retirement, Mr Matthew urges Britons to “know your spending” as it’s the “biggest lever” in one’s approach for retirement.