Knowing exactly how much money comes in and out of your bank accounts each month can make it easier to cut costs, know when you have enough money to buy something, and feel financially secure in retirement. While talking to a financial advisor may be the best step when mapping out a financial plan, a simple spreadsheet can be a good start.
The straightforward, simple spreadsheet we recommend has only three columns (but remember that you can and should adjust your tracking based on what will be most useful to you).
Why create a financial spreadsheet for retirement?
This financial spreadsheet makes it easy to monitor your finances, assess where you are financially right now and determine how much money you have or need for your future.
The biggest strength of this spreadsheet is that it gives you visual clarity on your finances. You’ll know how much you earn and how much you can spend after taking care of your basic needs, like gas and groceries. Listing all your expenses can also help you identify purchases you can’t put off, such as expensive gym memberships or unused streaming subscriptions.
Creating one of these spreadsheets is easy, and you can do it with Google Sheets, Microsoft Excel or a similar program. This way you can automatically combine your income and expenses to determine your net worth.
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How to make a financial spreadsheet
Your spreadsheet should be tailored to your specific needs. But here are three columns you’ll want to include as you begin.
First column: Fixed income
The first step is to create a column that includes the sources of fixed income you receive in retirement such as Social Security, pensions and annuities.
This column shows your financial status. You’ll get an idea of how much you should spend each month before you take money out of your nest egg. Understanding how much you get from your fixed income can help you avoid overspending.
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Second column: Fixed costs
The second column contains the fixed expenses that you must pay every month. This can include essentials such as a mortgage, insurance and groceries.
This column allows you to easily compare your fixed expenses with your fixed income to understand if you need more money every month or have more money to save. Ideally, your fixed expenses should be lower than your fixed income, and a wider margin frees up more money in the third column.
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Third column: Optional use
This column lists the costs of things you want but don’t really need, such as vacations, hobbies, and food. These expenses may require you to withdraw from your retirement savings if your fixed income is not sufficient to cover your fixed expenses and discretionary spending.
Retirees can reduce discretionary spending during a recession to preserve their nest egg. But you also want to enjoy your retirement. This column can help you understand how much wiggle room you have in your budget to do so.
