Analysing our Finances

Before we can set about making the most of our money  it is sensible, even essential, to work out how much we have coming in and going out on a weekly or monthly basis. This will provide a valuable self-help source of help with personal finances. Only when we know how much we've got, can we start to make decisions about how to arrange our finances so that we can make the most of our money.

It will also help us to make the choices that we will make in retirement. Retirement is all about choice and, unless we are extremely wealthy, we will need to make choices about finance in retirement. We will have so much money to spend on ourselves and we will have opportunities that we hope to realise. If our money allows us to take all those opportunities we have no problem. On the other hand, if we decide that we want to do more than we can afford, we have to make choices. We can only make sensible choices once we know how much we will have to spend.

This means constructing a budget. This can serve a number of purposes, each of which is useful in its own right and, when you put them all together, makes it an extremely valuable source of help with finance:

• It allows us to examine how much surplus, if any, we have after we have dealt with the essentials
• We can see if all our expenditure is necessary and worthwhile
• It helps us to judge if there is a better way of getting our money to work for us
• It helps us to judge how we could spend our money better so that it goes further

To see how you might go about constructing your budget, go to Constructing a Retirement Budget

For those who are approaching retirement and therefore thinking about about finances, you can make an attempt at doing a budget before you retire. Then look at your budget closely and in some detail for the six months or so following retirement, so that you can be sure that you have an accurate assessment of your financial situation. For that reason, it is sensible not to make any big decisions about finance in those first six months, but to wait until you are sure.

So, if you are approaching retirement, look at your income and expenditure currently and how you think it will be in retirement, assuming that you will be doing nothing different. So you will need to do the exercise twice - incoming and outgoings both before and after retirement. This will allow you to make some comparisons so that you can see the difference in the money you think you will have available once you have retired. Try to think of every single item of income and expenditure that you can - no matter how small, it all matters.

Then, once into retirement, for those first six months or so, keep an accurate record of all your incomings and outgoings. After that period, analyse it closely, see what your finances look like, compare them to before retirement and then start making decisions on how to make ends meet and how to make the most of your money.

When you look at your finances initially, before you retire, it may be that you decide that you will need to defer retirement, if you can. If that's not possible, you may then conclude that you will need some part-time work in retirement. If so, look at our guide on Part-time Work. For others of you, the decisions will be around whether you are going 5-star or 4-star on your annual round the world trip but, in essence, the issues are the same. Whatever your situation, most of us want to make the most of our money so that we can afford to do everything that we can, as best we can, within our sphere.

The good news is that, in retirement, more people are quite pleasantly surprised by how much they have left at the end of the week or month than are horribly shocked. There are a number of reasons for this:

• You keep more of your income because you don't pay National Insurance or pension contributions (assuming you were in a pension scheme at work). You also pay less tax because your income is lower
• There are usually expenses involved with work - travelling expenses etc - that are not there in retirement
• Many people try to pay off debt (mortgages etc) or buy items that they think they will need once they have retired whilst they are still working

Having said that, there are some expenses that will probably increase, such as heating and lighting. So it is important to make the most of our money so that the extra expenditure is kept to a minimum.

If you are not retiring but are still concerned about making the most of your money, most of the information in this Guide is still relevant. Finances are brought into focus when we retire, but if you are concerned about finances at any stage of your life, it still makes sense to make a budget, so that you can assess your income and expenditure so that you can see if you are making the most of your money. The first place to start when you want help with your personal finances is with yourself.

The other pages in the guide will also be relevant to you, so whether you are about to retire, are already retired or are thinking about retirement, click the links in the box to find out more.