By Tom Philips at December 14, 2022

Budget Planning For the Elderly

The most obvious reason you should consider budget planning is that it will prevent you from getting into debt, as you will be able to keep an eye on your finances and spend less than you earn.

It can be disheartening to keep a close eye on your finances, as you are forced to face reality, and it may be easier to avoid the topic altogether. However, it is essential that you confront your financial situation, otherwise you could end up getting into debt very easily.

Another reason budget planning is a good idea is that your income and spending is not always consistent.

Self-employed people may have a variable income, which makes it even more important that they keep track of their money, as they will need to tighten their budget at certain times, and they will have more money to spend at other times.

As for variable spending, you will need more money at certain points of the year, such as Christmas and birthdays, so you will need to plan for this otherwise you could end up with less money than you hoped for. This also applies to unexpected expenses, such as car repairs or replacing important items in your home.

Finally, the cost of living is rising in the UK, so we encourage people to create a budget to account for this. You cannot continue to spend the same amount of money when bills, food and transport are increasing in price, as this would leave you with less money than you are used to.

What Can Happen If You Don’t Budget Plan in Later Life?

As we have mentioned, if you don’t budget plan in later life, you can get into debt. The reason this is a particular concern for the elderly is that they are less likely to have an employment income to work with, so they need to be more careful with their spending.

Not budgeting can prevent you from achieving realistic goals. If you put a set amount of savings aside each month, and you are consistent with this, you could eventually save enough to fund something you have always wanted, such as a new car.

However, if you are not determined to save, you may lose money on a regular basis because you are not noticing how much money you are spending.

Another concern with not having a budget is that you may end up struggling when anything goes wrong. If you need to repair something in your home and you have not budgeted well, you may not have any money available for this.

However, if you have put aside emergency funds, you would be able to resolve the situation more easily.

Budget Planning For the Elderly – Our Top Tips

There are many things to consider before you can create a realistic budget, such as researching financial schemes that you are eligible for and reducing your spending in certain areas. Here are our main suggestions.

1. Research benefits and grants

Before you start to consider how you can keep your spending low, we recommend looking into benefits and grants to see whether you could boost your income without having to adjust your budget.

The most obvious way to do this is to use an online benefits calculator and discover whether you could be claiming money from the government for anything from housing to disability. If you are eligible, you would be able to receive monthly payments that do not need to be repaid.

For example, you may be eligible for pension credit. This is a top-up to your State Pension, and it is available to elderly people who are earning below a certain income. If you do not have a private pension and your savings are low, you would benefit from this.

Anyone with pension credit is eligible for other schemes, such as council tax discount and housing benefit, so it is worth looking into if you are struggling with money.

There are many grants that are specifically available in the winter, as this is when bills tend to rise due to the cold weather. One example of this is the warm home discount scheme, which is available to people on a low income, whether or not they are elderly.

This is a discount of up to £150 off your electricity bill, which could make a significant difference when it comes to things like being able to heat your home in the cold weather and wash your clothes.

Another winter grant is the winter fuel allowance. This grant is only available to people who were born on or before the 25th September 1956. Eligible individuals could benefit from between £250–£600 to help pay their heating bills (1).

2. Separate the essentials from the non-essentials

When we start to discuss tightening your budget, many people become concerned that they will no longer be able to afford the essentials. However, you should always focus on keeping the non-essential costs as low as possible so that you will be able to afford the basics.

When you start to budget, you will probably be shocked to discover how much you spend on non-essentials. On one hand, this is a part of life, and it is understandable that you will want to dine out every once in a while, or go on a day trip. However, you are most likely spending money on things that are avoidable, which may look like buying lunch instead of taking it with you, or driving somewhere instead of walking.

Even if you do not want to cut back completely on non-essential spending, you could turn to budget-friendly alternatives.

What’s more, instead of not purchasing non-essentials whatsoever, you could limit it to certain times. For instance, you could purchase some clothes at the start of each new season, and decide to avoid clothes shopping for the rest of the year.

As for going to restaurants, you could save this for special occasions with your family and friends.

3. Create a monthly spreadsheet

One of the best ways to budget is to create a monthly spreadsheet. This will help you to figure out how much money you currently have, how much money you are spending, and how much you need to save for the future.

On your spreadsheet, you will first need to write down how much income you are earning. For most people, their main income is employment income, but you should also add any other sources of income including gifts, refunds, and any odd jobs you earn money from.

Next, you will need to make a column for your expenses. You can fill out regular expenses immediately, such as fixed household bills, phone bills, and car expenses. However, the rest will need to be filled out throughout the week as it will vary.

Make sure you set a limit on your spreadsheet so that you know how much of your money can go to non-essentials. In particularly expensive months such as December (Christmas), increase your budget, and make up for this by decreasing your budget in other months.

4. Get help with online banking

Online banking is a great way to keep track of your finances. Certain banks pay more interest if you keep a certain amount of money in your account, so make sure to shop around to find the bank that is the most profitable for you.

Many online banking apps have features that help you to budget. For example, some of them round up your purchases and put the extra money into savings automatically, so you will be saving more without it significantly affecting your income.

Finally, some banks give you money for transferring to them, so you could access cash without having to do anything more than apply for an account with a new provider.

5. Meet with a financial adviser

We recommend meeting with a financial adviser before creating a budget as they will be able to advise you on how much you should be spending, and potential ways to boost your income.

You may be able to get free advice via a charity such as Stepchange. They will help you to calculate a budget, as well as answering any queries you have about budgeting (2). Sometimes you may need to meet with an adviser in person, but often you can message them online or have a phone call with them.

6. Keep emergency savings

When you are deciding how much money to put aside as savings, please remember to keep an emergency savings fund. This will prove extremely useful when unexpected expenses pop up, which is bound to happen at some point.

Most people rely on this for things like repairs, but it is also incredibly important to have savings reserved in the event that you lose your job, as you would have time to find a new job by leaning on the savings.

It is usually advised that you save the equivalent of three months income (3). If you do not yet have emergency funds, it will take time for you to save this amount, but we strongly advise you to prioritise this in your budget.

7. Keep energy costs low

There are small changes you can make to keep your energy bills as low as possible. Make sure you are only using electronics when you need to, so unplug them when you go to bed, when you leave the house, and during the day when you do not need them. This includes electronic gadgets, and appliances that you use infrequently.

Another obvious tip is to keep your light switches off when you are not using them. This is a very easy thing to do, but you need to get into the habit of remembering to do it. You may even decide to stick to lamps more than big lights.

Try to have shorter showers, and perhaps don’t shower every single day if you don’t need to. When you do shower, don’t have the heat too high, and set a timer to ensure you aren’t spending longer in there than you need to.

You should also try to brush your teeth and wash your face outside of the shower, so that you are keeping your showering time short. When you do this, switch off your taps until you need them, rather than keeping them on for the entire duration of brushing your teeth and washing your face.

When it comes to washing your clothes, keep the setting on cold and try to rewear clothes when you can to avoid using the washing machine too frequently.

It is sometimes less expensive to wash your clothes overnight, so consider doing this. As for the dryer, try to use drying racks instead, but if you do use it, limit your use.

Finally, find different ways to stay warm before you resort to putting the heating on. Wrap up warm, use electric blankets and heaters, and put the fire on.

You will of course need to turn the heating on sometimes, but make sure you only do it when you absolutely need to. Hot drinks and plenty of layers should keep you warm enough until winter hits.

8. Keep food costs low

Food is something that you cannot compromise on when it comes to your financial priorities; it will always be one of the most important expenses on your budget. However, this does not mean that you cannot reduce your spending when it comes to food.

Try to eat at home as much as possible, which includes taking food to work instead of buying it, avoiding takeaways and restaurants, and even taking drinks out with you.

If you meal plan, it will be much easier to stick to this, as you will always know what you are going to eat each day so you will be less likely to give into buying more food.

If your current food shop is very expensive, consider changing your supermarket to a more affordable one. You may be surprised at the options that are available, and it can be a nice change to buy different brands of food.

If you do online shopping, you may even be able to get free delivery and therefore you wouldn’t need to spend any money on petrol or bus fare to get to the shops.

When you buy your food, focus on the offers that are available and base your shop around this. For example, if you usually buy blueberries but raspberries are on offer, consider buying raspberries instead to save a bit of money.

If there is a 3 for 1 deal on freezer food, perhaps plan to have a few freezer meals that week instead of buying fresh food that is not on offer.

Speaking of fresh food, it may be better to shop more frequently for this to avoid wasting money on food that will go off quickly.

The other way to avoid this is to incorporate all of the fresh food into meals to ensure it is all used up. It will be easier to do this if you have a large family. If you do not, you could always batch cook and freeze some portions for another time.

9. Keep transport costs low

If you own a car, you can keep transport costs low by having a small car that is not expensive to fill up, and getting a regular MOT to foresee problems before they get worse. However, it is likely that you already have a car and cannot afford to change it, so here is what you can do to keep transport costs low, even with an expensive car.

Keep your journeys limited. Do not drive when you could walk instead, share lifts with people, and try to run all your errands in one day so that you are not driving back and forth to the same places.

If you are doing a long journey, first compare the petrol costs to public transport, as it may be more affordable to get the bus or train.

If you use public transport, check whether you would benefit from a bus pass. You will need to compare weekly, monthly and annual passes to figure out which option would be the least expensive for you.

The same goes for railcards — do some research to decide which option would be the most affordable for you. People above the State Pension age can get a free bus pass and a Senior railcard.

10. Find out what help is available in your community

If you are struggling with money, there is most likely some help that would be available to you in your community.

This may involve something like getting in touch with a food bank to find out whether you could get free food. Some people feel embarrassed about this, but charities serve an important purpose, and they are there to help rather than shame you.

Some charities recruit volunteers to visit the homes of the elderly and provide moral and practical support. By getting involved with a scheme like this, you could benefit from making a friend in your community whilst also receiving support.

They may be able to help you out by doing your weekly food shop, taking you to run errands, and helping you with technology.

11. Pay off any existing debts

For some people, most of their budget is taken up by debt, so they do not have much money left to put into savings. If you are in this situation, paying off your debts should be top priority. However, we know that this is easier said than done.

Some short-term loans are available to help you pay off debts, but you would have to be wary of growing interest on these loans, to ensure you would not end up in another tricky situation with debt.

12. Budget for specific events

We have briefly mentioned this already, but it deserves another mention. When you are budgeting, you must keep in mind that you will have to put extra money aside for certain events.

If you already know that you have a wedding in July, you need to reserve some money for a hotel, a gift, and drinks. This will prevent you from going over your budget, as you will be able to cut back at other times.

Some people simply decide to stick to their regular budget and reduce their spending for the rest of July, but by planning ahead, you will not have to suffer for the rest of July, as you will have had time to cut back slowly and gradually.

13. Check your eligibility for the State Pension

If you have been paying National Insurance or receiving National Insurance credits for 30 years, and you are of State Pension age, you are entitled to a weekly State Pension of up to £185.15 (4).

If you do not have a private or workplace pension, it is very important that you check your eligibility for the State Pension as this weekly income could prove to be essential for you.

However, even if you do have other pensions, we still encourage you to look into this as it could be a helpful boost to your income.

What Should You Not Do When it Comes to Managing Your Budget?

Something you should not do when budget planning is to rely on loans too much. It may be necessary for you to take out a traditional loan as a means of bridging finance, but try to avoid doing this where you can, otherwise you could end up getting into debt that you cannot repay.

A loan that does not have to be repaid would be preferable, but they are few and far between. Equity release is an example of a scheme that does not have to be paid back, and we will explain how this works later on so that you can decide whether it might work for you.

Another thing to avoid when managing your finances is having too tight a budget. It is important that your budget is realistic, so while you shouldn’t be too lenient with your money, restricting yourself too much is setting yourself up for failure.

For instance, if you know that you spend a certain amount on the food shop and you cannot restrict it any more, do not put down a very low food budget on your spreadsheet, as you will not succeed at sticking to this budget and this could discourage you from budget planning altogether.

We would discourage you from creating long-term budgets without also creating short-term budgets. It is wise to have a six-month or yearly budget, but make sure you are also referring back to your monthly budget on a regular basis. Otherwise, you could easily lose track of the amount of money you are spending on a regular basis.

Our next suggestion is more obvious, but it is to avoid impulsive spending. We know that this is easier said than done, but impulsive buying is one of the main things that prevents people from saving well.

When you want to buy something, give yourself a few days to think about it, and maybe even add it to your basket online and leave it there, as sometimes you get dopamine from doing this and some time away from the laptop reminds you that you do not need to make the purchase.

Finally, do not be led by other people’s spending habits. If you have friends who always want to dine in expensive restaurants and go on holiday with you, remember that their budget is not the same as yours, and set boundaries in terms of how much you are willing to spend.

You could suggest doing more things at home, and getting involved with free activities such as walking.

If you must get involved with other activities, you can try to keep the cost as low as possible. For example, if you go to the cinema, try to find offers on tickets and bring your own snacks with you.

If you go on a day out, visit a local place and focus mainly on the free activities i.e. visiting free cathedrals and looking in shops without spending a large amount.

How Should You Adjust Your Budget Due to the Rising Cost of Living?

It goes without saying that we all need to consider how much we are spending as the cost of living continues to rise. We cannot spend in the same way that we always have, especially because the average income is not increasing to make up for the higher living costs.

The best way to manage your spending during the cost of living crisis is to pay attention to the things that are increasing in price, and decide whether they are essential or non-essential.

If they are essential, such as food, bills and transport, consider how you can keep the costs as low as possible by switching providers, limiting your use, and monitoring your budget on a regular basis.

As for the non-essentials, you may need to let some of them go. Perhaps you usually get a weekly takeaway, and you may now need to buy more food from the supermarket to cover your food at the weekend. Or maybe you usually get a coffee a few times a week, and you need to start taking a flask outside with you.

What If I Do Not Know How to Create a Budget?

There are plenty of resources online that help you to create a budget, whether that’s budget calculators or excel spreadsheet templates. If you are not familiar with Excel, you could keep it simple by making a paper budget, or you could ask a family member for help with this.

How Can Equity Release Help With Your Finances?

We are conscious that equity release will not help everyone with their budgeting, so we want to make it clear that we will not recommend this scheme for you if we believe it would not benefit you financially.

However, some people over the age of 55 find that equity release is the easiest way to transform their financial situation without getting into irreversible debt.

You do borrow money with equity release, but this money is secured against your home rather than your income, and you do not have to make repayments while you are alive.

The money that you release from your property with equity release is tax-free, which is just one reason that it can boost your finances significantly.

There is interest applied to the loan, but it does not have to be paid back, so you can choose what to do with the money, and how much to spend, without worrying about no longer being able to afford your lifestyle.

If you have a particularly high-value home, you could take out a large amount of money, and this would help you to be financially comfortable even with the cost of living rising.

The best way to do this would usually be to request monthly payments so that your income is consistently higher, but you could also get a lump sum lifetime mortgage to spend on something like paying off debts or renovating your home.

The reason equity release is aimed at the elderly is that it is supposed to help clients through retirement, and the growing interest would not be sensible for a young homeowner who has many years of their life left.

However, equity release consumers have to be at least 55 years old, so the amount of time they spend on the scheme is limited, and this means they don’t end up owing a ridiculously high amount.

What’s more, many elderly people own high-value homes as a result of property increasing in value, but they did not pay a large amount of money to secure their home in the first place. This means equity release is an easy way to boost their income without having to leave their home.

When you decide to release equity, you are encouraged to speak to a financial adviser about your decision, and this could be the perfect opportunity to ask for advice about budget planning in later life.

References

[1] Winter Fuel Payment https://www.gov.uk/winter-fuel-payment

[2] Making a budget https://www.gov.uk/get-help-savings-low-income

[3] Emergency savings – how much is enough? https://www.natwest.com/money-blog/saving-and-budgeting/how-much-emergency-saving-should-i-have.html

[4] The new State Pension https://www.gov.uk/new-state-pension/what-youll-get