There are some basic financial planning steps you can take on your own, and they do not require financial planning software or the input of a financial professional.
Start with what you actually know at the moment. Look back at the past several weeks, months or even years to understand what your basic or essential costs look like. In other words, figure-out your current monthly overhead because this will provide a starting point for determining spending needs.
For example, you more than likely have monthly expenses to cover the following essentials:
- Groceries
- Mortgage or rent
- Utilities
- Insurance costs (home, auto, health, etc)
- Recurring health costs such as Medicare premiums, prescription co-pays, etc
- Possibly a small budget for essential travel
- Clothing
- Any other fixed or recurring costs that cover essential (things you can’t live without) items
Next, figure-out the amount of monthly income that will be fixed or guaranteed:
- Social Security
- Income from a traditional pension plan
- Any other guaranteed income sources such as a private annuity
Last, take a look at the difference between your essential costs and your known sources of income:
- You are in a good spot if income exceeds basic costs
- If basic costs exceed income, then you have a few options:
- Determine how to best use any accumulated financial capital to generate additional income (this may or may not include the purchase of an annuity).
- Reduce spending if there is no additional financial capital.
- Continue to generate income through work.
- Consider other sources of income such as home equity.
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