Thriving on a Fixed Income: Smart Financial Tips for Stability - Milli Bank (2024)

Knowing how to make the most of your money is a useful skill for everyone, but especially important for those with a fixed amount of money coming in.

First – what is a fixed income? A fixed income is when someone has a specific amount of money coming in on a regular basis, and often, that amount does not rise with inflation. It often refers to an investment that pays a specific dividend, or government benefits, such as those for retirees or people taking a leave from work. Money is coming in, but the amount may not increase. This can pose challenges when the cost of living rises, and the same amount of income must meet your needs.

For those formulating a plan to retirement, it’s helpful to get an idea of what living on a fixed income would look like. CNBC reported that Millennials hope to retire at age 61.3 – before full Social Security and Medicare benefits set in for most Americans. Taking some time to calculate what your budget would be once you stop working, factoring in different amounts of money saved, and different expenses

can help you get a realistic idea of what your cash flow situation and retirement lifestyle could be.

While it’s important to budget and spend wisely to meet your needs, it’s also important that your money works for you to allow you to thrive. If you’re ready to expand your money management skills, keep reading for tips for how to approach money and resources that can help you stretch your dollars when you’re on a fixed income.

First and foremost, creating a detailed budget is the key. Start by listing all your income sources, including pensions, Social Security, required retirement account distributions, or any other fixed payments. Next, prioritize essential needs such as housing, utilities, transportation, groceries, and healthcare. Ideally, you’re able to meet your needs with the amount you have coming in, and still have money left over.

However, it’s equally important to allocate some funds for discretionary spending – the things that bring you joy and make your hard-earned savings worth it! This could include entertainment, dining out, hobbies, or gifts. By setting aside a reasonable amount for discretionary spending, you can maintain a balanced lifestyle and not feel like you’re missing out or being held back by your budget.

Tracking your expenses is another crucial aspect of budgeting on a fixed income. Ideally, before you’re on a fixed income, record every purchase for a short period of time – perhaps a few months. This will help you gain insight into your spending habits and help you see areas where you can cut back and make adjustments accordingly. If you’re already on a fixed income, review past bank statements for this information.

When budgeting with a fixed income, it’s also essential to remain mindful of inflation. Over time, the cost of goods and services tends to rise, lowering the purchasing power of the money you have coming in. To combat inflation, periodically review your budget and adjust it to account for price increases. Some fixed income sources, like Social Security, may adjust for the cost of living. Keep informed about the required minimum distributions of retirement accounts (currently applicable for people age 72 and older), as that can play a role in helping you address inflation. If your income is coming from investment withdrawals, especially if you’re opting for an early retirement, run the numbers to determine if you can make your budget work with a smaller withdrawal percentage or amount. That can help make sure you have enough to cover the cost of goods and services later.

Anyone looking to budget or stretch their dollars further knows the importance of reducing expenses. For those on a fixed income, this is even more impactful.

Reducing your cost of living can be one of the most strategic money moves when you’re on a fixed income. This might look like staying in your area but moving to a home with a lower cost to maintain, like trading in the big house with high utility bills or property taxes for a more affordable, lower-maintenance home. Or, you could move to an area with a lower cost of living potentially lowering expenses like housing, taxes, groceries, transportation, utilities, and healthcare compared to living in more expensive regions. Depending on where you move, you could potentially decrease your monthly expenses significantly. This can allow for greater financial flexibility and security. Moving to a place with a lower cost of living may offer access to affordable amenities and recreational activities, enhancing your overall well-being without straining finances.

Wondering where you should relocate? Check out this article about the top most affordable places to retire in 2024 – whether retirement is on your horizon or not, this can be a helpful starting point to find inspiration. Your considerations may change if you don’t need to prioritize the quality of the school district or availability of local jobs, which can drive up the cost of housing.

However, you don’t have to pack your bags and move to lower your expenses. Another alternative would be to invest in something up front that can reduce costs later. Perhaps something like installing solar panels now to bring down your energy costs later, or buying a duplex home so you can rent out the unit on the other side to bring in more income. As always, you can still trim everyday expenses. You could negotiate lower rates for services such as cable or internet, switch to more affordable insurance plans, or find lower-cost alternatives for everyday purchases. Additionally, take advantage of discounts, coupons, and loyalty programs to stretch your dollars further.

One effective strategy to thrive while on a fixed income is to leverage discounts and benefits offered by various programs and organizations. This could include senior discounts, health insurance benefits, loyalty programs, veteran programs, or special income-based offers and programs. Do your research, and if you find a resource you’re eligible for, make use of it!

Another resource to consider: your time. If you’re not working, bartering time or skills is a classic way to access goods and services without spending money. By exchanging services with others in your community, such as babysitting, tutoring, yard work, or home repairs, you can both meet your needs. Perhaps you babysit for your neighbor, and they hand over a basket of produce from their garden, or you teach someone how to play a musical instrument and in return they shovel your driveway when it snows. This is a great way to stay connected with your community as well!

Everyone should have an emergency fund, but it can look different for those on a fixed income compared to those who are in their earning years. For those who are still bringing in income, an emergency fund is often designed to cover a few months’ worth of expenses in case of a drop or loss of income.

For those on a fixed income, emergency funds are still an important part of your financial wellness, though more about addressing surprise costs. Think about the cost of things in your life, like a health insurance or car insurance deductible, or likely home repairs. Having a reserve of cash readily available can help you address surprise costs with minimal disruption. An emergency fund offers peace of mind and stability.

Using a high-yield savings account to store an emergency fund offers the dual benefits of liquidity and growth. You can access the money quickly if you need it, or easily contribute if you want to top it off over time. In the meantime, it’ll earn more interest than a traditional savings account. Check out Milli as a great option to store your emergency fund!

Managing debt on a fixed income requires careful prioritization to maintain your financial stability. Make sure to include debt repayments when making your budget. In general, many financial experts recommend focusing on high-interest debt first, as it can become a more significant financial burden over time.

Another consideration is to explore debt consolidation or negotiation options which can help streamline payments and reduce your overall debt obligation.

For those not yet on a fixed income, paying back debt beforehand can be another valuable financial move. For example, many aim to pay off their home’s mortgage before retirement. Before making any decisions, work with a financial advisor who can make specific recommendations for your situation!

Prioritizing health and insurance considerations is crucial for both your physical well-being and financial security, which can be intertwined. Many people on a fixed income are retired and eligible for Medicare when they reach 65 years old. If that’s the case for you, you’ll still want to research supplemental plans to ensure you’re covering all of your needs.

For those looking to retire earlier and potentially move away from employer healthcare plans, it’s important to have a plan in place to transition to independent healthcare coverage, then assess the difference in cost accurately. Compare policies, plans, and pricing through the Healthcare marketplace as a starting point. Some early retirees opt for a part-time job that offers health insurance coverage as a way to access coverage before they are eligible for Medicare and transition into retirement.

Carefully evaluating insurance policies, including health, dental, and vision coverage, can ensure you have adequate protection for your healthcare expenses. It’s essential to compare premiums, deductibles, and coverage options to find the most suitable plan that balances affordability with the benefits you need.

Additionally, preventive care can help detect and address health issues early, potentially reducing long-term medical expenses. Stay on top of your regular appointments and carve out time for wellness activities recommended by your doctor.

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