Referring to our financial planning article in April, one of the main factors in a financial analysis and subsequent forecasts is expense levels. Successful sustainability of net worth to age 100 is achievable when expenses are covered by cashflows over the entire period - if you are not in tune with your monthly expenses, even having a discrepancy of $500/month could be detrimental to one’s financial success when it is projected over for 40+ years.
Often when we perform analyses for our clients, the current expense number provided to us is fairly accurate. One of the problems however is people will assume that their expenses drop after their children move out or when they retire. However these expenses are often picked up via hobbies or other interests due to the potential excess cash flow and time. I have listed a few items that are generally not accounted for when reviewing client’s budgets.
- Car Purchases and Maintenance costs
- Increased Retirement Travel Expenses
- Health Insurance during Retirement
- Children and Grandchildren Milestones
- Wedding Costs
- Help with the purchase of a home
- Grandchildren Education Costs/Gifts
While it is hard to project expenses in the future, it is always better for a financial forecast to be prepared for the unexpected. If you require help with managing your expense estimates, please feel free to reach out – as always we are willing and able to assist.
Matthew Gomes, CFP, CIM