9 Helpful Tips for Building a Budget on a Fixed Income

1. Know Exactly How Much Is Coming In

You should become well acquainted with all your income sources. Many older adults have multiple sources of retirement benefits. Some, for example, may have a pension and Social Security. Take time to review the amounts you receive monthly from each benefit and add them up. Also make note of any income that varies from one month to the next, such as investment income. That way, you can account for the fluctuations when considering how much to rely on every month.

Staying on top of money coming in can also help protect you from scams. Unfortunately, older adults often fall prey to common scams and lose billions annually to fraud. Review bank statements regularly, be cautious of unsolicited calls or emails, and consider identity-protection tools to safeguard your finances.

2. Make an Inventory of Expenses and Try to Spend Less

Once you know how much income you can depend on, conduct a full inventory of your expenses. Start with your biggest fixed expenses, such as housing costs, car payments and health coverage. Also remember that Original Medicare doesn’t cover everything, and out-of-pocket costs for dental and vision can add up quickly. Be sure to factor those into your monthly budget too.

Don’t overlook prescription drug coverage and supplemental health insurance, life insurance and long-term care policies. Also factor in tax obligations, which could remain relatively consistent or fluctuate from year to year depending on your tax liabilities.

Next, evaluate your average monthly household spending on variable expenses such as groceries, entertainment and those pesky medical bills.

After you have accounted for your fixed and variable expenses, further categorize those costs into essential and nonessential expenses. Opinions vary on what counts as essential. You may consider certain entertainment costs essential for your mental health, while someone else may think they’re a nonessential luxury.

Do an honest assessment of your needs versus your wants. It doesn’t mean you need to cut all nonessential expenses out of your budget. Just be aware of what they are. That way, you can thoughtfully choose what is worth spending on and where you prefer to cut if necessary. If you mainly watch Amazon Prime movies, for example, you can save by canceling your Netflix subscription. You could then either save that money or, if your budget isn’t too tight, reallocate it for a swimming class at the YMCA that can enhance your health.

Also take some time to determine if you’re getting the best rates on your various plans. That includes everything from finding the best rate for your car insurance and phone plan to your medical plans.

3. Create an Accessible Emergency Fund

Most older adults spend their entire working lives saving and planning for retirement. Once you retire, you may feel there’s no longer a need to save — it’s time to enjoy the fruits of your labor. When you’re living on a fixed income, however, you never know when a sudden large expense could throw your entire financial plan for a loop. Be prepared for the unknown with an emergency fund.

Saving and setting aside money for emergencies may not yield huge returns like other investments, but you never know when a sudden crisis will require you to withdraw funds at a moment’s notice. That’s why you should avoid putting your emergency funds in investments or accounts that are difficult or time-consuming to access.

4. Anticipate Higher Expenses in the Future

When it comes to budgeting, it’s better to err on the side of caution: Underestimate your income and overestimate your expenses (within reason). Being prepared can help you navigate the inevitable higher costs in the future. When you sit down to create a budget, be sure to calculate future costs that are, at the very least, in line with current inflation trends.

The same philosophy extends to tax rates. Roth IRAs are especially popular because they allow you to pay taxes on the money you save during your working years and then withdraw it tax-free once you retire. Many people like Roth IRAs because they believe taxes — particularly income taxes — will likely increase in the future. Even if it’s too late to make major changes to your retirement plan, assume your tax obligations will be higher in the future and budget accordingly.

5. Be Extremely Careful With Debt

Much debate still goes on over how concerned older adults should be about paying off high-interest debt. Social Security benefits are generally protected from creditors, but can be garnished for federal taxes, child support, alimony or federal debts.3

Some states also protect IRAs and other retirement investment accounts from debt collectors. Consequently, some financial advisers tell older adults not to prioritize debt payments at the expense of basic needs like food and medicine.

That doesn’t mean, however, that you can rack up credit card debt during retirement and expect no consequences. Debt collectors can still go after unprotected assets like homes and vehicles. Accumulating more debt on a fixed income will make it increasingly difficult to pay your bills, so it is best to avoid taking on new debt as much as possible.

If your loved one is overwhelmed by debt or other expenses, watch our video below. Attorney Eric Olsen offers tips to help older adults who are struggling financially.

6. Cut Down On Housing and Transportation Expenses

Two of the biggest expenses for older adults are housing and transportation. Even if your home and vehicle are paid off in full, you’ll still pay property taxes and pay for general maintenance and upkeep on your major physical assets. If those costs are stretching your fixed income too thin, you may want to consider selling some of your assets or downsizing your home.

Many retirees find that they don’t need the same size house they did during their working years. Think about downsizing and moving into a smaller place like a condo or apartment, potentially saving yourself thousands every year.

Also consider whether you need two cars, because transportation can become a big budgetary expense. If you own vehicles you don’t use very often, you could sell them and opt for public transportation or private ride services as needed. Uber and Lyft are all over now. That way, you will have extra funds to put toward essential expenses and fewer overhead costs going forward.

7. Remember That Every Dollar Counts Toward Saving

Prioritize saving on big expenses first. Small expenses also add up, though, especially recurring charges. If you pay for cable TV, multiple streaming services, daily newspaper delivery and regular lawn care, take a few hours to add up the cost. By eliminating or reducing these expenditures, you may be surprised at how much you can save.

If you want to learn more about all financial considerations that older adults should consider, check out our guide to finance for seniors.

8. Take Advantage of Senior Discounts

Living on a fixed income can be challenging, but being a senior also comes with perks. For example, AARP helps you get discounts on items related to retirement, health, and lifestyle. That includes dining, shopping, vision care, and travel. Many also look to AAA for discounts on their auto-related needs like auto insurance, towing, and gas. AAA also offers travel savings and great deals on hotels and car rentals.

You could also save on tons of everyday purchases by researching in advance and asking about discounts when you’re checking out.

9. Work Part Time

If you’re able to work, you may want to add to your income through part-time employment instead of focusing only on cost-cutting measures. Rest assured, you won’t be alone. About 19 percent of older adults in the U.S. — 11 million people — are employed.4 Whether that means substituting at an elementary school, babysitting, consulting, pet-sitting or bookkeeping, look for available jobs that you may enjoy.

Remember to check with an accountant about taxes, and be sure you are clear on tax implications if you get a part-time job. In 2025, for example, Florida does not tax your Social Security or pension. But don’t forget about federal taxes. If you’re a single filer and your combined income is between $25,000 and $34,000, up to 50 percent of Social Security benefits may be taxable for federal income tax purposes.

Final Thoughts

Building a budget on a fixed income may sound intimidating to someone who has never done it, but a working budget can help you enjoy the things you value in life and still be prepared for what comes tomorrow. If you feel overwhelmed by creating a budget, find a financial adviser to help you manage your money and maintain your current lifestyle.