Successful retirement planning requires many steps — estimating how much you’ll need, planning for healthcare costs, managing your portfolio, estate planning, and more. But there’s an essential step that tends to get overlooked: Using a budget to proactively manage your spending.

You can't manage what you don't measure

For many years, financial planners advocated the four percent rule. The idea was that retirees could withdraw four percent of their nest egg each year without worry (or at least without too much worry) of running out of money. However, longer lifespans and lower interest rates have brought about the need for more detailed approaches.

One example involves taking a dynamic spending approach. Instead of withdrawing a fixed percentage of a fluctuating nest egg balance, each year you reassess multiple factors, including the upcoming year’s likely spending. Of course, it’s easiest to estimate future spending if you’re acclimated to using a budget.

Another example, includes the use of a cash bucket — a savings account that contains one to three year’s worth of living expenses that would not otherwise be covered by other sources of income, such as Social Security (For more on this idea of, about half way into this article, see the “optional refinement for those using stock/bond portfolios”). The idea is to avoid having to sell stock investments in the midst of or right after a sharp market decline. This approach will also be much easier to manage if you have a good handle on living expenses.

More knowledge, less fear

Many people enter retirement fearful of spending too much because they’re concerned about outliving their savings. Even people who have plenty of money set aside can be overly hesitant to spend.

I once counseled a newlywed couple in which the man had been using a budget to manage his cash flow and the woman had not. But her lack of budgeting hadn’t left her in bad financial shape. In fact, her finances were in amazingly good shape. However, she wasn’t experiencing financial freedom; she was living in financial fear.

She had been raised by a schoolteacher dad and a stay-at-home mom. She said money was always tight, which taught her much about frugality. However, it also left her hesitant to spend even if she could afford to. Her default answer to most spending decisions was, “We can’t afford it.” Or when she did spend, she always chose the absolute lowest-cost option.

Once she got accustomed to using a budget she began to discover that in many cases, they actually could afford it, whether “it” was a new pair of running shoes or dinner at a restaurant. Using a budget gave her greater peace of mind and a newfound freedom to enjoy some of their income.

My guess is that many retirees could take a lesson from that experience.

If you don’t have a household budget, a good starting point would be to read our three-part series on budgeting, which covers the essential steps of Planning, Tracking, and Reviewing.

We also wrote a three-part series on how to set up and use an online budget tool. Here are the links for Part One, Part Two, and Part Three.

Do you use a budget? Why or why not? If you don’t, I strongly encourage you to start. Instead of the ball and chain many people envision, you’ll find it to be a great source of financial freedom. It will help you now, and it will help you later in retirement.