Budgeting/Expense Tracking - Practicalities

[easysurfer]

Anyone use an envelope budgeting system? It's supposed to be easy.

I don't, but somehow the concept wouldn't register with me until I saw a good illustration on youtube:

YouTube - Envelope System Tutorial

I read that the system probably orginated around the depression.

 

[FUEGO]

THREAD UPDATE:

I recently finished my first month's data dump and processing. It probably took about 30 minutes to copy/paste/process data from 3 credit cards and my checkbook register spreadsheet, including labeling each expense with a spending category number (4 for Home Maintenance, 7 for gasoline, 12 for groceries, etc). That 30 minutes includes figuring out how to do what I was trying to do, doing it, then reviewing the data. Outside of the 30 minutes at month end, I spent maybe another 15-30 minutes during the month manually entering a few transactions in the "cash" category, as well as breaking out certain expenses from the walmart receipt (like lawncare stuff = home maintenance, and shoes/clothes = clothing, not groceries/household). Splitting the walmart receipt out wasn't too hard, since it was usually 90% groceries/household stuff and 10% other miscellaneous stuff that fit into a particular category. I'm not sure if I will continue doing the monthly data dump or go to quarterly. I would get a slight economy of scale by doing a larger batch of data less frequently. Although I might just create a macro to do the majority of the data manipulation.

Cash tracking went well. We had $6 unaccounted for. I recall there was something smallish of a few dollars that DW told me about (breakfast??), and I told DW not to worry about keeping track of purchases that small. And a $5 parking fee that I charged to a CC and then received cash reimbursement for a couple bucks more than the $5. And last night DW reminded me of a $10 bill she slid to our nephew for his bday that she swears she told me about before (she didn't! ). Not a lot of slippage at this point, and April was a fairly typical month in terms of spending. DW has bought into the expense tracking, mainly because it requires her to do very little other than tell me about the handful of cash transactions she has each month. Again, if we miss one or two small ones, it won't really matter and gets reconciled and recorded as a "cash" expense on a monthly basis.

As usual, some expenses were larger than normal (dental and home maintenance/repaid/lawncare) and some smaller than normal (car maintenance and dining out). It probably balanced out to an average month.

Basic spending just over $1700 or $21,000 on an annualized basis. That doesn't include the mortgage or student loans or a 1 time prepayment of a beach house rental (vacation category). And it doesn't include around $2500 a year in lumpy expenses like property tax and insurance.

For FIRE projection purposes, that $21,000 would be closer to $24,000 a year, minus some spending in the gas category, plus a lot more spending in the health insurance and particularly travel/vacation category.

So we are feeling pretty good about our current basic spending and it is not way out of line from what I was expecting it to be based on when I last looked at it years ago. It will be interesting to get a whole year of data in.

I'll have to post the expense tracking spreadsheet I built some time (it is at home right now).

 

[W2R]

THREAD UPDATE:

I recently finished my first month's data dump and processing. It probably took about 30 minutes to copy/paste/process data from 3 credit cards and my checkbook register spreadsheet, including labeling each expense with a spending category number (4 for Home Maintenance, 7 for gasoline, 12 for groceries, etc). That 30 minutes includes figuring out how to do what I was trying to do, doing it, then reviewing the data. Outside of the 30 minutes at month end, I spent maybe another 15-30 minutes during the month manually entering a few transactions in the "cash" category, as well as breaking out certain expenses from the walmart receipt (like lawncare stuff = home maintenance, and shoes/clothes = clothing, not groceries/household). Splitting the walmart receipt out wasn't too hard, since it was usually 90% groceries/household stuff and 10% other miscellaneous stuff that fit into a particular category. I'm not sure if I will continue doing the monthly data dump or go to quarterly. I would get a slight economy of scale by doing a larger batch of data less frequently. Although I might just create a macro to do the majority of the data manipulation.

Cash tracking went well. We had $6 unaccounted for. I recall there was something smallish of a few dollars that DW told me about (breakfast??), and I told DW not to worry about keeping track of purchases that small. And a $5 parking fee that I charged to a CC and then received cash reimbursement for a couple bucks more than the $5. And last night DW reminded me of a $10 bill she slid to our nephew for his bday that she swears she told me about before (she didn't! ). Not a lot of slippage at this point, and April was a fairly typical month in terms of spending. DW has bought into the expense tracking, mainly because it requires her to do very little other than tell me about the handful of cash transactions she has each month. Again, if we miss one or two small ones, it won't really matter and gets reconciled and recorded as a "cash" expense on a monthly basis.

As usual, some expenses were larger than normal (dental and home maintenance/repaid/lawncare) and some smaller than normal (car maintenance and dining out). It probably balanced out to an average month.

Basic spending just over $1700 or $21,000 on an annualized basis. That doesn't include the mortgage or student loans or a 1 time prepayment of a beach house rental (vacation category). And it doesn't include around $2500 a year in lumpy expenses like property tax and insurance.

For FIRE projection purposes, that $21,000 would be closer to $24,000 a year, minus some spending in the gas category, plus a lot more spending in the health insurance and particularly travel/vacation category.

So we are feeling pretty good about our current basic spending and it is not way out of line from what I was expecting it to be based on when I last looked at it years ago. It will be interesting to get a whole year of data in.

I'll have to post the expense tracking spreadsheet I built some time (it is at home right now).

Sounds very good to me for a whole family! How terrific to be getting a handle on exactly what you are spending. Your adjustments to figure out your ER needs sound very sensible to me. You are that much closer to ER for having done all of this.

I have noticed in my expenses, that "lumpy expenses" (that I put in bold in your post) are as much as or more for me than the regular expenses each month. Don't know if they will turn out like that for you or not. For me these lumpy expenses include root canals, replacing a broken TV, insurance, big home repairs, and that sort of thing. Just anything big and unplanned, in addition to insurance and property taxes.

 

[FUEGO]

Sounds very good to me for a whole family! How terrific to be getting a handle on exactly what you are spending. Your adjustments to figure out your ER needs sound very sensible to me. You are that much closer to ER for having done all of this.

I have noticed in my expenses, that "lumpy expenses" (that I put in bold in your post) are as much as or more for me than the regular expenses each month. Don't know if they will turn out like that for you or not. For me these lumpy expenses include root canals, replacing a broken TV, insurance, big home repairs, and that sort of thing. Just anything big and unplanned, in addition to insurance and property taxes.

It's hard to get a handle on the lumpen slums!

The lumpy unknown expenses are hard to predict, but the lumpy known expenses are pretty easy to predict (although mostly not captured in my 1 month of data so far). Insurance and property tax are probably the biggest lumpy expenses.

We will of course have a lot of one time capital expenses like replacing appliances and electronics, and home repairs. Some of these will be captured in my expense tracking, and others will not (like roof replacement and car replacement). I will probably need to just estimate house related repairs, since it will be so lumpy (most items are on 10-20 year replacement cycles). I have heard 1% a year for house maintenance expense, so that is something like $1600-2000 (1% of fair market value vs. replacement cost per insurance company). That would cover a major repair or upgrade every few years or a minor repair or two every year (assuming I don't do much myself).

I'm thinking I may try to get the absolute basic living expenses covered by dividend income from my portfolio, then spend maybe 1-1.25% of principal on the finer things in life. Currently yielding 2.25% roughly, so that would mean $1.067 million in my portfolio to fund $24,000 per year basic expenses. There are still a lot of unknowns in our spending as our kids get older and we figure out what we want to do the rest of our lives. There will have to be some margin of safety in our portfolio as well.

At a 4% SWR, we are coming very close to having enough in financial assets to fund our basic living expenses right now (the $24000/yr figure). For all I know, the portfolio may be there, I just won't know until I add it all up July 1. We are at a point now where this FIRE thing is not too far away, and I'm starting to think about how nice semi-FIREing would be, even just 30 hrs/wk instead of 40 (DW and I both work). Semi-FIRE is probably a few years off though.

 

[W2R]

It's hard to get a handle on the lumpen slums!

That's for sure!

We are at a point now where this FIRE thing is not too far away, and I'm starting to think about how nice semi-FIREing would be, even just 30 hrs/wk instead of 40 (DW and I both work). Semi-FIRE is probably a few years off though.

That sounds ideal if your work is suited to semi-FIRE. Glad to hear it may be getting closer, even if it is a few years off still. Exciting times ahead, for you.

 

[Bimmerbill]

I don't do any of it, aside from what Mint.com shows me. I have a good idea of my expenses and am conservative financially anyways.

I figure as long as I'm saving 15% in my 401K, paying my bills, have no consumer debt and 3 or so months of emergency fund, I'm set.

I'm sure I could wring out a lot more $ to save, but want to enjoy my ride thru life as well.

 

[HFWR]

Sex -
Drugs -
Liquor -
Other -

 

[easysurfer]

I just did a quick glance at my actual spending for the year since it's almost mid-year. Ends up the total is pretty much 50% of what I budgeted. I actually was hoping a little less than 50% (LBYM habit), but I'm on track

 

[FUEGO]

Now that the thread has been revived, I'll just say that I'm still on track with my expense tracking spreadsheet. Still itemizing Walmart/Target type purchases that have a little bit of stuff that falls into non-grocery categories (auto, home, clothes, fun, electronics, etc).

Still keeping track of cash transactions - and surprised at how little cash we use. Almost all the cash outlays are in the form of cash gifts stuffed in an envelope for birthdays, mother's/father's day, etc.

So far my spending is lower than I thought it would be, but June is going to be a doozy once all the numbers are in. HDTV and peripherals, auto and home insurance, car registration, professional license fees, hotel reservations for vacation, etc etc all in June. Grrr... at least some of that stuff is "fun" related.

 

[FANOFJESUS]

I am probably a little (a lot?) odd, but every month when I receive my bank statement I am really excited. Why? Because I am just dying to type in the stuff and see how much I spent in the previous month.

For some reason I get a huge charge out of this. Perhaps my Scottish heritage?

I am Irish we and the Scottish are similar in many ways.

 

[Sarah in SC]

I am Irish we and the Scottish are similar in many ways.

I share both the heritage and the idiosyncrasy. I loved it when I could start getting my statements online instead of having to wait for the mail. Balancing the checking account is very therapeutic.

 

[RonBoyd]

I share both the heritage and the idiosyncrasy. I loved it when I could start getting my statements online instead of having to wait for the mail. Balancing the checking account is very therapeutic.

I, too, am of this descent -My Robert Boyd's parents immigrated to Ireland in sixteen hundred something where Robert found a Diana O'Kelly, came to America and the rest is history.

In addition to a love of being in the "Counting House" I, unfortunately, inherited that other well-known Scottish trait. Those were the folks who took their families into battle with them to prevent retreat. Or as James Webb put it: we are the "kind of people who would die in place rather than retreat")

 

[FUEGO]

My last name is Scottish, but as my grandfather said when I asked when we immigrated to the USA, "Well, I reckon we have always lived here. Our people used to live down near the state line". So that dates my lineage to at least the mid-1800's as being in the US.

 

[Sarah in SC]

We are, I think, what were called the Ulster Scots, who were Scots farm managers imported into Ireland to run the farms. That, in part, explains why so many of the "Irish" immigrants in this part of the world are Protestant. I have a copy of the diary that records the passage of my paternal ancestors, in the 1680s, to Charleston.

But for all that, we were poor farmers and not some sort of immigrant aristocracy by any stretch. I really appreciate the Scots heritage. On my mom's side they have labored to prove some sort of French Hugenot connection with some success, but I think that it is just haughtiness to suggest that religious persecution provides you with some better pedigree than simply being poor and wanting a start at a new life.

Fuego--maybe we're related--my dad's bald, too.

 

[RonBoyd]

We are, I think, what were called the Ulster Scots, who were Scots farm managers imported into Ireland to run the farms

Wow! What a terrific Thread Hi-jack... gotta love it.

Anyway, in-depth data on this subject can be found at this website:

SI-Main Page

Linda Merle has forgotten more about the Scots-Irish than anyone else ever knew.

A related site that gives sources for specific areas of S-I history (Family History, for instance) is found here:

SI-Genealogy

 

[FUEGO]

Status update:

I finished up my first quarter's worth of data. The results were surprising to me in that we didn't spend as much as I assumed we would spend. Taking out expenses that I likely won't incur during ER, and adding in some lumpy annual expenses that I know will happen (but haven't happened yet), I find that we are only spending roughly $20,000 a year on basic living expenses.

That figure includes some very hefty technology purchases that I don't foresee making as frequently in ER (or the remainder of the year). But we really didn't have any major appliance expenses nor did we have any major home expenses (like new HVAC, new roof, paint the house, etc).

Our cash tracking was very accurate. $4 went unaccounted during the quarter. It is accurate mostly because we don't have a lot of cash transactions - probably 3-4 per month.

I ended up splitting the "Walmart"-type expenses, and allocated out clothing costs, automotive, "fun"/toys, home maintenance/repair, etc from the grocery/household expense category that comprises most of the walmart purchases.

In terms of time requirement, it takes about 30-45 minutes to copy/paste the credit card transactions and checkbook spreadsheet transactions into a temporary working spreadsheet, clean/format the data and then categorize it and paste it into the expense tracking spreadsheet. A little cumbersome, but it works. It goes a little smoother each month. Going to quarterly expense tracking wouldn't take 3x as long as monthly, so I may switch to that - only problem is I may forget what "Amazon $14.35" is for after 3 months. I also may spend another 30 minutes or so during the month entering in a random cash transaction and splitting up the "walmart" purchases into categories.

Overall, this was a good exercise and it will help me quantify spending in categories that I had been guessing at before. I think we are more conscious of our discretionary spending, since I know I'm going to be seeing a summary of the expenses at the end of each month and the numbers won't lie to me. I plan to stick with the expense tracking at least for a whole one year period in order to catch the seasonal variation in spending over the course of a whole year.

 

[Bimmerbill]

$20K ?? Does that include housing?

 

[FUEGO]

$20K ?? Does that include housing?

It does not include mortgage, but includes utilities, home repair/maintenance, lawn care/landscaping, taxes, insurance, etc. Basically what I'll be paying in FIRE with the house paid off.

It also doesn't include health insurance or dental premiums since those come out pre-tax and won't be subsidized in FIRE. Nor does it include child care expenses that partially go away in 1 month and would completely go away during FIRE. I keep track of all these expenses, just saying that $20000 a year covers our basic expenses besides health/dental insurance.

When I take my current spending, add a ~10% fudge factor, new car fund, add in likely health insurance and dental premiums, and a $12000/yr fun/travel expense, we get $43k a year in projected FIRE expenses.

 

[FUEGO]

I don't want to mislead with the $20,000 expense figure I cited. It doesn't include some expenses that we currently incur and other expenses that would increase in FIRE. It is just the core expenses that we will incur during FIRE to maintain our current standard of living (but before adding in some known expenses that will increase during FIRE).

I'm doing this math: [Total current expenses] - [Expenses that won't occur during FIRE] + [Additional Expenses we will incur during FIRE].

I actually didn't reduce our gasoline or auto maintenance expenses any, however I guarantee without the daily 50 mile round trip commute, DW won't be putting 12,000 miles a year on her car. That consumes roughly $1200 a year in gas alone that I didn't account for.

I'm tracking these expenses to give me a more informed estimate of what future FIRE living expenses will be.

 

[FUEGO]

UPDATE:

6 months into the expense tracking experiment, things are going great!

I just finished getting September's expenses into the expense tracking spreadsheet last night. So now I have six full months of expense data that covers a number of "lumpy" one time expenses.

Our core or bare bones expenses are running at an annualized rate of $19000 a year after 6 months of data (for our family of 4). Major expenses not included in this figure (for a variety of practical and personal reasons) are mortgage (that will be paid off), student loans (may be paid off or reconfigured so that nothing is due), health and dental insurance (health may be free due to government subsidies in 2014), vacation expenses, car replacement, and educational expenses. Due to the exclusions, that is why I call it barebones, but it also reflects roughly those expenses that will remain the same in FIRE. In establishing a true FIRE budget, we would of course add in all the pertinent spending that we plan but that I have excluded from the $19000 figure cited previously.

It's a good feeling knowing that we could fund the barebones expenses at a withdrawal rate of 3.5-4% given our current portfolio levels.

Of course the remaining mortgage debt, while small, is non-negligible. But it could be easily paid off by 2 years of unemployment for DW and I (should such a horrible event as a layoff for each of us occur ). So I guess we are technically FI if we were to be "fired" all of a sudden. Just got to run the score up a bit more before jumping off the gravy train. And get close to 2014 for some free/cheap govt health bennies!

On the fun side, our vacation/travel expenses are $2500 YTD and probably reflect 80% of what we will spend this budget year (ending March 2011). Our "barebones" budget includes a line item for entertainment/toys/fun/alcohol that I consider essential and non-discretionary, so vacations/travel are on top of the entertainment/fun category, and vacations/travel I consider truly discretionary.

In terms of the practicalities of my expense tracking, I have stuck with my original plan. Entering cash expenses as they occur (or shortly thereafter) into the tracking spreadsheet. Reconciling cash balance on spreadsheet vs cash in our wallets monthly and writing off a "cash" expense each month for unaccounted expenditures. This has amounted to $7 during the six month period. I copy/paste or download the CC statements each month and copy/paste my checkbook spreadsheet and then massage the data into my expense tracking spreadsheet. Still takes ~30 minutes to do incl. reviewing the results and QC. A lot of the time is figuring out what the transactions are for, or labeling them (ie 8 amazon.com purchases - what in the heck did I buy last month!!??).

So far expense tracking has been a successful endeavor and I think I will make it a permanent task in the management of our personal finances. I realize it would be great to have at least a few years of data to rely on to know exactly what we are spending in order to set a more precise budget for FIRE (acknowledging budgeting/spending will be rather imprecise ).

(FYI, I'm posting updates as much for my own benefit as for others' interest)

 

[simple girl]

I've been tracking our expenses very closely since January of this year as well. So far, we are running over budget by about $10/day. The areas where we are going over are groceries, dental expenses, electric bill, misc "cash" (haven't gone into detail on this category), car repairs and gasoline, gifts given to others, travel/vacation costs, "misc" entertainment fund (again, need to detail this out more next year), clothing, and eating out.

This has been an excellent exercise for us to do, and I will keep it up. We are able to identify the areas where we can cut back as well as those areas where we need to adjust the budget to reflect our true expenses more accurately. I am feeling much more confident estimating the amount of money we truly will need to FIRE.

 

[Keim]

I just bought Quicken and have been loving this aspect of the program. Makes analysis of expenses easy.

 

[simple girl]

I just bought Quicken and have been loving this aspect of the program. Makes analysis of expenses easy.

I have Quicken and love it, but we put almost all of our expenses on the credit card (pay in full each month), so it doesn't help us fetter out the details of those expenses. Also, we have other outflows I don't consider in our budget (a rental mortgage we won't have at time of FIRE), and so it includes things I don't want included...making the analysis "messy" for our situation. Plus, I also feel like having to enter each expense by hand into an excel spreadsheet increases my awareness of our spending habits much more.

 

[Keim]

Mine does fine with the CC expenses.

 

[W2R]

I'm spending the same amount as last year, except for

(1) bought my brand new Toyota Venza in cash last January (had been saving for it for ten years), and

(2) spent another $10K or so to fix up my house and landscaping so that it will hopefully sell (but if/when it does, I'll be buying a cheaper home up north which will more than reimburse me for this)

I don't have any idea of how to consider these expenses. I think I'll just congratulate myself for staying within my usual basic spending and consider these to be one-time expenses that were already taken care of.

Despite these two big "oddball" expenses, today I have a substantially larger nestegg than I did on the day I retired. I suppose that is due to the economic recovery.