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Old 03-02-2013, 03:02 PM   #41
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Should I continue to let that budget accumulate year after year?
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One way to handle irregular categories is to put a cap on certain categories. For example, let's use veterinary expenses. I do accumulate that category from year to year. However, I put a cap on it and once I reach the cap then I don't keep adding to the category unless I "use" some of the category. So, let's say my cap on a category was $1800 and I was adding $100 a month to it. Once the category got to $1800 I wouldn't keep adding to it unless I had an expense to take it below $1800. Same thing for accrual accounts for various expenses. Once I reach the cap then I don't keep adding to it unless I spend something.
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Old 03-02-2013, 03:12 PM   #42
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Originally Posted by PatrickA5 View Post
I've been keeping track of expenditures for years but have never really "budgeted" for anything. I always just assumed when the roof needs replacing, I'd just withdraw that amount from one of my retirement accounts or CDs. Am I missing something?
If you are withdrawing your regular amount every year and spending it all, then withdraw money over and above this for pop-up big expenses ( a roof, a car, an air conditioner, etc) then you're really withdrawing more than the planned-on withdrawal rate. I think this budgeting exercise is designed to assure there's enough set aside/left in the big account to handle these infrequent expenses and keep to the planned withdrawal rate.
Here are two earlier threads on home repair costs and budgeting for other infrequent expenditures (appliance replacement, etc):
Costs/cycle for expected replacement items
Do You Keep A Reserve Fund?
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Old 03-02-2013, 06:33 PM   #43
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I'm not completely retired yet, but getting close. I'm not sure I understand the "budgeting process" during retirement.
Try picturing people with an extreme passion for data related to spending.
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So, are the people that are setting aside money each month taking money out of one account and putting it in another account? Or are you "saving" part of Social Security or Pension payments into various accounts?
I keep no "separate" accounts to accrue for periodic, large expenditures such as cars, a new roof, etc. Those bux are accounted for in my informal "need for liquidity" estimates and come from my FIRE portfolio when needed.
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I've been keeping track of expenditures for years but have never really "budgeted" for anything. I always just assumed when the roof needs replacing, I'd just withdraw that amount from one of my retirement accounts or CDs. Am I missing something?
Nope, you're not missing a thing as long as your resources vs. your expenses are adequate enough that needing $10k for a major house repair or $30k for a car isn't a life altering experience.

Also, it hasn't happened to me yet, but if something extraordinary occurred and I could not easily come up with the cash in short order, I'd borrow it and I do have a line of credit. A few months of interest payments while I figured out the best way to cash in some investments (or a few years for that matter) would likely be a small expense vs. keeping big bux in cash "just in case" year after year after year.......

Don't sweat it.
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Old 03-02-2013, 06:42 PM   #44
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I've fortunately always been able to pay for this stuff as I go. I structured my mortgage with part of it on a variable rate equity line (20k range). The line goes up and down as I pay my monthly maintenance fund into it and draw when I need something really big. The balance was lower, but between a new HVAC system and half the windows being replaced, it's been put to good use. Georgia summers can be tough on a house
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Old 03-02-2013, 06:44 PM   #45
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I don't actually accrue, we just call the account that because it serves the same purpose (from my Corp days) and it's easier than calling it the 'major unusual expenses for cars, home repairs/replacements, consumer electronics and whatever else comes up outside normal expenses' account. In practice we include those expenses as spent, on our spending spreadsheet, but there's no budget and variances are meaningless. It's all coming out of the nest egg as needed anyway. YMMV

We only use cash too, though I can see how zero/low interest can be compelling...
Ex-beancounter ? I am one today .... waiting to FIRE so I can call MYSELF an ex-beancounter

I dont actually have a separate 'account' either, its a budget item that I am not allowed to spend the "saves" from because I know at some point there will be a payment. In my budget I call the non-home maintenance items "future one time expenses". I have the home maintenance at 1.25% (just reduced it today from 1.5% since I have 50k set aside outside my portfolio for the first round of events - think roof and A/C)
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Old 03-02-2013, 07:00 PM   #46
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I'm not completely retired yet, but getting close. I'm not sure I understand the "budgeting process" during retirement. So, are the people that are setting aside money each month taking money out of one account and putting it in another account? Or are you "saving" part of Social Security or Pension payments into various accounts?

I've been keeping track of expenditures for years but have never really "budgeted" for anything. I always just assumed when the roof needs replacing, I'd just withdraw that amount from one of my retirement accounts or CDs. Am I missing something?
Good question.

When projecting future retirement expenses in the future, home improvement/repair spending is in the budget as a yearly expense. I assume it is withdrawn and spent each year. That ensures that those expenses are planned for and won't impact other planned spending.

All of my accrued budget balances are simply account balances in Quicken. Whatever I don't have in the checking account for near-term expenses is invested in the portfolio with the normal asset allocation. However, when projecting the portfolio value into the future, I subtract out all the accrued budget balances from the portfolio at the start. Just as if it had all been spent already. That allows me to spend within the budget without concern for meeting specific withdrawal limits. If it's budgeted, it's OK.
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Old 03-02-2013, 07:14 PM   #47
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Originally Posted by PatrickA5 View Post
I'm not completely retired yet, but getting close. I'm not sure I understand the "budgeting process" during retirement. So, are the people that are setting aside money each month taking money out of one account and putting it in another account? Or are you "saving" part of Social Security or Pension payments into various accounts?

I've been keeping track of expenditures for years but have never really "budgeted" for anything. I always just assumed when the roof needs replacing, I'd just withdraw that amount from one of my retirement accounts or CDs. Am I missing something?
Budgeting really has nothing to do with putting money from one account into another (well, it shouldn't I don't think). Budgeting has to do with planning what money you will spend so that you don't spend more money than you can afford to spend. (I use a budgeting program called You Need A Budget).

Budgeting is arguably more important during retirement than before. That is during retirement you must make your money last and your ability to get more money through employment is limited or non-existent.

So, why budget? Let's say that you can safely spend $60,000 a year during retirement and you will feel confident your money will last. (If you don't know what you can safely spend each year I would submit that you need to determine that amount).

Now for some people there base expenses and their desires to spend are such that they easily stay under $60,000 a year with no planning whatsoever. If they suddenly need a new roof - no problem because they have been spending only $40,000 a year for years.

For the rest of us .... We don't want to end up in October and realize we've spent $50,000 already and we have $5000 in real estate taxes due at the end of the year and we forgot about Christmas presents and forgot about homeowners insurance coming due and the automobile suddenly needs a $3,000 repair and then the AC goes out, etc.

The point in budgeting is therefore to plan for the expenses that will come up during the year - including accruing in some means for those that might only come once every several years. Again, how critical it is to do this will depend upon how tight your budget is. The person who has a SWR of $150,000 a year but regularly spends $50,000 a year can probably just pay for the roof or new car whenever.
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Old 03-03-2013, 02:14 PM   #48
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Good info in this thread, as I move closer to FIRE and thinking about how to manage $$$...

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Originally Posted by Independent View Post
(I have a daughter who uses electronic "envelopes" - literally separate savings accounts at her bank - to bucket certain erratic expenses. She does it so she doesn't feel guilty about spending money on "fun" stuff right after she gets the car fixed. But, we've done LBYM for so long that we don't need that type of self discipline.)
This quote reminded me of a friend, so I'll share a little story I always found humorous, hope you enjoy...

Good friend of mine graduated from college in '81. We went to the same school, worked for the same company, saw each other almost daily for a few years. Upon graduation he and another guy moved in to a nice apartment, got newer cars, nothing crazy but enjoying the new income. Both lacked discipline when it came to money, they'd spend what they had, but they recognized it. One day I stop in to see his new apartment and there's this big stuffed bear (not adult, but big kid) sitting in a bean bag chair with envelopes in different places, under an arm, in a hand, etc. I said what the heck is that? He says that's Dave the Budget Director. I say Huh? He says they named the bear after Dave Stockman, government budget manager or something at the time, and when they got paid the first of the month they put cash/checks into envelopes for rent, utilities, etc., and then could only spend what was left.

Fast forward a couple of years, he's single and living large with money burning a hole in his pocket, I'm a new grad, dad, have a house, and not even up to the point where you could say I was living paycheck to paycheck. He'd been talking about getting a car to replace the used Honda Accord he'd purchased upon graduation, was talking low end Porsche. Sat. late afternoon he stops by, rings the bell, my wife is out and I'm babysitting, not an unusual thing to happen. He grabs a beer and we're chatting and I realize he's nervous, and I say What's up, is something wrong? He says, well, I did something bad. I asked if it was red and sitting in front of my house, and he say NO!!!! .... then sheepishly adds It's black... He bought a 300ZX turbo as an impulse purchase that afternoon...

Oh well, hope you enjoy... Happy Sunday everyone!
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Old 03-03-2013, 03:36 PM   #49
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All of my accrued budget balances are simply account balances in Quicken. Whatever I don't have in the checking account for near-term expenses is invested in the portfolio with the normal asset allocation. However, when projecting the portfolio value into the future, I subtract out all the accrued budget balances from the portfolio at the start. Just as if it had all been spent already. That allows me to spend within the budget without concern for meeting specific withdrawal limits. If it's budgeted, it's OK.
Very eloquently defined. That's exactly what I was (poorly) trying to say earlier
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Old 03-04-2013, 11:34 AM   #50
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Originally Posted by PatrickA5 View Post
I'm not completely retired yet, but getting close. I'm not sure I understand the "budgeting process" during retirement. So, are the people that are setting aside money each month taking money out of one account and putting it in another account? Or are you "saving" part of Social Security or Pension payments into various accounts?

I've been keeping track of expenditures for years but have never really "budgeted" for anything. I always just assumed when the roof needs replacing, I'd just withdraw that amount from one of my retirement accounts or CDs. Am I missing something?
One reason to "budget" for these bigger ticket items is so you won't have to pull say $10k out of your tax-deferred accounts all at once for a new roof, throwing you into a higher bracket.
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Old 03-04-2013, 03:14 PM   #51
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In our house, the bold makes the rest of the question kind of moot. We know we're going to replace the roof, furnace, AC, washer, dryer, hot water heater, dishwasher, stove, fridge, microwave, and garage door opener when the fail. We know we'll withdraw from the IRA if monthly income doesn't cover a big expense.
That pretty much covers it.
You know how long a roof or a water heater or a furnace or a car, etc. is expected to last, so you can budget for them on a pro-rata basis each year.

Or you can just take the expense out of your assets and treat it the same as if you had a lousy year in the stock market.

Not much difference in the long run.
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Old 03-04-2013, 06:10 PM   #52
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REWahoo
How much did you budget for house repair in the event of an asteroid strike?
Id note that FIRECalc would treat this a a successful retirement since you would not outlive your assets. LOL
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Old 03-04-2013, 06:16 PM   #53
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How much did you budget for house repair in the event of an asteroid strike?
That is what Insurance is for. Although not sure if Wahoo's insurance policy specifically exempts "Acts of God" or "Acts of Aliens"
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Old 03-14-2013, 02:00 PM   #54
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Did anyone take out a home warranty service policy that covers home repair expenses? How do they work? Why do you take the the policy out? Why do you decide against taking out those policies? Thanks.
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Old 03-14-2013, 02:48 PM   #55
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I take a simpler (but probably dumber) approach. I keep about $20K in a savings account that allows transfers to my checking account within minutes. I use it for "unplanned" expenses. Just had to replace the water heater this past week !! Funny how often travel shows up in the "unplanned" category !
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Old 03-14-2013, 03:03 PM   #56
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Did anyone take out a home warranty service policy that covers home repair expenses? How do they work? Why do you take the the policy out? Why do you decide against taking out those policies? Thanks.
In my opinion, about the only time they make sense is to put a buyer at ease when selling a house (increase the asking price and offer the warranty, drop the warranty in the negotiations). When buying a house I've gone 50/50 with the seller on buying a policy, since I didn't know what kind of unexpected repairs might be hidden in the new house. In general these policies are a bad deal (obviously, or the sellers of these policies would not stay in business).

As a general rule, don't buy any insurance to cover a risk that you can cover yourself without undue hardship.
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Old 03-14-2013, 03:35 PM   #57
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Did anyone take out a home warranty service policy that covers home repair expenses? How do they work? Why do you take the the policy out? Why do you decide against taking out those policies? Thanks.

We received a warranty on our home last year when we purchased our house, as part of the negotiation. It added to our comfort level during the purchase. However, I doubt that we'll renew it as we have funds set aside to pay for home repairs. Also, there seemed to be a lot of caveats in the home warranty policy that made me less than confident that it would come through if needed.
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Old 03-14-2013, 03:40 PM   #58
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Thanks for discussing pros and cons of warranty insurance policy with me. What you guy said made sense.
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Old 03-14-2013, 03:56 PM   #59
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Each policy is different. What is covered depends, the more that is covered the higher the premium. Silver, Gold, Platinum levels, for example. The coverage is very detailed in what is and what is not covered, and to what degree. A real pain to read.

We had to submit our home inspection to the warranty company before the warranty was activated. Our heater was noted as "dust in heater chamber" by the home inspector, and our warranty company wouldn't cover it unless we had an HVAC repairman certify it (at our cost) as operational (no, I didn't think to demand it be cleaned before the purchase).

When a covered item breaks, we're supposed to call the warranty company. The company sends out a repairman who is immediately paid a deductible ($50 on our policy). The repairman then inspects the item, determines what is needed, and calls the warranty company to get permission to make the repair. This is all spelled out in the contract with the warranty company - I've not had to use it as nothing has broken since we bought the house.
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Old 03-14-2013, 04:50 PM   #60
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Did anyone take out a home warranty service policy that covers home repair expenses? How do they work? Why do you take the the policy out? Why do you decide against taking out those policies? Thanks.


In 30 years I have bought a total of two houses.... I had home warranties on both for the first year...

For me, it was a comfort to know that if there were something wrong, that it would not cost me an arm and a leg to get it fixed...

My first house had an electrical problem... I will try and keep it short, but it will be a bit long... One day I had a section of the house electricity go out... I did not know what happened.... it was (for ease of telling) the far side of the house, the garage and half bath... but, if I turned on my kitchen light, the circut worked.... an electrician came in to fix the problem... he could not figure it out... the next day two came... same result... the third day we had four guy looking at different parts of the house... finally, one of them found the problem(s)....

The first problem was that the wire that was attached to the fuse snapped. You could not see that it was, but when it was moved it was easy to see.... that is why the section did not work... now, my kitchen was on a three way switch.... but, for some reason they connected one of the switches to the wrong fuse section.... IOW, one wire was with one section (kitchen light) and the other with the garage.... they rewired that section and reconnected the broken wire... so, what would be the cost of 7 man days of an electrician (30 years ago)..... much more than the cost of the insurance...

My last house... I had another electrical issue... similar to the other, my son's electricity was off... paid the guy to come and he found that the ground fault plugs were wired incorrectly... IOW, they turned off the whole section instead of just the plug at the sink... this probably would have been a wash.... but again, having the insurance to make sure things like this would be fixed and a reasonable rate was worth it to me...


I would not (and did not) renew either and have been happy that I did not....
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