LBYM, Budgets, ER, etc

[chris2008]

We have no budget but track expenses for more than 30 years now and feed our saving accounts regularly directly when salaries come in (pay yourself first...).
As long as we see that we are still on the LBYM track so that there is still some dough left at the end of each month everything is good.
Tracking also allows some predictions for ER (hopefully), at least for the early years of it. There will be more cost for travelling and gas (because we can use a company car for private driving), a bit less on clothes and food. Everything else should remain the same + inflation.
2012 will tell if we did it right...

 

[traineeinvestor]

For many years I took the lazy approach and set myself a target savings rate. So long as I was reasonably close to that target each month and at year end, I didn't sweat the details and didn't track expenses in any detail.

As I get closer to retirement, the importance of knowing how much we are spending and where I am spending it increases so we now track spending monthly and have used that data to refine our retirement budgets. It's now a habit that I expect will continue beyond retirement.

 

[NW-Bound]

When I say that we do not have a budget, it does not mean that we do not know our expenses. Rather, it means that we do not restrict ourselves to a rigid regimen. When our son is done with school and all the retirement toys have been bought, perhaps our expenses will settle down to a lower level which I will feel comfortable funding without the part-time work.

But then, what would I do all day?

 

[friar1610]

Before DW and I retired, we did our spread sheets, forecast and budgeting. For the first two years I watched the expenditures like a hawk. I remember when our first propane bill came in higher than I expected, I thought we would have to stop heating the house, but slowly, I began to realize that the spread sheets and budgets were spot on. I had been tracking things for about three years prior to retirement and forecast we needed $48,000 a year. For the five years we have been retired, we have been right on that amount. I don't watch things that close anymore.

I'm somewhat in this camp.

I had lotsa spreadsheets prior to retiring and had come up with "the number" I thought we needed to live on. For the first couple of years I tracked things on a macro level. That is to say, I didn't have a specific budget nor did I keep track of every expense. But month-to-month and then at the end of the year I did a fair amount of analysis on whether or not we had stayed at our number. After about 3 years, I determined we were not spending as much as I had forecast, so I have eased off on the tarcking. There are a couple of triggers that will tell me if we are spending more than we should. For example:
- How often do we have to use my SS check for expenses. If more than 50% of the time, that's a problem. As long as we are banking at least every other check, it's not.
- Do we have to use my wife's SS check for expenses? So far we've banked every one of hers.
- How often do we have to dip into the portfolio? (My original, pre-ER planning had called for a monthly draw from the port. That has been largely unnecessary except for really unusual expenses.)

That said, we live fairly frugally day-to-day but don't hesitate to go on a nice vacation once or twice a year, to take the occasional weekend trip to NYC, Montreal or some other interesting city where we don't scrimp.

Bottom line is that tracking expenses on a micro level isn't really necessary; being aware of them on a macro level and knowing when we've hit a tripwire is essential.

 

[scrabbler1]

When I say that we do not have a budget, it does not mean that we do not know our expenses. Rather, it means that we do not restrict ourselves to a rigid regimen.

This is what I do, too. The key here is to construct a budget which contains a surplus, even a small one, so you can spend a little bit more here and there on unexpected things. Then you won't get all nervous if and when you go out to eat or if your electric bill ends up higher than you expected because of extremely hot weather.

 

[NW-Bound]

- How often do we have to use my SS check for expenses. If more than 50% of the time, that's a problem. As long as we are banking at least every other check, it's not.
- Do we have to use my wife's SS check for expenses? So far we've banked every one of hers.
- How often do we have to dip into the portfolio? (My original, pre-ER planning had called for a monthly draw from the port. That has been largely unnecessary except for really unusual expenses.)

Seems to me you need to spend more. Have you seen the "Which car?" thread?

 

[kaudrey]

I don't have a budget per se, but I have a set amount I save each month, and then I can spend the rest. Savings go toward retirement, the emergency fund, and then the "fun" fund for vacations etc. My spreadsheet for retirement projections only has a few different lines for expenses (mortgage, health insurance, travel, and "living expenses" for everything else).

I am a Fed, and since I have decided I have to wait until my MRA to retire so I get full health bennies, I should have plenty of money by then to not worry so much (I was going to retire 5 years earlier, but it's really not practical to give up the health care bennies)...

 

[rescueme]

...a budget is not rocket science.

Such a simple (but true) statement. Unfortunately, so many folks try to make it "rocket science".

As for me/DW? Track everything and modify budget depending on changes (primarily inflation based).

As far as those pesky small items (e.g. car gas, eating out, clothes, etc.) still use the old "envelope method" we started with 40+ years ago...

 

[lowflyer]

When I say that we do not have a budget, it does not mean that we do not know our expenses. Rather, it means that we do not restrict ourselves to a rigid regimen.

Have never had a written budget, till the last couple years. I now have a simple spreadsheet to document regular expenses. There are a couple broad line items I can mess with like "Visa Bill" and "Travel" which cover extras not accounted for on their own line. I just look at the spreadsheet now and then as a reality check to see how we're doing.

 

[NW-Bound]

I now have a simple spreadsheet to document regular expenses. There are a couple broad line items I can mess with like "Visa Bill" and "Travel" which cover extras not accounted for on their own line. I just look at the spreadsheet now and then as a reality check to see how we're doing.

My wife pays all the bills, and keeps a spreadsheet to track all expenses. I am the guilty one who is responsible for all those unplanned extras, i.e., toys like RV and accessories. I often take a peek at her spreadsheet to see where our money goes. Did that, and it convinced me to stay on this part-time work a bit longer, and to delay the RV trip despite constant ribbing from you know who.

 

[Independent]

We never made a concerted effort to manage a tight budget except in the really young years and that was governed by the limited income and a desire to not take on debt. By the time we were in our 30's we had fairly good paying jobs and careers so we simply made more than we would normally spend (we are somewhat frugal).

That's us.

OTOH, we've always written down everything we've spent. I total it once a year, my wife doesn't care. I've discovered that when I look at our spending it appears reasonable for our income, and I've never made a different spending decision because of it. So my experience is that the 5-7% saving doesn't happen.

OTOH, having the spending record made it much easier to make big decisions like whether to look for a different job or when to retire.

 

[chinaco]

That's us.

...
OTOH, having the spending record made it much easier to make big decisions like whether to look for a different job or when to retire.

You are right. I have not been tracking spending details to budget, but I have analyzed our gross after-tax spend (outflow) over several years. It helped me to realize that my FIRE income estimates over the years (which were rule of thumb based on my income... excluding DW income) were an inflated target.

But that extra savings helps me to be more confident to follow-through with FIRE next year... no matter how the near-term economy is gyrating.

 

[Joshua]

About all I've noticed so far is that when we make a budget, it lasts a few days, and then we're "surprised" by something we didn't count on, and the plan goes out the window. Or, if we're tracking expenses, one or the other of us gives it up as a bad job because it's somehow not a "normal" month, so it doesn't count... or we just get so depressed at what we've already spent that we can't stand to keep notes anymore. Every time I think I know, to the penny, what we're going to spend in the next few weeks, something crazy happens. It's like I'm not allowed to succeed.

I'm trying to make changes, though. I have spent so many years living like this that I am falling into a depressed state over it, and it can't go on this way. My career, which I used to like, seems useless, because I can't see it building toward anything. I constantly find more reasons to resent everyone around me. I hide my finances from my friends and coworkers because I'm too ashamed to admit any of our issues. It's just not a sustainable way to live.

As much as I hate her show (too loud and sensationalist), I recently had an interesting time reading one of Suze Orman's books. The chapter I particularly liked was the one on lies and money. It made me realize that part of my problem is that I've been lying (and letting myself be lied to) about money for years.

It's not the kind of lie that directly contradicts what *did* happen, but more the kind about future intent. As in, you fully intend to pay off such and such a bill when it comes in, and that's what you say to yourself and to others, but deep down, you know that the last twenty times you've put yourself in that situation, you had too many other expenses by the time it came due - too many "unexpected" things - and just wound up making a minimum payment.

"We have the tax returns coming in, so we can pay it off..." - Oh, look, we just had to pay for some other emergency... same way we did the last year.
"We don't have anything to save for this week." - Oh yeah, we have to buy school clothes for the girls... no way we could have predicted that... even though we do it every year.
"We have plenty of money for this trip!" - Sure, but not enough to buy a new tire if we have a blowout on the way...
"We've got Christmas presents totally covered this year, so we can afford it." - Yeah, but what about all the extra food and decorations we're going to buy for the party?

See what I mean? It's not like you "lie" exactly, but you put on blinders and only look at a small part of your picture instead of the whole thing... and then if you try to say, "Hey, we can't afford this!" when extra expenses come up in a project you already agreed to, you suddenly become the bad guy. "But you said we could do this! Why even bother discussing things if you don't really mean what you say?" At which point I have no choice but to shell out cash for whatever just happened, because I feel like I'm going back on my word if I don't.

Gah.

Sorry for angsting in here, but I'm reading a lot of personal finance books (from the library! ) and trying to use the discussions in this forum to help spark my personal growth in this area. The progress isn't always pretty.

Josh

 

[Nords]

About all I've noticed so far is that when we make a budget, it lasts a few days, and then we're "surprised" by something we didn't count on, and the plan goes out the window. Or, if we're tracking expenses, one or the other of us gives it up as a bad job because it's somehow not a "normal" month, so it doesn't count... or we just get so depressed at what we've already spent that we can't stand to keep notes anymore. Every time I think I know, to the penny, what we're going to spend in the next few weeks, something crazy happens. It's like I'm not allowed to succeed.

Give yourself a little credit for the attempt, and maybe take a longer-term view. You can tell that finances must be a tough subject for people to master when someone like Suze can make a living with her behavior, let alone with her very basic advice.

You wouldn't try to lose 20 pounds in a week, and you wouldn't attempt to build up to 100 pushups in two minutes without months of practice. So don't try to make huge changes with tracking expenses or budgeting, and don't worry if it takes up to a year to find a method that works for you.

You're not going to "lose" or "win" by tracking expenses because you're not supposed to be keeping score or putting yourself on report-- you're just gathering data. Every stack of statistics has an outlier, and every month will be different. You're just trying to build a record of what your expenses have been so that you have a place to start a budget.

After a few months of gathering data then you can think about forecasting (or wait a few months more). For example you may decide that you're spending $400/month on groceries, but it's not worth beating yourself up if next month you spend $440. Just keep an eye on the long-term averages. If a few months of $440 groceries happen then raise the budget to $450. Eventually you'll be able to say that 80% of your grocery bills were $440/month.

Same for lumpy expenses like car repairs. You may go a year between big repair bills, but one $1500 repair bill is still considered $125/month. The trick is to make the allowance for that $125/month, either by setting aside the cash each month or by planning to take it out of your "emergencies" fund, so that when the inevitable happens then you don't have to scramble to recover your budget.

If you guys don't enjoy budgeting then just track the expenses for 6-12 months and see where the big numbers are coming from. If there's something you don't like (that doesn't match your values) then see if you can figure out a way to do less of it. The best results come from recognizing that you've been inadvertently spending money on something that's easy to cut out... whether that's a magazine subscription you won't miss, or some type of convenience food that's going to waste because the kids don't eat it anymore, or realizing that you must have a leaky toilet to be seeing that much in your water bill.

If you're using the expense-tracking and budget-forecasting systems to deprive yourself of the things that you feel make life worth living, or (even worse) to attack each other's spending habits... then yeah, it's not gonna go well.

The Dollar Stretcher (Stretcher.com) weekly e-mail is a great way to get regular small doses of all the choices on tracking expenses and budgeting. You'll read about a dozen different programs and methods, and eventually you'll select one that you can live with. You'll also find a useful nugget every month or so that will make a big difference with very little effort. Doing it in small increments is so much easier than trying for an abrupt and complete lifestyle change.

 

[Amethyst]

Joshua, the analogy is the overweight person who tries to diet, eats a slice of cake, feels guilty, and eats the whole cake because "Oh what the h3ll! My diet is ruined anyway!"

Everything you've described is normal, and shame doesn't help. Be as honest with yourself as you are being with the forum, get back on the financial horse, and keep riding.

In your reading, have you come across "The Richest Man in Babylon"? The central tenet is "Find a way to live on less than 90 per cent of your income - no matter what happens." The other 10% gets saved/invested. It's a form of benign self-deception - you pretend to yourself that 90% of your after-tax income is ALL that is available, so plan/save/splurge around that. Of course, even TRMIB can't keep people from raiding the growing stash resulting from the 10%-that-you-pretend-you-don't-actually-have. Still, it's an easy read, and I think it can even be read for free on-line. The Richest Man in Babylon (book) - Wikipedia, the free encyclopedia

As for the people at work, why do you think they care about your finances? You could be a ragged millionaire, for all they know. Not liking your career is a whole different issue (frequently discussed in this forum). Short-term advice is to remember to be grateful you are employed (when so many are not, and would like to be), while figuring out what you really want to do and how to get it.

Best wishes, check back often,

Amethyst

About all I've noticed so far is that when we make a budget, it lasts a few days, and then we're "surprised" by something we didn't count on, and the plan goes out the window. Or, if we're tracking expenses, one or the other of us gives it up as a bad job because it's somehow not a "normal" month, so it doesn't count... or we just get so depressed at what we've already spent that we can't stand to keep notes anymore. Every time I think I know, to the penny, what we're going to spend in the next few weeks, something crazy happens. It's like I'm not allowed to succeed.

I'm trying to make changes, though. I have spent so many years living like this that I am falling into a depressed state over it, and it can't go on this way. My career, which I used to like, seems useless, because I can't see it building toward anything. I constantly find more reasons to resent everyone around me. I hide my finances from my friends and coworkers because I'm too ashamed to admit any of our issues. It's just not a sustainable way to live.

As much as I hate her show (too loud and sensationalist), I recently had an interesting time reading one of Suze Orman's books. The chapter I particularly liked was the one on lies and money. It made me realize that part of my problem is that I've been lying (and letting myself be lied to) about money for years.

It's not the kind of lie that directly contradicts what *did* happen, but more the kind about future intent. As in, you fully intend to pay off such and such a bill when it comes in, and that's what you say to yourself and to others, but deep down, you know that the last twenty times you've put yourself in that situation, you had too many other expenses by the time it came due - too many "unexpected" things - and just wound up making a minimum payment.

"We have the tax returns coming in, so we can pay it off..." - Oh, look, we just had to pay for some other emergency... same way we did the last year.
"We don't have anything to save for this week." - Oh yeah, we have to buy school clothes for the girls... no way we could have predicted that... even though we do it every year.
"We have plenty of money for this trip!" - Sure, but not enough to buy a new tire if we have a blowout on the way...
"We've got Christmas presents totally covered this year, so we can afford it." - Yeah, but what about all the extra food and decorations we're going to buy for the party?

See what I mean? It's not like you "lie" exactly, but you put on blinders and only look at a small part of your picture instead of the whole thing... and then if you try to say, "Hey, we can't afford this!" when extra expenses come up in a project you already agreed to, you suddenly become the bad guy. "But you said we could do this! Why even bother discussing things if you don't really mean what you say?" At which point I have no choice but to shell out cash for whatever just happened, because I feel like I'm going back on my word if I don't.

Gah.

Sorry for angsting in here, but I'm reading a lot of personal finance books (from the library! ) and trying to use the discussions in this forum to help spark my personal growth in this area. The progress isn't always pretty.

Josh

 

[Joshua]

Joshua, the analogy is the overweight person who tries to diet, eats a slice of cake, feels guilty, and eats the whole cake because "Oh what the h3ll! My diet is ruined anyway!"

Yeah, you're exactly right. And no, I haven't hit the "Richest Man in Babylon" yet.

As for the people at work, why do you think they care about your finances?

Well, most of them don't actually care, but I am in the Army, so our supervisors like to dig into every aspect of our lives to make sure there are no instabilities that will prevent us from being "mission ready." If someone has trouble with finances, and word leaks out, it can lead to a lot of harrassment, embarassment, and put-downs from insensitive superiors who are more worried about how having a soldier with "issues" is going to make *them* look rather than being concerned about the trouble that person is actually going through.

Not liking your career is a whole different issue

Well, not that much of a different issue, actually! For the record, I find it rather satisfying, but... I work because it is the best way I have available right now to ensure the financial well being of my family. If that need is not being met by my efforts, then I wind up asking myself why I bother. If I am working constantly, but I still can't keep us above water because of bad habits, then why bother working at all? (I don't mean this literally, but follow the gist of it...)

See what I mean? It's an insidious line of thought. If the best effort I can give isn't good enough to provide for our needs, then I might as well give no effort and go live under a bridge somewhere. It doesn't matter how much I like my job or how profitable it is in raw dollar terms. It will still be a waste of time if it doesn't let me do what I need to do.

Everything you've described is normal, and shame doesn't help. Be as honest with yourself as you are being with the forum, get back on the financial horse, and keep riding.

Yeah, I am trying to be very honest with myself about this whole thing. I have spent too long blaming it on other people. It is not completely my fault, mind you, but at the very least, I passively allowed it to happen instead of going with what my gut knew was right. What's that line? All it takes for evil to prosper is for good men to do nothing?

Josh

 

[Sue J]

About all I've noticed so far is that when we make a budget, it lasts a few days, and then we're "surprised" by something we didn't count on, and the plan goes out the window. Or, if we're tracking expenses, one or the other of us gives it up as a bad job because it's somehow not a "normal" month, so it doesn't count... or we just get so depressed at what we've already spent that we can't stand to keep notes anymore. Every time I think I know, to the penny, what we're going to spend in the next few weeks, something crazy happens. It's like I'm not allowed to succeed.Josh

I know what you mean. Sometimes it's a gift expense or a surprise repair or a medical expense or some other thing that you don't have in the plan for the month.

Rather than feeling like we blew it or had a bad month or just can't control or predict some things, we made a spot in the budget for OTHER and budget $300 a month. This covers the majority of stuff that happens in life that isn't considered one of the regular budgeted categories.

Some months $300 covers it all, sometimes we go over. But at least we acknowledge that these things are a normal part of living, just not part of a named monthly category.

 

[Amethyst]

You are correct - I apologize. I forgot (from your earlier post) that you are in the military, and therefore live in a fishbowl much of the time. A decent career, though, as long as no one is shooting at you. Keep the faith.

Amethyst

Well, most of them don't actually care, but I am in the Army, so our supervisors like to dig into every aspect of our lives to make sure there are no instabilities that will prevent us from being "mission ready."

 

[Joshua]

A decent career, though, as long as no one is shooting at you. Keep the faith.

Yeah, not bad, really. And as for the other part... heh... sometimes an honest thing like watching for ambushes seems like less stress than walking into the office.

Josh

 

[Nords]

Yeah, not bad, really. And as for the other part... heh... sometimes an honest thing like watching for ambushes seems like less stress than walking into the office.

Plus you get to shoot back at ambushes...

 

[HFWR]

Plus you get to shoot back at ambushes...

I keep a "major expense" budget, and I swear I'm going to start tracking smaller stuff, any day now...

I figure that I'm saving a big hunk, the bills are all paid, so the rest is somewhat discretionary. I got rid of the landline and associated long distance package, since I have a mobile with free LD. Got rid of the alarm system monitoring. I pack my lunch, and only eat out once or twice a week, mostly on the weekends. The alcohol budget is manageable...

Groceries on a weekly basis are maybe $30, plus the occasional Costco run for resupply, at $100-200, which refills the freezer, and restocks coffee, paper goods, etc.

As I've gotten more decrepit, I go to the doc more often, so I'd need to track that more closely than I have been, as that may be a major expense in later life.

 

[Koolau]

Yeah, not bad, really. And as for the other part... heh... sometimes an honest thing like watching for ambushes seems like less stress than walking into the office.

Josh

Josh, thanks for serving!!!

 

[TomG]

For me, valuing more money in the bank a lot more than buying stuff makes it very easy to spend less than I earn without a budget. That is true even when earning only a little bit. Highly doubt that making a budget outside of my own head would make personal finances any better

For others who value buying stuff more than having savings and investments don't see how budgeting would help. They've had their entire life to figure out how to maximize happiness from shopping and buying stuff. How could an hour or a day writing something down on paper be better than decades worth of experience?

That said, budgets should be seen as irrational. Though virtually impossible to argue that people are never irrational. . .

 

[Joshua]

Plus you get to shoot back at ambushes...

There is that...

Josh

 

[Joshua]

They've had their entire life to figure out how to maximize happiness from shopping and buying stuff.

That's a solid point, but I would say that people can change.

Sometimes, it's not so much what they value as the habits they were taught. They probably know that saving is good and overspending is bad, but how do they put that into practice? If you go your whole life seeing people do things an ineffective way, and you start doing it that way because it's the way your parents did it, and the way your friends do it, that doesn't necessarily mean you don't *want* to be more effective. It might just mean that you don't know what else to do. If all you've seen is the wrong way to do something, sometimes you don't even know it's wrong until you are whacked upside the head with the right way to do it.

I think that's what the self-help books, worksheets, classes, journals, and everything else are for. They're trying to find that one approach that will open someone's eyes and make him realize, "Hey! Maybe I don't have to do it this way!" and then (the hardest part) help him to keep that clear vision during the hard part of establishing new habits.

Now, if after realizing fully just how ineffectively you've been pursuing a goal (savings, investment, whatever), you persist in doing it the wrong way out of fear, laziness, wishful thinking, or just stubborn habit, then there's not much anyone can do for you.

Josh