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LBYM, Budgets, ER, etc
Old 08-22-2010, 06:18 AM   #1
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LBYM, Budgets, ER, etc

This is a regular topic... but since I will ER soon, I thought people might express their thoughts on the subject.

DW and I have always spent less than we earned. We have splurged from time to time, made the inevitable remorseful purchase decision, etc.

However, our LBYM lifestyle has largely been due to habits learned from our parents. We have not really managed our spending to a budget.But we are careful with our spending and periodically hunt down alternative to reduce recurring expenses with a substitute or alternative.

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).

Now that we are intending to FIRE, I am intending to make accounting, budgeting and household purchasing management a priority. That is not to say we intend to go into an extreme LBYM lifestyle (bomb shelter mode). But we will manage a budget to keep much closer track of expenses and get the biggest bang for the buck on purchases.

I am almost certain, I can either lower our expense by 5 to 7% by managing it better or perhaps increase our purchase yield similarly... I suppose, some of that will be elimination of certain expenses that do not provide high benefit (i.e., things rarely used or not high on the priority list) but that is a guess at this point.


How about you?
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Old 08-22-2010, 06:26 AM   #2
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A couple times a year we have some cash flow problems because we like to LBYM.

In January, we start 401(k) contributions again and try to get them finished ASAP in case we want to quit our jobs early in the year. This requires a more careful attention to our cash flow, so going out to eat diminishes.

In September, we have floated August's vacation bills and some college expenses that need to be paid off. Once again, eating out diminishes so we can pay the bills.

So we know we can drop expenses by 10% to 20% at least twice a year by not eating out so much.
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Old 08-22-2010, 06:44 AM   #3
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It seems that eating out is a fairly large part of the American discretionary spending budget.

10 years ago we would eat out because of our busy schedule, today we eat out as part of socializing with friends and family or for a treat.

Many are starting to eat-in more. Even people with busy lifestyles. High quality and tasty easy to prepare food (frozen, partially prepared, etc) is common. While some of those frozen items are more expensive than making it from scratch, it is lower cost than a restaurant and almost as quick if one considers driving and waiting for a table.
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Old 08-22-2010, 07:18 AM   #4
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Just tracking every cent spent is a good way to start. Then you can decide what changes to make. We would never be able to have an actual budget as self-enforced rules just don't work for us. We might even spend more. I find just LBYM and tracking is the way to go.
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Old 08-22-2010, 07:18 AM   #5
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We live in a high-cost area, which keeps our expenses high no matter how we bear down on discretionary spending. Spreadsheeting our expenses proved we are instinctively frugal - we didn't find any fat in the budget. About the only option for lowering our costs, would be to move to a lower-cost state that does not tax retirement income, but that also would mean the expense and bother of buying and selling a place, and moving our stuff. So, we are on the fence about that.

We quit eating out years ago, and learned to cook (there are several good threads on this topic). Restaurant food doesn't even taste that good to us any more (too much fat and salt). Friends do tend to insist on going out to eat rather than socializing at home, and we go along with that for the company but shudder at the bill

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Old 08-22-2010, 08:03 AM   #6
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I can only agree with the OP. We've always spent much less than we made out of habit and probably conditioning from our parents, but didn't bother with a budget for most of our years together. A few years ago in preparation for FI (maybe RE), we started tracking our spending using Excel to quantify the extent of our LBYM. In the process, we noticed a few areas where our spending exceeded the satisfaction derived, so we made some changes - and never missed those expenditures. We cut back on groceries, dining out & gifts (cost not freq). And when we realized how much boating was costing, the boat went up for sale. So IMHO, you're on exactly the right track...

I just can't mentally ER now, but working on it.
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Old 08-22-2010, 08:14 AM   #7
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You might want to look at your gift giving habits. We gave up gift giving years ago. DH's family is large, they decided on the "pick a name" and buy one gift for a Christmas gift exchange.

My family is small and we found we were buying stuff we didn't need or want. Instead of buying gifts, we eat out to celebrate birthdays and holidays. Much less expensive and much more enjoyable.

DH and I don't give each other gifts either. If there's something we really want or need, we get it. Much less stress and drama and better decisions made on purchases since it's a mutual decision.
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Old 08-22-2010, 08:55 AM   #8
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DW and I Always did a budget at the beginning of each year. While w*rking we did not tracking to carefully per category during the year. We did balance out at the end of the year overall to see how we did. Mainly we just made sure that we were making our savings goals which were extreme!

Since ESR I have tracked all spending to category. The first year I found that our overall spending was in line but some categories were not. I adjusted them and for the last two years we have been on track.

Areas that we found to cut after ESR were eating out (DW is a very good cook and likes it). We still eat out but no more than once a week on average and a lot of times that is at lunch. Our clothing, food, and gasoline items went down also. The food went down due to more time to buy on sale and use coupons. The clothing and fuel is due to not going to w*rk every day of course. We also seem to be spending less money on buying stuff and that is a good thing. As DW says the hoarder show hits close to home for her although I do not see that at all.

Vacation of course went up as we have more time to travel.

Sinking fund line items for big ticket and replacement items have also worked out well to make the budgeting process as accurate as possible.

Now I just have to keep saying no to the deal of trading in our travel trailer on a new one! This should be easy but our local dealer occasionally buts on a deal that is hard to turn down. That is how we got into camping.
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Old 08-22-2010, 08:56 AM   #9
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Since I FIRE'd I try to track every penny in a budget. But my budget is flexible in that my overall goal is to not over spend for the year. But in my mind if I over spend in one category, as long as I underspend in another to balance it out, that's fine with me. For example, I might feel more generous than I thought, and spend more on gifts than I had planned. If so, that's okay as long as I spend less on something else to balance things out.
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Old 08-22-2010, 09:00 AM   #10
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Areas where savings can be made are insurance and telecommunications bills.
I just moved my auto insurance to a different carrier and saved $200 in annual premium and also saved $300 on my house insurance.

My cable bill has crept up over the years and now that I have a cell phone I don't really need a land line. So I called my cable company and removed my land line phone and a movie package and by monthly bill went from $160 to $110. I left on a couple of luxuries like HBO, but there's room to reduce further. Heck I could get it to zero if I just used my iPhone for internet and got ride of the cable tv and just did over the air digital.

After the mortgage is paid I have 2x big ticket items, house insurance and taxes ($600/mth) and health insurance ($450/mth or $150/mth if my income is below $32k/year). After those are paid I can easily live on $1500 a month.
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Old 08-22-2010, 09:00 AM   #11
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Quote:
Originally Posted by chinaco View Post

How about you?
Do you have income/expense projections, investment projections, and cash flow projections?

I have a written line item budget broken down by basics (simple living) plus extra living (travel, education, fun) which is also my checking account register out to 2020 then 4% increases/yr from there (add a new truck every now and then).
Investment tracking spread sheets
Investment growth projections
Net worth projections.
Cash Flow Projectons
I have all this projected out until I'm 90.
History of Net worth - in total
History of actual spending - in check register
It might sound like a lot of work but very easy in Excel.

They all linked together. So, for example if I change the price of one mutual fun it changes all the other projection.

Aside from the tracking and ability to change assumptions to see the effect there is the psychological benefit. You have hard numbers. So if there is a drop in the market you have real numbers to give you perspective. For example, with all the gyrations in the market and my concern about it a/o 8/20/10 my net worth - excluding house - is only down 0.83% since 12/31/06; my first year of ER.
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Old 08-22-2010, 09:13 AM   #12
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DW and I have talked about this... a little. Of the two of us, she is the one who spends the most in pretty much any given month. We are LBYM now because it's a choice of saving 30% or 35% of our income, but not sure how much we will want to commit to LBYM in a "there simply isn't the money" kind of way - we (DW especially) like not having to count the pennies. If she's had a tough week at work, she goes for a massage and a manicure.
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Old 08-22-2010, 09:16 AM   #13
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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).
You described our modus operandi exactly.

I will admit that one of the reasons I keep some part-time work is so that I have more discretionary spending money for travel and toys like RV. We feel less guilty if we do not have to dip into our stash for non-essential spending. I am just trying to delay the inevitable that at some point we have to have a budget.
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Old 08-22-2010, 09:18 AM   #14
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We really don't budget tightly, so I know we could probably slash a fair bit from what we spend. But in reality we put enough of our income aside for both long-term investments and short-term layoff insurance that I'm not terribly concerned. I know we could probably wring a few hundred bucks a month out of our expenses if it were that much of a priority -- and when/if I no longer have my current job (whenever that will be) it will be a huge priority. I just don't feel like *right now*, being that tight with tracking every cent as long as we are blessed enough to typically have money left over at the end of the month after paying all the bills and after maxing out my 401K, our Roths and my HSA.
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Old 08-22-2010, 10:18 AM   #15
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One big-ticket item you can greatly control the cash outflows on is your car. When I bought my previous car in 1992, I did some research in Consumer Reports to see how its reliability fared. I made sure to buy one which was rated well. That car, a Geo Prism, lasted me 15 years. Only because it needed some unexpected work in its final year did I get rid of it. However, my average annual repair and maintenance bills barely exceeded $300 despite that. True, I did not drive it a lot, but I know other people who bought different cars and did not drive them a lot but had bigger repair and maintenance bills. I used similar research prior to buying my current car, a 2007 Toyota Corolla.

Akin to buying a reliable car and not having to replace it often, staying with one insurance company and being a good driver can earn you discounts not available to drivers who do not meet both criteria. I save about 35% on the full premium amount because I have been accident-free the entire 24 years I have been with my company and have taken a short accident-prevention course (not available to drivers under 55 in every state). Buying your homeowners insurance from the same company as your auto insurance will also get you an additional discount, one which is not trivial.
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Old 08-22-2010, 10:42 AM   #16
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Quote:
Originally Posted by chinaco View Post
This is a regular topic... but since I will ER soon, I thought people might express their thoughts on the subject.

DW and I have always spent less than we earned. We have splurged from time to time, made the inevitable remorseful purchase decision, etc.

However, our LBYM lifestyle has largely been due to habits learned from our parents. We have not really managed our spending to a budget.But we are careful with our spending and periodically hunt down alternative to reduce recurring expenses with a substitute or alternative.

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).

Now that we are intending to FIRE, I am intending to make accounting, budgeting and household purchasing management a priority. That is not to say we intend to go into an extreme LBYM lifestyle (bomb shelter mode). But we will manage a budget to keep much closer track of expenses and get the biggest bang for the buck on purchases.

I am almost certain, I can either lower our expense by 5 to 7% by managing it better or perhaps increase our purchase yield similarly... I suppose, some of that will be elimination of certain expenses that do not provide high benefit (i.e., things rarely used or not high on the priority list) but that is a guess at this point.


How about you?
I am not on a budget per se, but keep track of my spending and adjust as needed just as I did prior to ER. I have found that my basic expenses are only a little lower than they were when I was working. Perhaps the reason they are as high as they are, is because we eat out more than not these days.

In the coming weeks I will be spending a lot on fixing up my house in anticipation of the move we have been planning for so long. So, that ought to blow away any idea of a reasonable budget for this year. I had already set money aside for this move, just as I did for the purchase of my new car. The car cost more than I thought it would, and I am hoping that the expenses related to the move may be less than expected (nice dream, huh? )
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Old 08-22-2010, 04:18 PM   #17
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I tracked my expenses for years before I retired and I've always lived below my means so a budget is not rocket science . You have so much to spend each year according to the total of your pension , SS & money from savings . Subtract the monthly bills and yearly bills and whatever is left over is your fun , expenses & life happens money . Rinse & repeat each year !
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Old 08-22-2010, 04:51 PM   #18
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I took an early retirement offer for $21K/yr when my records showed I was spending less than that.
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Old 08-22-2010, 05:25 PM   #19
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I don't live on a budget per se but am well aware of what my fixed expenses are. I keep extra money readily available for the unexpected. Seems to have worked out so far. I am trying to streamline things as much as I can and will do so by the time I am sixty (4 years to go). I still work, could retire now but am trying to pad my bottomline until I can tap retirement accounts without penalty. It helps that I like my job and my co-workers so it is not a burden to keep at it a bit longer.
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Old 08-22-2010, 05:41 PM   #20
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I don't live on a budget per se but am well aware of what my fixed expenses are.
Same here, pretty much. I have a pretty good idea about how much we could wring out or our budget if we really wanted/needed to without sacrificing too much of what we enjoy. I'd probably try to stick to such a budget a year or two before I retire just to "sanity check" my calculations. It would suck if I retired and then realized I forgot to carry a 1 somewhere and it turned out I had to turn around and find another j*b...
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