Poll: How do you budget?

[jollystomper]

Our budgeting process changed as our financial situation changed.

When we first decided to get hold of our spending and deliberately become LBYMers and savers, we kept a strict line item budget across perhaps 20 categories. That was the only way we could start discipline in our spending. We made lifestyle changes to accommodate the budget.

As we became better at saving and LBYM, we loosened to more of a general budget, focusing on the categories of largest controllable expenditures. We also became better in knowing when infrequent expenditures might hit (e.g. getting new major appliances), saving for them, and factoring that into the budget.

When our income increased, if we increased our budget, it was at a much lower percent that the increased income percent. Also, my job usually had a bonus component; we never budgeted based on potential bonuses, only on my base salary. That way, when I did get a bonus, we could frivolously enjoy some of it (if we had sometime in mind) and save some of it.

When it was clear that we had LBYM under control, and were saving at a very high rate (due to both controlling expenses and increased income), we moved to more of a "savings rate" budget - that is, we started with an amount that we wanted to save/invest (with FIRE in mind), and just monitored overall expenses to achieve that savings rate.

Now that I am retired and no longer in the accumulation phase, we have a "cash flow" budget. Based on our planned expenses I budget the required SWR from our cash, and track how we are measuring against it. Since we have a comfortable retirement it is not so much to be strict, but just to ensure we are not going wildly overboard when we choose to "blow that dough".

 

[ILikeStarTrek]

Similar to what several others have said:
I have never done a budget because I always did LBYM. I would periodically look back at what my expenses had been for a given time (usually on an annual basis), and if I got the sense that I wasn't increasing my savings as fast as I expected, I would try to figure out why, but typically I never had to change any spending habits because I am frugal by nature. When I was getting ready to retire, I went back and looked at my categories & amounts of expenses over the previous 2-3 years in order to project my expenses forward (and make adjustments for retirement) for Firecalc.

The biggest difference / change with me is, now that I'm retired, I'm taking about 1 week-long vacation per month, so my travel expenses are through the roof compared to when I was working. I tried to account for this when I was projecting my retirement expenses. I'm coming up on one full calendar year retired. At the end of the year, I will pull my financial data and see how my actual expenses this year compared to what I projected. If I find that my spending was far higher than anticipated, then before I get in trouble with a too-high withdrawal rate spanning multiple years, I suppose I would have to choose between cutting back / being more efficient on the travel expenses or getting a part-time job. But my impression (based on how much money I'm pulling out of my investment accounts to cover my spending during the year) is that I'm doing okay. Thus I'm still not doing a budget but I am looking at my expenses in hindsight to make sure my retirement lifestyle isn't breaking the bank.

 

[Cobra9777]

When we were both working, we struggled with this a bit. Like OP, we "paid ourselves first." But my goal was to maximize saving beyond that. We tried different approaches to budgeting, but with both of us working and two kids, there was no patience for anything too onerous or time-consuming.

Eventually, I just settled into a routine of tracking monthly spend by category in a spreadsheet. If something was getting high relative to recent history, DW and I discussed it. We either agreed to work on reducing it or just accepted it as a new baseline, usually the latter. The kicker for us was that as our income grew over the years, most of it went to increased savings rather than lifestyle creep. We did increase spending a bit here and there but at a significantly lower rate of growth compared to income.

In retirement, I started off carefully tracking every penny by category, mainly just out of nervousness once the big paycheck stopped. But now, 6 years later, I just use Fidelity Full View to track actual spending, which requires no effort on my part except scrolling through to validate. I don't use the budgeting function at all and I pay little attention to categories. Main concern is whether total spend is on-track for the year. Monthly trends are meaningless as some of our biggest expenses like property taxes and insurance are paid once a year and the timing of discretionary spend is highly irregular.

Our base, non-discretionary spending is very stable and seldom requires any discussion or action. For discretionary, DW and I start off each year deciding how to use these funds, which are roughly one-third of total spend. Some years we travel a lot. Some years see lots of home improvements. Some years include a new car, furniture, hobby toys, etc. We have a total annual spending target and we just adjust the discretionary plan to land somewhere in that neighborhood. That's about as close as we get to any kind of actual budgeting.

 

[street]

No budget just LBYM.

 

[T-Minus]

Strict budget here. Well, technically two budgets, but I’ll get into that later. I took the best parts of YNAB 1.0, Quicken, and my custom Excel spreadsheet, and created a retirement budget tool that tracks monthly spend on a per-category basis - carrying over various category balances month-to-month. DW and I each get our monthly individual, non-tracked spend, then the shared categories get the rest. So, we each have the freedom to spend our individual cash in an untracked manner on whatever we want. For shared expenses, whether it’s the car replacement fund, medical insurance, cell phones, property tax, Christmas, travel, whatever...everything has a category, planned due-date, and a monthly contribution.

Why two budgets? One is my allowed and anticipated spend. The other is my SHTF budget that DW and I discuss and agreed upon yearly during our financial review...just in case of some sort of black swan event. It drops our current spend by 20% by reducing non-essential items (i.e. travel, dining out, extending car replacement schedules, cutting Netflix/Spotify, etc.). And no, we won’t have to live in a cardboard box or eat dog food.

I’ve been retired for 2 years now. I may back off on the budget restrictions in a few years, but for now, it’s just who I am.

 

[Markola]

https://www.youneedabudget.com/



You can try it out for free, IIRC.

Thanks for the assist, W2R. YNAB (You Need A Budget) is a popular, user-friendly app with lots of education support online. I’ve been using it for about 7 years and think highly of the product. Using it has saved us thousands and the control of our money is priceless. I actually look forward to opening it up everyday and assigning the latest auto-transferred checking account transactions into their appropriate categories, per their “give every dollar a job” approach.

 

[easysurfer]

I budget using software and selected strict.

 

[rodi]

When working and in the accumulation phase it was always 'pay myself first'..... Budget included maxed 401k as well as 529 contributions up front, and all the other expenses came out after. By... that got me used to living on a lot less than most of my coworkers... (but I retired younger than them.) I tracked my expenses so I had a good idea of what I'd spent in each category the previous year.

Now that I'm in the withdrawal phase (retired) I don't 'pay myself first' because I'm pulling OUT Of savings. But like others have said - I have a good idea of what the coming year spending will be, and use that for planned spending for the coming year. If we have a bigger vacation planned, then I adjust the budget to account for that. If we have a change in household status (like older son living in a dorm = noticeably less groceries) I adjust the plan for that.

I spend what I want... but if we spend more than planned I tend to pull back the spending in other areas to account for it. For example this summer's trip to Italy was more expensive than I'd budgeted... so we postponed some of our discretionary spending for about 6 weeks. It's all good.

 

[SkisALot]

We stick to a yearly budget with inflation added. Around 30 years ago I started "funding" every fixed expense a year in advance so that when the bill arrived we had the entire amount to pay set aside. I keep a balance sheet and now I'm 5 years ahead. I realize others can't do this; it was difficult to implement. We went 2 years not buying anything but necessities in order to do it.

 

[Teacher Terry]

We have a fairly strict budget but do spend outside of it when it's important to us. That's what our savings is for.

 

[dirtbiker]

We stick to a yearly budget with inflation added. Around 30 years ago I started "funding" every fixed expense a year in advance so that when the bill arrived we had the entire amount to pay set aside. I keep a balance sheet and now I'm 5 years ahead. I realize others can't do this; it was difficult to implement. We went 2 years not buying anything but necessities in order to do it.

This is a great idea. I think I might do this as well. Since we don't budget and pay ourselves first as our budget, when the bigger fixed expenses come in, it does squeeze us a bit (nothing terrible, as we do LBYM and know they are coming).

Do you do a separate account for each fixed expense? Or just one account that you dump into for all the expenses?

 

[dirtbiker]

The poll results surprised me, as I assumed that nearly no one would have chosen the 'no budget' option here. However, I forget that a large majority of people here are already retired, and that probably sways the results this way quite a bit. I wish I would have worded the poll to say how did you budget when still working.

 

[RobbieB]

I didn't budget when I was working either. But I did spend less than I made, paid off the house, maxed out the Co 401K, filled up the broker bins...

The only feedback I used was looking at the monthly checking account statements. As long as they were going up, I was spending less than I made.

 

[Jeffman52]

DW and I use a loosely defined zero target budget. But we are both still W*** and thus our 'extra' income goes directly into our retirement. We have many things on auto-pilot (like charitable giving and our 401K) But we also budget for money to "fun" things and to go on vacations. But our loose budget brings all income to zero (to know where all the money is going) and we check it every month just to make sure we haven't gotten off target.

As we get closer to retirement and after we retire, we will have to be more diligent about the budget (especially early on) since there is no longer any income generated outside of our investments, so going off course could be costly.

 

[mountainsoft]

My "budget" is a one page Word document that lists all of our monthly expenses at the top (garbage, electric, internet, netflix, etc.). Then I have our annual expenses listed at the bottom (auto licenses, home insurance, property taxes, etc.). However, this document is more for reference than being an actual budget that guides our spending. I rarely even look at it other than recording our annual expenses.

All of our expenses get billed to our credit card (utilities, groceries, clothing, recreation, etc.). I pay off the card in full once or twice each month so we can earn 2% cash back on our purchases. We don't really budget what gets spent, we just live at a level that is comfortable to us. If we spend too much one month, we intuitively know to spend a little less the next month.

All income (paychecks, etc.) gets deposited to our checking accounts automatically. I try to keep a minimum balance of $2500 in each of our checking accounts, for gas and any urgent spending needs that can't wait for a 2-3 day bank transfer. This also prevents the bank from charging a monthly service fee. Any extra above my $2500 minimum gets transferred to our savings account.

Our savings account is a high interest (1.8%) savings account at Discover. This is our emergency fund to cover unexpected expenses, like a new mattress, water heater, etc. I only keep about $20,000 in our savings account. When the balance gets above that, I invest the extra in our taxable brokerage account.

Each January I transfer $7000 from our brokerage account to each of our Roth IRA accounts.

 

[SkisALot]

Do you do a separate account for each fixed expense? Or just one account that you dump into for all the expenses?[/QUOTE]

I use multiple accounts just to spread the money around because in 2008 when the banks started failing we had to wait a while for the Feds to "give" us our money. It actually doesn't matter where the money is as long as the assets and liabilities columns match on the balance sheet. When they don't I know I've messed up.
One word of warning if it's a warning: As the years go by we've ended up with a lot of cash (the funds - liabilities - include anything that's not paid on a monthly basis such as estimated taxes, travel, and vehicle purchases). It can be a convoluted system but it allows me to sleep very well.

 

[SkisALot]

The poll results surprised me, as I assumed that nearly no one would have chosen the 'no budget' option here. However, I forget that a large majority of people here are already retired, and that probably sways the results this way quite a bit. I wish I would have worded the poll to say how did you budget when still working.

I budgeted the same way when we were both working.

 

[brett]

We did not budget when we were working. We always saved a little. We spent what we had and avoided credit, other than mortgage, like the plaque.

I really think this comes down to the type of person you are.

 

[tinlizzy]

X amt for entertainment, x amt for clothes etc was never my style and felt tedious.

I paid myself first instead. It took some trial and error but I started by transferring a lump sum from my savings (emergency fund) based on what I thought I could live on every month. So it was an annual lump sum that went into checking the first year and I set up my direct deposit to go into savings.

I was short the first year because of large payouts like property taxes, insurance, a vacation but that test year allowed me to hone in on an amount of money that I could live comfortably on and still be LBYM and every subsequent year has been easy.

It was very freeing to not have to think about spending anymore. I was saving most of my salary and still allowed to spend everything in my checking acct. I think paying yourself first takes away any feelngs of deprivation. It also really allowed me to focus 100% on investing the money.

 

[El Jacinto]

I'm obsessive-compulsive when it comes to budgeting. I have a spreadsheet that estimates my budget for the next 12 months so that I can invest every additional penny.

 

[ChrisC]

No budget when working or when retired. Just kick the tires and see if all of them are inflated -- take a gauge once in a while to see if the pressure is still in tact. I never felt the need to budget but we are aware when we're paying too much for some things. We've been lifetime savers, in any event.

 

[Mmm Rrr]

The poll results surprised me, as I assumed that nearly no one would have chosen the 'no budget' option here. However, I forget that a large majority of people here are already retired, and that probably sways the results this way quite a bit. I wish I would have worded the poll to say how did you budget when still working.

I think some people like a budget and others don't. I chose "no budget" and am retired.

When I was working I set up automatic contributions to my 401k and IRAs, lived below my means, then just swept anything leftover into my savings/investment accounts.

Now that I am retired I pay a bit more attention to what I spend, I periodically set up a budget, but I don't track to it month to month, or even year to year.

 

[calmloki]

I have a hard time with "pay myself first." Not sure what that means.
....

Pay yourself first has always bothered me. I get that it means focus on saving first, but it is totally opposite my activity. I have obligations - those are addressed first and if anything is left it is saved. Lucky enough to have adequate assets that it isn't a strain, but there were earlier times when it got real skinny. Didn't matter. Pay the bills first, luxuries or discretionary items come after that - and saving for something years in the future ranked as discretionary. If I had kids or was starving my view might have been different.

Oh - and no budget now, nor need of one. When Gal and I first got together she saw a two-week back of envelope budget I had done that covered house payment, utilities, food.. and $5 for fun. How could she resist such a high rolling big splash dude?

 

[dirtbiker]

Pay yourself first has always bothered me. I get that it means focus on saving first, but it is totally opposite my activity. I have obligations - those are addressed first and if anything is left it is saved. Lucky enough to have adequate assets that it isn't a strain, but there were earlier times when it got real skinny. Didn't matter. Pay the bills first, luxuries or discretionary items come after that - and saving for something years in the future ranked as discretionary. If I had kids or was starving my view might have been different.

Oh - and no budget now, nor need of one. When Gal and I first got together she saw a two-week back of envelope budget I had done that covered house payment, utilities, food.. and $5 for fun. How could she resist such a high rolling big splash dude?

I have obligations too. Funding my future retirement is my number one obligation. So I address my number one obligation first too. Then I pay bills. Then discretionary items come last. I'd rather miss a bill payment than to miss a retirement payment.

 

[Bir48die]

Before I retired I created budget spreadsheets. Used Mint and my bank/credit card statements to reconcile at the end of the month. Developed an income statement with 20 years projections including estimated taxes. All these gyrations helped me develop the confidence that I could retire.

I decided to stop tracking and just fund a years worth of expenses to deposit in MM to see if I could live off that. Have repeated each year. Pay myself twice a month so I don't dip into the coffer. So far so good. When tax time comes and we get a little back we have the discretion to either take an additional trip or put it into a project/repair.