Retirement budget: Do you budget clothes, gifts, etc?

[street]

I don't use a spread sheet either but I do include all expenses to find that number. I was right on the money with expenses for the first year of retirement.

I add to my monthly expenses 250 for incidental expenses and add another 250 to pad my expenses for stuff unseen. So 6000 a year extra more a detailed a yearly expense audit. Last year worked spending was right on target.

[GreatLaker]

This is my first year in retirement, so not a lot of history to base my retirement spending on, other than pre-retirement history. I use Quicken and budget maybe 20 big categories: car maintenance, gas, insurance, clothing, food, dining out, insurance, property taxes, income taxes, vacation, gifts, utilities etc. I don't budget small items like coffee, haircuts, booze.. they just go in a big category called misc-other. If I run under my misc other budget, then I can splurge on something. I first developed disciplined budgeting with my original real estate purchase, which forced me to manage spending and saving carefully.

I don't specifically budget for car depreciation, house major expenditures (roof, driveway, appliances, furnace etc). For those items I estimated how much they cost, how long they should last, and estimated annual cost. I have a savings fund or sinking fund to put money aside for them. In my case that is $5,000/yr.

I will use Bogleheads Variable Percentage Withdrawal (VPW) method to determine annual spending allocation.

Time will tell how well this will work for me.

[daylatedollarshort]

I have an amount I budget every month for clothes, gifts and household items which I track monthly. I used to have a reserve fund for cars but I took that out of the budget. Our cars are probably good for 200K miles between them and we drive less than 10K miles a year, so I'm not even sure if we will need to replace them. We do we have a lot of buffer in our plan so the replacement costs will just come out of that. We would just trade in the current cars for probably 2 year old good value Camry type cars so the net difference for newer cars just won't be a big budget buster.

[Winemaker]

I don't have a budget; but I did track basic expenses for 5 years prior to FIRE. DW and I were satisfied with our income and spending prior to retirement, and I sought to merely replace our net paychecks with net retirement income checks. It has worked well for 33 months.

We have several years before we turn 62, 7 years before the home mortgage is paid off and currently a $20,000 health care insurance bill. We currently plan for DW to take SS at FRA.

[pb4uski]

Quote:

Originally Posted by Shabby I am constantly revising my retirement budget as I am super close to pulling the trigger. I am wondering how you account for things like: Toy/Fun Purchases Gifts Clothes ATM/Other Also, I assume I should have these: Healthcare Car Depreciation Trips Thanks,

Yes (in miscellaneous), yes, yes, and yes
Yes (both premiums and typical deductibles), yes (in lieu of a car replacement reserve) and yes.

[pb4uski]

Quote:

Originally Posted by gerntz If you LBYM, you are by default budgeting.

Absolutely not.... ... the federal government has a sophisticated budget but still deficit spends... LBYM and budgeting are two entirely different concepts.

That said, if someone wants to LBYM then a budget can be a good tool to achieving LBYM.

[pb4uski]

Quote:

Originally Posted by Shabby I only buy cars for cash and they don't last forever. So budgeting cost of car/life expectancy seemed normal. Ex) $40k/8 Years is 5k a year.

+1 by including depreciation in my budget, I am implicitly including depreciation in my expenses used in assessing if we "have enough" that we will periodically replace our cars.... and since expenses are inflated in doing those assessments, the practice also provides for increases in car prices at the rate of inflation.

[GreatLaker]

Quote:

Originally Posted by pb4uski +1 by including depreciation in my budget, I am implicitly including in my expenses used in assessing if we "have enough" that we will periodically replace our cars.... and since expenses are inflated in doing those assessments, the practice also provides for increases in car prices at the rate of inflation.

Do you then put that depreciation amount into savings to fund eventual purchase of a new vehicle? If so it is similar to my concept of a separate savings fund to pay for large non-periodic expenses. I put it in a low-cost balanced mutual fund. Good idea about increasing the amount annually to account for inflation.

Maybe a semantic difference, but depreciation is writing down the cost of an existing asset, not saving for a new one. But whatever way of looking at it that works, as long as the funds are there when you need them.

[pb4uski]

As a CPA for 40 years, I think I know what depreciation is without your explaining it to me.

My point is that including depreciation is a proxy for a saving for car replacements... or to use Shabby's example, if I include $5k a year for depreciation in my expenses then my plan would implicitly provide for replacing a $40k vehicle every 8 years... if I include $5k a year in expenses or $40k every 8 years it isn't going to change the conclusion in assessing whether we "have enough" and it is a lot easier to simply include $5k a year.

I include depreciation in the expenses I use in assessing whether we have enough but I do not necessarily include them in our withdrawals, one car we paid cash for so it was a special withdrawal and the other we financed at 1.9% so it is implicitly included in our withdrawals for spending.

[traineeinvestor]

For several years before retirement I used to track expenses quite closely by various categories.

Post retirement, I generally take the lazy approach of only looking at how much cash is going out of the bank accounts each month (excluding investments). I also make accruals each month for things like taxes, long term maintenance and and an annual allowance for frivolous luxuries (typically underspent).

[sengsational]

Quote:

Originally Posted by GreatLaker Do you then put that depreciation amount into savings to fund eventual purchase of a new vehicle?

Quote:

Originally Posted by pb4uski I include depreciation in the expenses I use in assessing whether we have enough but I do not necessarily include them in our withdrawals

When you work a non-cash transaction into your budget, isn't that called an accrual?

[UtahSkier]

I use the budgeting feature Quicken lifetime planner and more than 75 categories. For clothing, I have 3 subcategories; dw, mine and jewelry.

Most transactions are made with a credit card and are automatically entered.

As for deprecation, I treat the purchase amount as part of spending from the portfolio. I then have an asset like my motor home that is part of my net worth, but not my portfolio. I have a monthly automated entry that depreciates that item $1000.

[pb4uski]

An accrual is typically where you post an expense for an incurred but unpaid expense... for example, if one was anal about accounting then you would accrue for electricity that you have used from your last billing date to the end of the accounting period that has not been billed. Also, unpaid bills for past services or goods received would be accrued... like accounts payable, unpaid credit card charges, etc. Typically, an accrual results in a charge to expense and the establishment of a liability.

Depreciation is not an accrual since it does not result in a liability, but rather in reduction of an asset.... it is more accretion then accrual.

Depreciation is simply reflecting in expenses the cost of an asset over the periods benefitted by the use of the asset.... but you are correct that depreciaiton is a non-cash charge.

[pb4uski]

Quote:

Originally Posted by UtahSkier I use the budgeting feature Quicken lifetime planner and more than 75 categories. For clothing, I have 3 subcategories; dw, mine and jewelry. Most transactions are made with a credit card and are automatically entered. As for deprecation, I treat the purchase amount as part of spending from the portfolio. I then have an asset like my motor home that is part of my net worth, but not my portfolio. I have a monthly automated entry that depreciates that item $1000.

Very similar here but I have fewer categories, but I do have automatic entries for car, boat, jet-ski and snowmobile depreciation. I don't consider depreciation part of my spending technically since it isn't cash out the door, more like a proxy for the ultimate replacement of that asset.... as if I had a separate side kitty for replacement.

[Bir48die]

I have four accounts:

Travel
Everyday (normal bills, charity, gas, health insurance, etc)
Taxes & Insurance
Other (co-pays, auto repair, home projects/furniture, unforseen spend)

In my budget all the sub groups are estimated. I tracked for about a year and lost interest. I love having a bucket for projects/repairs because when the unexpected happens it is generally covered. I will dip into taxable if it a huge project.

[karen1972]

well I've used Quicken since 1997, sometime in the last 10 years they updated their categories and updated them accordingly.

• For fixed items I set them as fixed. ie HOA fee is $135/month.
• For discretionary where I have no idea what month I may spend what, I set a $ at the beginning of the year and it rolls over, ie. I expect to spend $5K on vacations and travel this year.
• For variable items such as utilities, I also use rollover but set an average each month, so its only showing the delta. ie water/waste is $58, but last month it was only $48 so I'm +$10

Then at the end of the quarter,/year I only actually look at the total, see how far off I am, and if I overspent, then go back and see what the big hitters were and see if I have to re-adjust..

ie my father passed this last month and we spent $2500 extra in travel but it fits in our $5k allowance, just means we will have to cut one of our fall trips short.
I've already used 75% of the car repair budget, but thats ok because I had the 90k service done so likely only 1 oil change for the rest of the year and we'll be under for the year.

My goal is just to ensure expenses are under my 3.5% WR.

Categories are by major (minor):

• Travel (food/lodging/transport)
• Food&Dining (Grocery/Dining/Liquor)
• Utilities (Water&Waste/Electric/Gas/Cable(which I include netflix, etc)/Cell)
• Health/Fitness (Health Insurance/doctor bills/dentist/eye/pharmacy/chiro/gym/etc)
• Homeowner (HOA/Repairs/Property Tax/Mortgage/Home Insurance)
• Auto (Insurance/Repairs/DMV fees/Fuel/Tolls)
• Pets
• Shopping (generally only split out clothing,furniture,electronics,other)
• Entertainment
• Gifts and Donations

[UtahSkier]

Quote:

Originally Posted by pb4uski Very similar here but I have fewer categories, but I do have automatic entries for car, boat, jet-ski and snowmobile depreciation. I don't consider depreciation part of my spending technically since it isn't cash out the door, more like a proxy for the ultimate replacement of that asset.... as if I had a separate side kitty for replacement.

I don't consider depreciation an expense at all as the amount did not affect the portfolio. Depreciation only affects Networth.

Item replacement (new car) has nothing to do with the existing asset or depreciation. It is just a future expense. In quicken, I use the 1 time expense feature and withdraw money from the portfolio on a date ($40K on 1/1/2025).

This kind of major expense is not a part of the budget. Having an accruing budget for such an expense would be technically more correct (I actually do this for pets), but I get good results with my strategy.

[pb4uski]

Quote:

Originally Posted by UtahSkier ....but I get good results with my strategy.

As do I with mine.

[scrabbler1]

I split my spending into 3 broad categories: car & housing, medical, and everything else. Car & housing includes easily quantifiable regular expenses such as my monthly co-op maintenance, home and auto insurance, car maintenance, cable TV, internet, landline phone, and electric. Medical includes health insurance, medical copays, and other medical stuff such as my diabetes testing equipment. Everything else is.......anything not mentioned.

[GravitySucks]

Quote:

Originally Posted by rodi I do have spending categories for clothing - but it is for a family of four... This category started to creep up when DS suddenly developed awareness of fashion... then I introduced him to goodwill and it dropped down again. LOL.

With two daughters I didn't even realize what DW was paying for new clothes out of her pay check until my girls were talking about how much they appreciated all she did at the wake.
When I was a teen boy I had no care about clothes and fashion and found it odd when the other guys started talking about shirts and stuff. (other than I wanted Levi jeans and Converse All Stars.)