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Spending Awareness
Old 12-28-2014, 01:15 AM   #1
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Spending Awareness

We do not track our spending so out of curiosity I just did a spreadsheet to back into it by taking income and subtracting taxes, mortgage, investments, giving, and education. Result was that we averaged $62,843 spending over the last 3 years (about the same each year).



Seems a bit high but I guess it is what it is. We are a family of 4. For many years we did quicken and did a lot of tracking of categories and such but stopped doing this a long time ago. Any thoughts on whether we are blowing our money?



We are still living below our means as we are on track to retire and have about $90,000 budget starting at age 50.
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Old 12-28-2014, 03:19 AM   #2
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As you say, it is what it is. Is your lifestyle one that fits your family and you're comfortable with? Does your income support it and building a stash for retirement? Sounds like it is. There's only two of us and our budget in retirement is higher, and yet we still put more into the portfolio pile, something many here do. But what works for us is irrelevant to your situation. What is "blowing your money?" If you have some pursuits that give you joy that I wouldn't spend my money on, and you still stay on track for your goals, I'd not consider it blowing it. Blowing money in my opinion is spending substantial chunks on things that really don't bring you lasting joy and satisfaction and prevent you from achieving FIRE goals. So I guess my advice is give it a good look in that light, and if everything is on track and you're happy, just relax and enjoy it!
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Old 12-28-2014, 06:36 AM   #3
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You are spending $62K, plus your mortgage. Be sure to pay it off, or have that much more added to the income you need. Also, be sure to account for inflation.

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Any thoughts on whether we are blowing our money?
I am not sure why you ask the question, but I suspect that you think you should have more in savings each year than you do. Is the mortgage where your money is going? You subtract it out.

Did you subtract out any 401K, IRA, Roth or other savings? Healthcare?

Start with net income, not gross. Figure out your spending from there. Deduct any mortgage payments, property taxes, etc.

Do not forget to add back in any reimbursements that you might get from payroll deductions, like tax refunds, HSA reimbursements, etc.
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Old 12-28-2014, 07:27 AM   #4
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If you are spending $63K now you should evaluate which expenses will drop off in ER (education? mortgage?). Will $90K cover taxes, health insurance, and the $63K? Will your assets return sufficient funds to safely spend $90K. If both answers are yes you are good to go. Probably still worth analyzing the $63K to ferret out any waste.
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Old 12-28-2014, 07:37 AM   #5
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Do a quick year end exercise of exporting into excel your checking and credit card transactions. Assign generic spending codes and you can get a rough snapshot of where you spend your money. I was surprised at my food, liquor and race fees expenses.
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Old 12-28-2014, 07:52 AM   #6
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Do a quick year end exercise of exporting into excel your checking and credit card transactions. Assign generic spending codes and you can get a rough snapshot of where you spend your money. I was surprised at my food, liquor and race fees expenses.
+1 I did this for a few years near when I ERd. It was very helpful for catagorizing my routine expenses so I could forecast what I could expect in retirement. After ER my predictions proved accurate so I stopped bothering with tracking. If I felt the need to cut spending back I would do it again to zero in on where I was wasting money.
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Old 12-28-2014, 11:23 AM   #7
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We do not track our spending so out of curiosity I just did a spreadsheet to back into it by taking income and subtracting taxes, mortgage, investments, giving, and education. Result was that we averaged $62,843 spending over the last 3 years (about the same each year).



Seems a bit high but I guess it is what it is. We are a family of 4. For many years we did quicken and did a lot of tracking of categories and such but stopped doing this a long time ago. Any thoughts on whether we are blowing our money?



We are still living below our means as we are on track to retire and have about $90,000 budget starting at age 50.
Not sure how your backing out those particular items is helpful in planning. Most definitely you need to track all your spending (roughly, not necessarily to the penny) so you can answer your own question. Break it into fixed and discretionary, and you can project all the expenses to what will carry through into your retirement age target.
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Old 12-28-2014, 12:32 PM   #8
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Not sure how your backing out those particular items is helpful in planning. Most definitely you need to track all your spending (roughly, not necessarily to the penny) so you can answer your own question. Break it into fixed and discretionary, and you can project all the expenses to what will carry through into your retirement age target.
Absolutely.

Besides estimating what your income will be in retirement, you must (IMO) know what you can cut back on during down economic times. Our discretionary expenses are approximately 20%.
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Old 12-28-2014, 01:31 PM   #9
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We follow the what gets measured gets managed approach. We have a budget, track spending and compare the budget to the Consumer Expenditure Survey to look for unintentional anomalies. Some of our housing expenses were higher and we were okay with that - we can't do much about that in the short term while living in a high COL area. But for food we were spending a lot and not eating all that healthy, so we've cut that down by shopping more at warehouse and ethnic stores and buying less processed and fast foods. The local ethnic stores and farmers' markets have produce for maybe 1/3 or less the price of Safeway for fresher looking produce.

Then on top of the CES comparison, we added in more sustainable and simple living ideas, and what did people do in the 1950s or do even now in Europe kinds of ideas and that lowered the budget quite a bit more.
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Old 12-28-2014, 01:45 PM   #10
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I back those out because I will not have those in retirement except taxes which will be variable based in retirement income.

The resulting number is what we actually spend. Since this result is $62k and our retirement budget is $90k there is about $30k for taxes and healthcare and flexibility.

So I'm thinking being aware in detail of spending may not be important.
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Old 12-28-2014, 01:54 PM   #11
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I back those out because I will not have those in retirement except taxes which will be variable based in retirement income.

The resulting number is what we actually spend. Since this result is $62k and our retirement budget is $90k there is about $30k for taxes and healthcare and flexibility.

So I'm thinking being aware in detail of spending may not be important.
As someone who did it your way, I would advise at least getting a little bit of a handle on where the money is going. When I ER'ed we had a larger pot than I had planned on due to an unexpected inheritance. So I just figured that since our SWR was going to be larger than our working income we were golden. And we are, sort of. But nature abhors a vacuum, and DW is a force of nature. We spent quite a bit more in our first 5 years than I had ever expected. It worked out OK, and we've leveled out since then, but I was under a lot of stress knowing our output was greater than I had planned for.

I finally did some general tracking, got a good idea how much we needed vs. how much we were spending, and was able to present the info to DW. She said "OK" and cut back, no big deal. I was the one doing all the stressing. Now I'm more laid back too, and enjoying retirement even more. YMMV.
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Old 12-28-2014, 02:09 PM   #12
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On a monthly basis I only track a few highly variable categories, like groceries, general household spending and eating out. Most of the rest like property taxes, car insurance and health insurance premiums don't really change that much on a monthly basis. We look at those annually and price shop or adjust the budget as needed.

I don't track basics like gas, haircuts or medical deductibles. Those are just basics and they are what they are. I wouldn't go to the doctor more if I was under budget on health care expenses. For big ticket items like home improvements we have an annual budget. We usually do one or two big updates a year, like a new roof or a bathroom remodel, so that doesn't take a lot of tracking. Last year we intentionally went over budget on home improvements so barring any emergency repairs this year we are doing a few smaller, more DIY updates to even things out.
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Old 12-28-2014, 02:26 PM   #13
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As someone who did it your way, I would advise at least getting a little bit of a handle on where the money is going. When I ER'ed we had a larger pot than I had planned on due to an unexpected inheritance. So I just figured that since our SWR was going to be larger than our working income we were golden. And we are, sort of. But nature abhors a vacuum, and DW is a force of nature. We spent quite a bit more in our first 5 years than I had ever expected. It worked out OK, and we've leveled out since then, but I was under a lot of stress knowing our output was greater than I had planned for.

I finally did some general tracking, got a good idea how much we needed vs. how much we were spending, and was able to present the info to DW. She said "OK" and cut back, no big deal. I was the one doing all the stressing. Now I'm more laid back too, and enjoying retirement even more. YMMV.
Another plus 1.

For dh and I, we kept track of our expenses a few years before retirement and have continued to do so (we're entering our 7th year of retirement). We agree on a budget each year...that way neither one of us is a 'good cop/bad cop'. The spreadsheet speaks for itself.

..and like harley said, YMMV
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Old 12-28-2014, 02:27 PM   #14
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I back those out because I will not have those in retirement except taxes which will be variable based in retirement income.

The resulting number is what we actually spend. Since this result is $62k and our retirement budget is $90k there is about $30k for taxes and healthcare and flexibility.

So I'm thinking being aware in detail of spending may not be important.
Here you go: Expenses in Retirement

Just add and subtract where appropriate

I made a bare bones expense budget for DH and Me a year or so before he joined me in RE by using our checkbook register for expense data for several months for a no frills, just the bare necessities version. It was eye opening and fortunately way below the income budget we were planning. That is all the tracking we have done but even that rough level of detail helped confirm we were good to go.
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Old 12-28-2014, 03:00 PM   #15
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As a LBYM'er, I never had a budget when working, but as I planned to ER, I realized that I needed to know where my money went.

With Quicken's (or other software) ability to download transactions from our checking account and credit cards, tracking and classifying expenses is so easy. I only have to do an occasional correction of an expense item, for example to move a charge from "fuel for automobile" to "fuel for RV" to better track travel expenses.

Then, by just a few clicks, I can see how much I would be able to trim off my expenses if I cut out travel, charity, gifts, or sell my 2nd home, etc... I have all that data available with a few mouse clicks while doing so little work. I love it.
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Old 12-28-2014, 03:46 PM   #16
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As a comparison point.
I'm retired - family of 4. Our budget is $84k/year. That includes taxes and charitable gifts. (those didn't go away for me.) It does NOT include education since I have separate 529's and funding sources for the 529's. It includes all the kids expenses (baseball fees, basketball fees, piano lessons, etc.)

My kids are 12 and 14 - so they'll be under our roof for several more years. I expect the budget to drop when they eventually get launched... Hopefully our health will still be with us and we can blow that extra cash on better vacations.
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Old 12-28-2014, 05:10 PM   #17
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We've been retired 8 years. Before that we tended to LYBM but weren't compulsive record keepers. Now, we check our invested NW every year or 2. If it's increasing, it's OK. Our INV is 50% greater than 8 years ago so things must be unfolding as they should.

Accounting is a job, I don't want one.
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Old 12-28-2014, 05:54 PM   #18
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We always lived beneath our means and hated wasting money, so we never bothered to track anything in detail. For the three years before retirement and two years since, I just tracked total spend, and subtracted out big one time expenses as well as travel expenses. So we have a pretty good idea of base expenses, and base expenses plus travel. Base expenses are below 3.5% withdrawal rate, and there's still areas to cut if we get nervous.

But after two years of retirement, we've found that we're spending more than expected on travel, and wouldn't mind doing more - we were on the road close to six months of 2014, having the time and freedom to travel. So it might make sense to track in more detail to find other places to cut. Even with the extra travel, net worth has increased due to fortunate sequence of returns, but I can't count on that.

Next year will be a cutback to mostly domestic travel, more camping and mountain biking. Still waiting for that first year of bad returns to see what that feels like.
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Old 12-28-2014, 07:56 PM   #19
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People who have never used software like Quicken and the like think it takes a lot of work to know where your money goes. Again, it doesn't.

Once I have set up transaction downloading from my checking account and credit cards, all I have to do is to hit "Download All" whenever I like it. I usually do that once a day because that also downloads all my brokerage and IRA accounts' activities, and I have a total of 28 financial accounts, of which only the two his/her Treasury Direct accounts and my wife's 401k cannot be downloaded.

It allows me to have at my fingertips all of my financial records, dividend payouts, stock trades, what have you. And about expense tracking, my wife already sets up autopayment for all utility bills, and once I told Quicken what category each payee was in, it remembered. So, I do not have to tell it each month that the charge from AT&T is for wireless phone, that charge from SRP is for electric for home #1, etc... And if I want to know how much I spent for water in my home #2, just a couple of clicks will summon up the total I spent on that for the last 12 months, or any other period.

I do not bother to track to finer details what I spend on toilet papers, or for toothpaste, or alcohol. All charges at Costco, Safeway, etc..., go into "Groceries and household consumables". That's good enough. Quicken knows that when I spend money at a gas pump, it is for gas. I do have to go in to separate out what is for normal car driving and what is for RV travel, because the latter amounts to $5K+/yr easily, and I need to know.

For investment tracking, it is also great to have to do nothing to know what my returns have been, and how each investment vehicle has done.

And finally, any erroneous or fraudulent transaction on any account would show up right away. I am always on top of what's happening with my money. One glance at the screen and I know what is amiss.
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Old 12-28-2014, 10:18 PM   #20
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People who have never used software like Quicken and the like think it takes a lot of work to know where your money goes. Again, it doesn't.
I have used MS Money to track investments for years, but I never took the extra step of tracking income and spending. (And now, with MS Money no longer supporting on-line updates, it's not an option anyway.)

At the beginning of this year I signed up at one of the online money management sites, linking my checking account and the credit card I use for most of my day-to-day spending. It's easy, and I'm looking forward to having almost all of my spending data in one place for some end-of year evaluations.

Improving tracking of spending was a 2014 New Year's resolution. Checked that off, and I'm glad I did. Many of the features that NW Bound described were a bonus.
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