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What to do with budget surplus
Old 12-28-2015, 08:45 AM   #1
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What to do with budget surplus

DW and I are finishing up our first calendar year as FIRE folk (we are 53 and 51) and it looks like we will be about $800 under budget (about 1.6% of our budget). Makes me proud of our forecasting ability, especially as it included a nice anniversary trip to the Caribbean in August. My natural inclination is to just note our results and move on to the next year, already budgeted. DW would like to get more utility out of that money. So I'm wondering what other folks would do/have done, since this will come up once a year for many years to come (and who knows, we might even face a budget deficit at some point). Would you:

a) Note the results, smile and move on
2) Add the surplus to next year's budget
c) Spend it frivolously in the next three days
4) Spend it in the next three days against some expected upcoming expenses
e) Put $800 cash in your wallet and see what happens
6) Something else

Thanks, and Happy New Year!
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Old 12-28-2015, 08:51 AM   #2
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a)
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Old 12-28-2015, 09:01 AM   #3
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I would chose 2 but "a" works as well.
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Old 12-28-2015, 09:07 AM   #4
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(a) Our budget is just a target to let us know what are reasonable bounds for our expenses given our assets. I expect we'll underspend some years and overspend others. As long as the average is reasonable, we'll just keep on plugging. If overspending too much, we'll cut back expenses. Our budget includes the target number which is what we'd normally expect to spend in a given year. It also includes a high end number that I-ORP and Firecalc suggest our assets could sustain. Don't expect we'd make any adjustments unless that latter number was exceeded.
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Old 12-28-2015, 09:32 AM   #5
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Congratulations on finishing your first year of ER, under budget!

I'd choose a), but I would also buy myself something fun but totally unnecessary, for under $50, in the next three days. Sort of a "Good for me, I'm doing the right thing with the rest of this excess" present to myself.

Then I'd move on to 2016.
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Old 12-28-2015, 09:35 AM   #6
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a)
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Old 12-28-2015, 09:44 AM   #7
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Old 12-28-2015, 09:46 AM   #8
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Increase next year's budget by $800 and smile, and spend it on something frivolous if you like at any time. Consider this a bonus!
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Old 12-28-2015, 09:51 AM   #9
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(a)

This would make a good Poll question.
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Old 12-28-2015, 10:03 AM   #10
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We do (a).

But, we also have a emergency fund that we can draw from if we go over our budget. If you don't have such a fund, you could start one. Your estimate is really close to your actuals, so there is a chance that you'll go over in some years. You could use the fund to bridge the gap.
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Old 12-28-2015, 10:23 AM   #11
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If you are only 1.6% below budget, I would definitely NOT spend it. $800 is peanuts in the scheme of things.

Next year you may be over budget. I suspect your first year in FIRE you were walking on eggshells and wondering if the parachute will actually open.

Invest the $800 to get additional funds in the future. Or just save it.

What budget items were you most off on? Be sure to adjust your 2016 budget down by $800 on those items, as now you do not need that money.

Great job!
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Old 12-28-2015, 10:30 AM   #12
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cookie jar reserve or option (a)
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Old 12-28-2015, 10:55 AM   #13
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Reduce next year's budget by $800. Duh!
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Old 12-28-2015, 11:15 AM   #14
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Thanks everyone! I appreciate all the insight. I warned DW that it might skew toward (a) but there is enough variance to give us food for thought. Especially the emergency fund, cookie jar, and damned furnace breaking...that's just how this year started, except it was the water heater and washing machine. And DW is looking for that small frivolous expenditure to cap off her year...which she probably deserves as she has put up with me over the past year as we navigated FIRE.
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Old 12-28-2015, 11:16 AM   #15
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Quote:
Originally Posted by walkinwood View Post
We do (a).

But, we also have a emergency fund that we can draw from if we go over our budget. If you don't have such a fund, you could start one. Your estimate is really close to your actuals, so there is a chance that you'll go over in some years. You could use the fund to bridge the gap.
I'm curious, do you keep this emergency fund actually separated in its own account, or spreadsheet, or is it more of a mental thing?
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Old 12-28-2015, 11:19 AM   #16
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Quote:
Originally Posted by calmloki View Post
Reduce next year's budget by $800. Duh!
Bah humbug

I say a) but with a modification that takes 10% ($80) to fund a celebration outing; celebrating both the underage and the fact that you had a very successful first year of FIRE. Congrats!
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Old 12-28-2015, 11:32 AM   #17
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I'd choose a), but I would also buy myself something fun but totally unnecessary, for under $50, in the next three days. Sort of a "Good for me, I'm doing the right thing with the rest of this excess" present to myself.
+1
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Old 12-28-2015, 11:55 AM   #18
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I just did a quick taxcaster and found I had a refund coming. I moved more into a Roth. So you could prepay some taxes with that money.
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Old 12-28-2015, 12:06 PM   #19
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I would put it in savings for a rainy day and keep track so that when I hit an unexpected expense in the future, it will help. I would not celebrate because like Senator, I consider making a budget exactly to be a fluke.
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Old 12-28-2015, 12:12 PM   #20
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Do whatever the DW wants.
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