Best Practices - Lumpy Expenses

[SecondCor521]

My situation may be too singular to be relevant, but I've been taking out to the top of the 12% bracket and dumping the funds into a Schwab brokerage account. The account retains what we don't spend so has doubled over the last 3 years.

I've invested it in Vanguard Total World ETF and a few income and stock closed-end funds, with 20% in a short-term muni CEF (It's up about 10% in 2.5 years but did take a short-term hit in March) that I can cash out in an emergency and 20% in cash, so I've got about 40k in available cash for emergencies/large purchases.

The CEF distributions dump into cash, so the cash pile will grow, to the point I'll eventually start putting cash into another short-term bond or floating fund and then the ETF and a few more CEFs. This allowed me to do tax-loss harvesting in March where I sold several CEFs I had bought in previous year (at a loss) and immediately bought somewhat similar CEFs on my list. When I estimate taxes in December, I'll probably pull more money out of the 403b since the tax loss will allow me more withdrawal room up to the 12% tax line.

After I begin drawing SS in 4 years, I intend to contribute some excess funds to the grandson's college fund and increase charitable contributions.

Unless you have a need for those taxable funds or want more money in that pot, you might be better served by doing Roth conversions to the 12% bracket instead of withdrawals to the 12% bracket. You'd get tax-free growth but would of course lose the tax loss harvesting. Something to think about anyway; maybe you already have.

 

[brett]

We don't have a budget. We have budget estimates. Not by expense item but by monthly/annual after tax spend. Less than five minutes a month to take a take on our bank statement.

We don't consciously budget an amount for capital items or repairs that occur on an intermittent basis. We see no point in either. We know they will happen, we use our savings to cover them when necessary. Fridge packed in in this month. Just paid for it as normal. No separate bank account, notional or otherwise.

We cannot imagine having a spreadsheet broken down by every category of our spend patterns. No point for us. We monitor our expenses, adjust when necessary, and move on. Don't care if we spend 8 percent more YOY on gas, food, etc. Even if we did it would not impact our future consumption decisions.

 

[Koolau]

I certainly have no criticism of bucketing for "lumpy expenses" or doing "buckets" in general for all of investing. I looked at doing something like that prior to FIRE. I rejected that method as being more "w*rk" than just investing and keeping a significant cash/checking account (as W2R described.) If I need a car, I'll write a check for it. Yes, I'll lose some investment results, but I'm not likely to need to withdraw at an inopportune time.

Whatever works is great as long as it promotes FIRE so YMMV.

 

[Rustic23]

We built a new home to retire into. Therefore, I have a pretty good idea as to the expense of things that would need replacement. I spreadsheeted those expenses and and others, boiled them down to a number that would need to go into savings for replacements. That has goes into a money market. It has worked well. A roof got replaced by insurance, but other expenses are close to on schedule. Therefore, I have moved additional funds into the market, and now keep enough in the MM to cover the largest expense plus a fudge factor.

 

[Markola]

For about a dozen reasons I won’t rehash, we prefer having a dedicated Vanguard advisor. One reason is anticipated lumpy expenses, which he simply drops into the software in whatever future year we expect to spend. I then do the same to double check it in the free Personal Capital retirement planner, which has an elegant interface that I like.

 

[mickeyd]

One of the best things about living here in our CCRC is that after paying the monthly bill most of our big stuff is paid for. We only have to go grocery shopping (online) once or twice a month and pay the Visa bill as it comes in (automatic).

We generally have enough from SS,VA dis and pensions to pay for all of the above. When we start traveling again (hopefully soon) we will have a rather large cash-stash to bring into play.

Life is good.