Budgeting and extra income

[someguy]

How do (or did) you handle budgeting gravy? Say you've got a budget and plan in place that has you FI in 10 years. You've executed it faithfully for several years and find that your income growth has far exceeded inflation. Do you put all of that surplus into savings toward FI? Some of it? None of it?

On a ten-year timeframe even a relatively large uptick in savings rate only knocks a year or two off.

 

[Katiek]

If I get unexpected income from some source, I'll apply most of it to my regular ongoing plan and figure that helps offset potential unexpected losses/expenses, but I will use some small portion of it for a treat such as a vacation

 

[2017ish]

It really comes down to whether you'd like a little lifestyle inflation, or want to be solely focused on FIRE. We inflated our lifestyle a little over the years, but saved the bulk of the increased income--apart from the years we cashflowed the college expenses, which are now (thankfully!) complete.

(N.B. We didn't ever have a "budget," and our plan was for 20-25 years, but I think the principles are generally applicable)

 

[W2R]

Up to you. My choice was to put all of it towards FIRE, but different people might choose differently.

 

[MichaelB]

Up to you. My choice was to put all of it towards FIRE, but different people might choose differently.

Same here

 

[FIREd]

All extra income was directed to savings before attaining FI. Then we allowed ourselves a little lifestyle inflation while still saving quite a bit.

 

[someguy]

Those of you saying all toward FIRE: why did you choose that? Were you in a job you hated or disliked strongly?

If I were to spend any gravy, it would be toward renting (leasing) a second home somewhere warm and it would be less than a quarter of the gravy and relatively easy to undo (yearly lease).

 

[MichaelB]

Those of you saying all toward FIRE: why did you choose that? Were you in a job you hated or disliked strongly?

For us, two reasons. First, we had a "save first" mindset from the beginning, so extra money always went into savings. Second, it's too easy to spend more money, soon enough it becomes part of your "basic needs".

Edit to add - I didn't save to FIRE, just FI. RE came later.

 

[Meadbh]

I invested it for FIRE with the exception of one lifestyle investment, a fractional interest in a vacation property, 11 years ago. The property has given me many weeks of enjoyment and continues to do so.

 

[Davis65]

For me it's always been about FIRE. My first serious plan showed us finishing work in June 2019. As I refined the plan, saved more, got better returns, I adjusted it down in six months increments until last summer when we moved the date for the *last* time to end of June 2016.

Now that that the date is one year away (because I did one more small adjustment to end of May 2016), I am so glad that I am not sitting here looking at June 2019.

 

[hnzw_rui]

I've actually been spending my raises so far but going forward (expecting some step increases due to a recent promotion), I plan to do at least half and half or put majority of the raise towards retirement. Unfortunately, I've been letting lifestyle bloat creep in for the past 2-4 years as well as helping the grandmothers with medical bills so haven't been able to increase my savings.

I still don't think I'll retire earlier than 53. It's hard to give up the medical benefits which I'll have to do if I go before 53. Most likely, I'll even wait until 55 since it's a ~25% decrease in pension if I ER at 53. I'll have to see. I expect I'll be helping subsidize my parents' retirement so I'll likely need more than what I'm making now.

 

[rbmrtn]

Those of you saying all toward FIRE: why did you choose that? Were you in a job you hated or disliked strongly?

Yes. And I had nothing else to spend it on so what else to do with it. I did splurge on a few things from time to time, its your choice.

 

[Walt34]

When I stumbled into a post-retirement job that was okay for a few years we saved ~70% of it and did some splurges with the rest. We knew the extra income was temporary and could go away at any time so we were careful not to put ourselves in a position where it was "needed" to make payments or any of that foolishness.

The savings habit dies hard.

 

[W2R]

Those of you saying all toward FIRE: why did you choose that? Were you in a job you hated or disliked strongly?

I went through a bad divorce (are there any good ones? ) and was so traumatized by it that I didn't ask for anything. I ended up with almost nothing (a junk car, a sofa, my clothes and books, less than $1K in the bank, no retirement or other nestegg, a new "soft money" (=not permanent) research job, and a boatload of debt. Oh, and the rent was due, and I was new in town and didn't know anyone.)

This was at age 50. So, I kind of wanted to "light a fire" under my retirement efforts at that point, KWIM? My best efforts were enough, and I managed to make a plan to retire and stick with it. I was also lucky, America is a land of opportunity.

 

[rodi]

Most of the extra money went to savings/investments. That said - we did splurge periodically on better vacations. We didn't do overseas trips every year - but did increase the budget enough to go every few years, with decent domestic vacations in between.

If we hadn't had an increase in income/bonus/stock options - then we would not have increased the travel budget. But the bulk of the extra went to savings.

Did I hate my job... Not entirely - but given my druthers, I'd rather not have had to work. And when I hit my FI numbers, I retired... 2.5 years ahead of plan. No regrets.

 

[Independent]

Our spending was always (very loosely) targeted at a "lifestyle" that was a little more generous than what our parents had.

Fortunately, my income provided enough so we could afford "noticeably" more than our parents had.

So the difference went into saving. When the difference grew, we put more into savings.

We didn't feel "deprived" of anything, because we had more stuff than we remembered having as kids.

I don't think that "early retirement" was ever my wife's goal. She was a SAHM, and just became less busy gradually. For her, it was risk aversion. Get the mortgage paid off so we didn't have that hanging over our heads. Have a bank account that will cover a new roof without borrowing. Have savings that would carry us for quite a while if hubby lost his job.

Eventually, we were so clearly FI, and my job was getting so burdensome, that I just quit "early".

 

[pb4uski]

I tried to save 50% of every raise... so half went to our retirement and the other have was available to cover inflation of our living expenses and splurges that made our life better/easier.

Pretty much the same with bonuses except when DD was in college those college costs absorbed the bonus (and then some).

 

[Davis65]

The Micawber Principle (Charles Dickens):

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery."

 

[sengsational]

Clark Howard usually recommends splurging with a small portion of the windfall, and socking the rest away. That way you don't feel deprived, which can lead to more difficulty later.

 

[Texas Proud]

For us, two reasons. First, we had a "save first" mindset from the beginning, so extra money always went into savings. Second, it's too easy to spend more money, soon enough it becomes part of your "basic needs".

Edit to add - I didn't save to FIRE, just FI. RE came later.

+1 on this.... whenever you 'treat' yourself to something, you want to treat yourself to it again and again.... even after that extra income has gone....


Get to a lifestyle that is comfortable for you.... and stick with it... as long as you are comfortable, then there is no reason to move out of where you are... once you get enough money to be able to fund that for the rest of your life you are now FI....

 

[RetireAge50]

We used bonuses for vacations/cars/home projects. Raises typically were used to increase savings rate.

 

[Huston55]

Those of you saying all toward FIRE: why did you choose that? Were you in a job you hated or disliked strongly?

We saved the vast majority of bonuses/raises to meet a FIRE goal by a certain age, which was 100% of the gravy in the years after the 2008/9 crash. In other years, we splurged a little bit. This enabled us to meet our FIRE goal despite the setback of the crash.

 

[mystang52]

I'm a somewhat religious (obsessive??) budgeter. When I get "found money" I roughly divide it into 3: 1/3 back to house finance funds, 1/3 pure fun (for me, that might include running race fees or a toy for one of my bikes), and 1/3 to vacation fund.
I'm not that exact about it, but it's the general approach I take.

 

[someguy]

I'm a somewhat religious (obsessive??) budgeter. When I get "found money" I roughly divide it into 3: 1/3 back to house finance funds, 1/3 pure fun (for me, that might include running race fees or a toy for one of my bikes), and 1/3 to vacation fund.
I'm not that exact about it, but it's the general approach I take.

Is the house finance fund for repairs or a new place or what?

What about before you retired?

 

[mystang52]

Is the house finance fund for repairs or a new place or what?

What about before you retired?

"House finance" for us basically means retaining it for either repairs/repair fund (like I said, I'm a diligent budgeter) or just into savings for later withdrawals. My mortgage was paid off several years before retirement, but when I had a mortgage I always applied some of the found money to making an extra payment to principal.