Do I need a budget?

[tuixiu]

We never had a budget, other than the pay yourself first and the rest is free game variety. That kind of works for it's purpose (FIRE) in that we are now saving about 2/3 of our income and have a pretty good idea how much our monthly expenses are in total to make a reasonable guess at retirement income needs.

However this year when the reality of impending ER really hit home (aiming for end of year) we decided to do some simple budgeting and expense tracking just to put our minds at ease a bit more on what our needs are for monthly income and where we could cut back if the **** hit the fan.

Ended up using http://www.inexfinance.com since it was free, it isn't the fanciest and we don't use any of the "connect an account" features and we aren't even doing the entire budget just categories that are harder to pin down like food, entertainment, personal care, booze, etc. I've found I kind of enjoy entering expenses and looking at the overview to know whether we're ahead or behind in certain categories. One thing I've struggled with is retail stuff, so much can be bought at our grocery store and I'm not willing to go the extra mile necessary to partition out food vs. something like candles or batteries or ac filter or whatever.

Bottom line = if it is free and doesn't take that much time, why not?

 

[Sarpy]

Have to say I'm surprised that on an Early Retirement forum of all places, there are many who don't use a budget (based on what I've read so far).

We established a budget right after we married, over 30 years ago. To us, it was a way to track our spending and it established a discipline to make sure we were socking away enough to retire. This has really helped us through the years with the big financial decisions, including when we can retire and what would happen if one of us were seriously ill or either of us were suddenly single.

We're not anal about this...we use the budget as a monthly check-up, and of course there are fluctuations to which we adapt. One thing we always need to scrutinize more closely is the 'miscellaneous' category.

 

[Ronstar]

I tracked our expenses for years and then made a budget using actual numbers from the previous years. And I used the budget during the last few years of work. So it's really not too constraining since it allows for spending to continue at amounts similar to those of my working years. I did move some budget $ from work related expenses to travel/entertainment when I retired.

 

[Independent]

I vote with "track your expenses first". Whether you need a budget may depend on what you find out when you look at your actual expenses.

This doesn't need to be painful. Look at the checking account and credit card statement, extract all individual purchases over $x and enter them in a spreadsheet. Some of these will be exactly the same every month and are easy to enter. Others will be variable, and those may be more interesting. Everything else is "other", add that as one more line on the spreadsheet.

 

[Meadbh]

I vote with "track your expenses first". Whether you need a budget may depend on what you find out when you look at your actual expenses.

This doesn't need to be painful. Look at the checking account and credit card statement, extract all individual purchases over $x and enter them in a spreadsheet. Some of these will be exactly the same every month and are easy to enter. Others will be variable, and those may be more interesting. Everything else is "other", add that as one more line on the spreadsheet.

I agree. You can plot out regular payments (eg mortgage) for each month and fill in the blanks. Make sufficient categories to cover 99% of your expenses. Otherwise the "other" or "miscellaneous" category can become large and unhelpful.

 

[ChicagoGal]

Have to say I'm surprised that on an Early Retirement forum of all places, there are many who don't use a budget (based on what I've read so far).

I'm another in the "no budget" category. I've never considered that I needed one.

I have been tracking my expenses through Quicken (and Microsoft Money before that) for years, which I find valuable. I know where I could cut back fast, if needed, and where I could cut back farther over a longer time horizon. And just having where the money is going staring me in the face has prompted some small changes when I have considered the value of what I'm getting vs. the money spent.

But as long as I'm putting what I feel is sufficient in my 401k/IRA/savings, and all account balances keep going up over time, no need for a financial "diet" (which is good, because I clearly stink at dieting!).

 

[Independent]

I agree. You can plot out regular payments (eg mortgage) for each month and fill in the blanks. Make sufficient categories to cover 99% of your expenses. Otherwise the "other" or "miscellaneous" category can become large and unhelpful.

I suppose that depends on what you're trying to accomplish. If the "other" category is stable at an acceptable level, I don't have any need to drill down into it.

(I'm thinking that "other" is going to be food, cleaning supplies, haircuts, postage, routine clothing purchases, smaller household items, .... )

 

[Meadbh]

I suppose that depends on what you're trying to accomplish. If the "other" category is stable at an acceptable level, I don't have any need to drill down into it.

(I'm thinking that "other" is going to be food, cleaning supplies, haircuts, postage, routine clothing purchases, smaller household items, .... )

That's a lot of spending to put in "other".

I have categories for groceries (which includes household items purchased at supermarkets), home maintenance, utilities, grooming, clothing (which includes dry cleaning), entertainment (which includes restaurant meals), etc. I find it very helpful to see the inverse correlation between groceries and restaurant meals. This encourages me to cook and eat at home unless it's a social occasion. When I travel, meals go under the vacation category, although of course I would be eating anyhow. It's just how I choose to account for it.

One category I do not have is postage. I spend so little on postage that the occasional purchase of a book of stamps is subsumed into the groceries category. On the other hand, I do have a category for electronics, which includes phone, internet, Netflix and ebooks. I cut cable two years ago when reviewing this category.

Because this is managerial accounting and not financial accounting, you can design a budget spreadsheet to answer the questions you want to answer.

 

[LeavingOhio]

Empty Wallet,

I want to be clear on something...are you saying that you "invest" $2,000 a month? Does that mean that goes into retirement accounts made up mostly of stocks? Or does that include mortgage payments on the home rentals?

Also, a million dollars in investments (does this include equity in the rental homes, or just invested money in stocks/bonds?) before age 40 is pretty good. IF you attained that through your own saving and investing, then I think you can keep things as they are...especially if you are investing $24,000 a year. IF you got most of that through inheritance or some other way and you aren't really investing $24,000 into stocks and bonds, then I think you need to take a closer look at your finances.

Now, I would have a budget. If for no other reason than to see where the money is being spent and to see if there is waste. BUT, amassing a million dollars by age 40 is pretty good, so as long as you continue that and don't have grandiose plans over what you will eventually end up with in retirement, you could go without a budget.

 

[Sarpy]

I'm another in the "no budget" category. I've never considered that I needed one.

I have been tracking my expenses through Quicken (and Microsoft Money before that) for years, which I find valuable. I know where I could cut back fast, if needed, and where I could cut back farther over a longer time horizon. And just having where the money is going staring me in the face has prompted some small changes when I have considered the value of what I'm getting vs. the money spent.

But as long as I'm putting what I feel is sufficient in my 401k/IRA/savings, and all account balances keep going up over time, no need for a financial "diet" (which is good, because I clearly stink at dieting!).

Maybe it's a matter of semantics (for me). We've been tracking expenses for so long, we have a very good idea of 'normal' spending in each category & bucket accordingly. So if something is off-kilter, we take a good look at it. Maybe this isn't considered a budget to some, but to me it's the same. I don't consider it a financial 'diet' at all--I just want to know & manage where our money goes each month.

 

[EmptyWallet]

Empty Wallet,

I want to be clear on something...are you saying that you "invest" $2,000 a month? Does that mean that goes into retirement accounts made up mostly of stocks? Or does that include mortgage payments on the home rentals?

Also, a million dollars in investments (does this include equity in the rental homes, or just invested money in stocks/bonds?) before age 40 is pretty good. IF you attained that through your own saving and investing, then I think you can keep things as they are...especially if you are investing $24,000 a year. IF you got most of that through inheritance or some other way and you aren't really investing $24,000 into stocks and bonds, then I think you need to take a closer look at your finances.

Now, I would have a budget. If for no other reason than to see where the money is being spent and to see if there is waste. BUT, amassing a million dollars by age 40 is pretty good, so as long as you continue that and don't have grandiose plans over what you will eventually end up with in retirement, you could go without a budget.

LeavingOhio-

The $2,000 per month is automatic and doesn't change. This goes into taxable investments. This does not include the mortgages. It also doesn't include IRA contributions (already maxed this year). I also save any "left over" money each month into a MMA which is mostly used for lump-sum investments.

We have not received any inheritances, and don't expect very much due to the size of our families. The $1MM is strictly investments.

Thanks.

 

[EmptyWallet]

Thank you everyone who made comments.

I would like to add:

I have a very good idea where MOST of my money is spent. I don't take the time to really get into the weeds monitoring where is goes but I have a good idea. I can rattle off where about 80% of our expenses are (rent, mortgages, utilities, savings, child care).

I submitted the question because I was curious about how everyone here watches their expenses. I don't budget because I think it would be immediate grounds for a HUGE arguement with my wife. I'm the saver and she is the spender, but I ultimately think that since we've been married that we have become more in tune with each other's spending habits. Because we don't budget I think things work well. And, I think that we have saved a nice amount for our retirement.

I'm glad to read that a larger percentage that I would have thought of responders to this thread also don't really budget but watch their expenses while prioritizing their savings.

Thanks again!

Jeremy

 

[NW-Bound]

...
I'm glad to read that a larger percentage that I would have thought of responders to this thread also don't really budget but watch their expenses while prioritizing their savings...

When we were working, we did not have a budget, but did not prioritize our savings either! We never had a goal of saving 30% of our income or anything such. We just maxed out the 401k and/or IRA and had money left-over for after-tax savings. I did not even plan for early retirement, or sit down to figure out what it would take until a few years ago.

And being LBYM, we never said that because we had that pile of money, we had to go spend it, like to get a new car. Getting a new car when the existing ones still run reliably seems wasteful. We bought what we needed when we needed it, and always had cash to pay for it, and that was it.

 

[Meadbh]

The $2,000 per month is automatic and doesn't change. This goes into taxable investments. This does not include the mortgages. It also doesn't include IRA contributions (already maxed this year).

Not to worry. You are "paying yourself first" by making savings automatic. That puts a constraint on spending and is a far more effective way to build your portfolio than spending first and saving whatever is left over.

 

[Idnar7]

I tracked expenses for three years prior to retirement and now four years in. Our expenses have varied little over time. At one time I broke out grocery store/Costco/Wal-Mart into various categories, but it took a lot of time, and didn't change our purchases anyway (you are going to delay getting toilet paper?). The majority of these purchases are not impulse purchases, so they all get included into Groceries. We enter the transactions at the time they are made so at any time we can see what will be coming due on credit/debit cards. A couple weeks ago I received a call from our bank's Fraud Dept. They had questions about some charges that had gone through. I was able to bring up that account and confirm that two of the charges were not made by me. We don't budget, just review average expenses every six months. Our Pets category has really increased since our cat and dog are now well over ten years old.