Do you budget to control spending or for planning only?

[lem1955]

I'm thinking about domestic relations. Will DW resent needing to adhere to the budget we have created together once we are mid year? Would relations be better if we overspend in our first retirement year? Planned spending is WR 3.5% so we could think of .5% as contingency/positive domestic relations buffer.


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[Danmar]

This is a very good question and I think you will get a diverse response. In our case it is a little complicated. ER in 2006. Currently 65 and 58. We set our rather detailed budget in advance but don't really feel constrained too much by it. Our financial position is such that running over plan won't really affect us much. Have been over "budget" every year since ER to varying degrees (1-15%) The one exception would be in 2008-2009 when things looked dire. It was the only time (so far) we felt compelled to significantly constrain our spending. So maybe 40/60 control/planning.

I think the key is communication. Make sure you discuss things in advance. I wouldn't worry too much about going a little over (say10-15%) as long as you discuss before hand and agree to it.

 

[mystang52]

Both. DW is still w*rking so we're not at the withdrawal stage yet. But we budget for both:
Planning: I dislike money surprises (e.g., unexpected home or car repair) so we budget for various contingencies, as well as nice things like vacations.
Control: We are not spartan. Having a budget helps to control spending - there's always something else to want or buy. On the other hand, having a budget won't restrict us from a last minute invite to a dinner with friends, or treating my own kids to a restaurant dinner, etc.

 

[Willers]

One thing you might try is letting DW set a couple of categories up front to the level with which she feels comfortable and build from there. In our household we start every year with the clothing line and everything else comes after that. If she has control of what is important to her she's more likely to be OK with holding to the number. Just my 2 cents...


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[frayne]

We do what I consider are "look back" budgets, basically knowing what we have spent the previous year and basing our withdrawals accordingly for the future year. Currently draw down is 3.4% of our portfolio which I am comfortable with. We have a emergency fund set aside for unseen extraordinary expenses. This plan has worked pretty good for us over the last tens years.

 

[Dash man]

We have a planned spending amount we track by paying all bills out of one checking account, and replenishing it each month from a savings or brokerage account. We'd never survive breaking out spending by category. Fortunately we've been well under our spending most months so our yearly spending will be under our plan. Maybe I'll be able to get that new car!


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[karen1972]

We couldn't agree on this one until I did the math. When I ran the budget and allowed for each to have the same amount of "pocket" money, he was still short about $8k/yr in what he wanted to spend on toys, really expensive beer, etc.. so I just did the math $8k*25=$200k so when he has saved away $200k more he can retire, but I'm retiring now. He's totally willing to do it because he loves his specialty beer but I'm like I'm not working more years for beer and when I put it that way he agreed.

 

[kcowan]

We collaborated on a pretty thorough budget for our first year of ER. We found that the detail was wildly wrong but the total was pretty good. After a couple of years, we abandoned the effort, but we still do an annual summary.

We now use the spreadsheet primarily for planning major expenses.

 

[Whisper66]

We have two budget numbers we keep in mind.

First number is basically what we expected to spend in retirement based on the last 4 yrs of expense data from when we worked adjusted for things like lower expected taxes, etc. This was the number our retirement decision was based on and very conservative. So if we spend within this amount, we don't give a second thought to our purchases.

Second number is the maximum that I-ORP would suggest we could spend and not run out of money before we die. This number is about 40% higher than the first number. Recognizing that this number has many assumptions in the calc (age of death, tax rates, cost of living, return on investments are big ones), we recognize we need to revisit /reconfirm our longer term outlook if we start to regularly spend this much. One thing this higher number allows us to do is worry much less if we have to spend a higher amount for a year or two for health reasons or need to manage other unexpected expenses.

Hope this helps.

 

[hesperus]

Relations would probably be better if you communicate early and often in the first year of ER. You are setting up a dynamic that is new to you both. If you created a budget, I'm assuming you both bought into the act of creating & following it. Depending on who is the money 'manager' in your marriage, it's going to fall to that person to bring up the fact that you may be going over the spending amounts you agreed on. But as Danmar has suggested, you probably should agree on a buffer amount that doesn't trigger any special attention. The other may not have an idea of how well you're tracking your budget, so if it falls within that buffer, no worries. But if it is outside that, the other has a right to know. From my perspective, I think DW would rather have that information now than be unpleasantly surprised later.

 

[RetiredGypsy]

I budget for spending knowledge, and that leads to both control and planning. It's been an evolving process, where over time I look at each general category - housing, food, transportation, entertainment, saving, and any maintenance recommended for anything - and see both what I'm spending, and try to educate myself on how to spend less in some categories, which allows me to spend more on others, or feel safer in needing less money to cover expenses.

I think it's extremely important to communicate the why of your budget to a spouse or SO. Not just to say, okay, 25% is going to food, 40% for housing, etc, but to say that because we don't have an infinite amount of resources in money, we have to come up with a compromise on what needs to get spent where, otherwise it'll mean going back to work, or working longer, and then it's a matter of deciding if what they want to spend more on is worth trading their extremely limited time on this planet for.

 

[W2R]

Do you budget to control spending, or for planning only?

I don't really budget to control spending in that sense. Instead, I record all of my spending, to the penny, after the fact.

Just seeing what I am spending is enough. If my spending is inordinately excessive, I find myself automatically putting off discretionary stuff more or less by reflex.

I don't know if my method would work for two people, though! Luckily the only person spending my money is me.

 

[Whisper66]

Hesperus reply reminded me that my wife and I have had a lot of discussions on our budget before retirement and now after. I'm the numbers guy, she has little interest in financial details. So we have periodic discussions (quarterly now that I retired) and I actually "present" to her our expenses vs budget numbers. This is provided in a summary format with some key metrics that show where we are and show if we are doing ok or not. At the same time I show us a summary sheet of our investments, discuss why we have what we have and how they are doing. She has really appreciated these discussions and gotten much more involved in them with good questions, etc... And she really participates as part of the team. When she wants to spend big bucks, we discuss it relative to our two budget boundaries (see prior post) and together agree on if we can afford them. The result is actually that she is now comfortable spending more than she might if we didn't have these discussions because she understands we are in control and can adjust if necessary.

Good topic!

 

[marko]

We set our rather detailed budget in advance but don't really feel constrained too much by it. Our financial position is such that running over plan won't really affect us much. Have been over "budget" every year since ER to varying degrees (1-15%) The one exception would be in 2008-2009 when things looked dire. It was the only time (so far) we felt compelled to significantly constrain our spending. So maybe 40/60 control/planning.

I think the key is communication. Make sure you discuss things in advance. I wouldn't worry too much about going a little over (say10-15%) as long as you discuss before hand and agree to it.

+1 This is pretty much were we are as well. As far as DW is concerned, a budget is a mere suggestion and I stopped trying to resolve that years ago.

The good news is that we're pretty stuck in our spending habits anyway; we spend what we spend and it's fairly consistent; but neither of us is going to go out and drop big money on something stupid at this point in our lives.

Our lifestyle itself has become a self-regulating budget of sorts.

 

[Mulligan]

I don't really budget to control spending in that sense. Instead, I record all of my spending, to the penny, after the fact.

Just seeing what I am spending is enough. If my spending is inordinately excessive, I find myself automatically putting off discretionary stuff more or less by reflex.

I don't know if my method would work for two people, though! Luckily the only person spending my money is me.

Same here. Its more tracking as I feel free to "blow up the budget" anytime I see fit on any given month. I may not be so agreeable to someone else doing it though if it was an "our budget".


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[easysurfer]

My budget is more for monitoring spending then controlling. Without a budget, I my spending probably wouldn't go haywire (thanks to old LBYM habit), but without a budget, I really wouldn't know, for example, how much I spend a year on a category like insurance. Now I feel naked without religiously recording what I spend each day.

 

[rodi]

As a fairly new retiree (retired last year) our budget is based on lookback for the past several years.

We're trying to stay within the categories - but have gone over on some, and are far under on others. (Groceries is higher than planned. I think my boys have hit the 'bottomless pit' stage of their lives so I need to adjust the budget accordingly.)

Like W2R - if I see something out of wack - I try to figure it out, and if need be, cut back. And having overspent on groceries and a bit on our vacation (not by much), I'm finding it easy to say no to other discretionary spending to pull the total into compliance.

I also spent on things I had "slush funds" set up for but hadn't anticipated hitting so hard. As regular readers here know - I picked a bad year to go on a high deductible health insurance plan - multiple incidents with my kids (broken bones, a short hospitalization, etc) have us approaching the $9k family deductible. Again, I looked at this, and figured out a way to replenish that deductible/max OOP slush fund. This was a case where lookback did not help - we'd been very light healthcare users but multiple sports injuries for my boys ended that.

My budget is conservative, and if we go over a bit - I'm not too worried. If we start to approach the ACA cliff - I'll start getting truly nervous - since that's a $6-8k hit to the budget. I'd rather have that money for travel.

DH and I have had a rule for our entire marriage (way before retirement)- any spending over $100 that is out of the ordinary (groceries are ordinary) get discussed. This includes car maintenance (hey honey - I'm going to take my truck in for service - it will probably run about $150) to more big ticket stuff (hey honey - I think it's time to replace the windows... how do we want to pay for this?). We don't consult over small stuff like small purchases on Amazon, or at Home Depot. That little bit of discussion helps me plan and keep us on track.

 

[flyingaway]

We never budget for anything, LBYM is good enough. We do not buy anything we do not need, we spend money on what we think we need.

 

[daylatedollarshort]

We have one budget for the year. The only thing I track monthly are my groceries, eating out, and household / personal spending and I do that as kind of a game. I like to shop for bargains and look for freebies so I try to plan lots of fun activities and buy healthy food and yet still come in under budget.

Most of our other expenses just don't change that much year to year or they tend to balance out. This year we we are over budget on car repairs but our home repairs will be under because of some DIY work and utility rebates.

 

[big-papa]

I budget for spending knowledge, and that leads to both control and planning. It's been an evolving process, where over time I look at each general category - housing, food, transportation, entertainment, saving, and any maintenance recommended for anything - and see both what I'm spending, and try to educate myself on how to spend less in some categories, which allows me to spend more on others, or feel safer in needing less money to cover expenses.

I think it's extremely important to communicate the why of your budget to a spouse or SO. Not just to say, okay, 25% is going to food, 40% for housing, etc, but to say that because we don't have an infinite amount of resources in money, we have to come up with a compromise on what needs to get spent where, otherwise it'll mean going back to work, or working longer, and then it's a matter of deciding if what they want to spend more on is worth trading their extremely limited time on this planet for.

+1 For me the steps were
1. What have we actually been spending in the past? A couple of years worth of bank records and credit card statements got us there - thank goodness it was all available online and I could download it into spreadsheets.
2. Once you know #1, you can then look at the biggest items first and see if there are savings opportunities that are relatively low on the pain point
3. Then look at the smaller items (after all, the sum of the smaller items can add up)
4. Somewhere during #3 and #4 above, create the budget. I gathered all of the data and we both reviewed the budget in detail.
5. Record spending and compare against the budget. My budget is monthly driven with a yearly rollup, so I already have the expectation baked in for different expenditures on months that insurance is due as well as seasonal changes in utilities, etc.
6. Monitor your "personal inflation rate"
7. Continually look for savings opportunities

big-papa

 

[Live And Learn]

For us the only budget item that is for "control" purposes is spending money which covers hobbies, liquor, coffee shops, fast food, and "non shared" purchases. DH and I get the same monthly amount. We started this in 2008 after I did a thorough review of our spending which had been slowly creeping up. We both agreed that we needed better control. I agree with thee others that say you discuss it in advance and keep joint goals in mind.

 

[audreyh1]

We live within our means. So the budget is really there for something to compare against, and to see whether we are on track during the year. Any surprise or sudden increase we would notice quickly. We don't see it as a constraint, but that's because we already don't overspend.

Maybe we should set it up to push us to increase spending in certain areas?

 

[Independent]

We record spending, we don't budget.

Before retirement, we spent far less than I earned. Spending was never an issue. Going into retirement, it looked like we had a comfortable cushion (like we could double our spending), so I wasn't concerned. We never had the sit down meeting, I assumed we'd continue to be thrifty.

However, we (more my wife than I) got into helping relatives who were legitimately hurt by health issues and the Great Recession. Not a big deal. Until the relatives started thinking this was a permanent situation.

We would have been better off if we had laid out a joint plan before retirement. I could have used the plan to start conversations and control spending when the unexpected happened.

 

[Cobra9777]

I budget for spending knowledge, and that leads to both control and planning...

It's a good question. The quote above sums up my thoughts as well.

I track actual spending against planned expenses by category. I typically compare last 12 months to annual plan to remove the effect of seasonal or lumpy items. If something is trending significantly higher or lower, we discuss it, analyze what's changed since the plan was made, and jointly decide whether to adjust the plan or change our spending behavior. We also discuss priorities and timing of large items, like travel and home improvements.

As someone else mentioned, we have a pretty large buffer (~30-40%) between the annual expense plan we monitor against, and what i-orp/RIP/etc suggest we can safely spend. So we don't sweat it if we overspend a little, and we have no strict control mechanisms of any kind. We just spend what we want, track it after the fact, analyze for knowledge and understanding, adjust the plan or behavior if needed, and hopefully one day soon we'll get comfortable enough to start spending some of that 30-40% buffer.

 

[CaliforniaMan]

We have found it really helpful to have three separate bank/brokerage accounts for spending.

Every month a specific amount is deposited into our main spending account. Then we automatically transfer 1/12 of what we calculate our annual, non-monthly expenses are. For example property taxes, auto and house insurance. Things like that. This way we never have to worry about budgeting for them, it is already saved in that account.

The third account is our "savings" account. This is what we budget for larger expenses such as long distance travel, furniture, home improvements, or whatever bigger non-monthly expenses are.

We usually put a fixed amount each month in this "savings" account too, but may add or subtract from it as needed.

Keeping these three separate accounts makes our spending easier. The general monthly expenses, gas and electric, phone, cable, trash and water, etc are known and easily budgeted. The rest we spend how we want and don't feel guilty about it. If we spend too much early in the month, we spend less later in the month. If we have extra, we put it into our "savings."

So far has worked for us and keeps things simple and we can both easily see where we stand at any given time.