How do you handle "extra" income?

[ArkTinkerer]

We have only been FIREd about 2 years. I was doing some odd consulting and simply told him if he wanted me to keep coming around every he'd have to pay a certain amount every month and pitch in some time/labor (his or his companies) on some of my fun projects. He stepped right up. Now I wonder if I sold myself short all those years! SWMBO had commented how a local college library was in a jam after losing another librarian. I said "Why don't you offer to do some part time work there?" A lot different for her since she really didn't need the job. So now she works there a few hours a few days a week. No compunction about telling them she won't be in if she has anything else she simply wants to do. Had to tell them she really didn't want to go to work full time. Bottom line, we didn't have to sell assets like we planned at this stage. Haven't dipped into savings at all. In fact, wife put away a small amount more into a new retirement account. Downside? I really should be selling some assets--rental property. We both are getting fed up taking care of them. But it actually takes time and effort to manage the sales and its easier right now to just coast along...

 

[HI Bill]

Just go online and turn all statements to online only!

 

[audreyh1]

When I retired last year I had a withdrawal plan of $X/month that I would transfer from Vanguard to my bank for expenses. No problem so far. Now, I have some consulting income and instead of just blobbing it in with the rest of my portfolio, or transferring to my bank to offset my monthly draw, I have in mind to pay for various specific things with it. So my back-of-the-envelope plan is to fund, in this order:

1. $2K, small upgrade to my home office (Aeron chair, new laptop, some computer upgrades).

2. $XK, 1st quarter estimated taxes

3. $5K, we bought a new car and wrote the down payment out of my Vanguard MM, I'll "refund" that to my portfolio

4. $7,900, HSA contribution

5. $20K, annual iBond purchase

6. $XXK, renovations to the summer house

7. $6,500, Roth IRA

8. Q2, Q3, Q4 estimated taxes when due.

These were generally already in my FIRE budget (except additional IRA contributions) so this is all just mental accounting.

But, I find that thinking this way makes my paid consulting gig even more fun. Being a megacorp lifer and LBYM, I've never really had to worry earning X to pay for Y. I don't really now, but find it kind of rewarding to get a consulting check and say to myself "this pays for my laptop and Aeron chair".

For folks that are FIRE, what are your strategies for "extra" income? Do you chuck it in your portfolio, blow the dough, offset your planned spending, or something else?

Sure, I collect my unspent funds and they are available for splurges.

I’ve already gotten a large enough portfolio where withdrawals more than pay for our lifestyle, so no need to add more to the pot!

 

[audreyh1]

This is maybe a slightly extreme example of what Richard Thaler calls "mental accounting." (https://en.wikipedia.org/wiki/Mental_accounting) We all do it, but I think it's very useful to recognize it for what it is. There is no "extra" income. There is only income.

That makes no sense to me.

He’s calling it extra income because it’s more than they had counted on or budgeted for, and it’s beyond what they are pulling from their investments.

So of course it’s extra.

 

[Al in Ohio]

When I retired last year I had a withdrawal plan of $X/month that I would transfer from Vanguard to my bank for expenses. No problem so far. Now, I have some consulting income and instead of just blobbing it in with the rest of my portfolio, or transferring to my bank to offset my monthly draw, I have in mind to pay for various specific things with it. So my back-of-the-envelope plan is to fund, in this order:



1. $2K, small upgrade to my home office (Aeron chair, new laptop, some computer upgrades).



2. $XK, 1st quarter estimated taxes



3. $5K, we bought a new car and wrote the down payment out of my Vanguard MM, I'll "refund" that to my portfolio



4. $7,900, HSA contribution



5. $20K, annual iBond purchase



6. $XXK, renovations to the summer house



7. $6,500, Roth IRA



8. Q2, Q3, Q4 estimated taxes when due.



These were generally already in my FIRE budget (except additional IRA contributions) so this is all just mental accounting.



But, I find that thinking this way makes my paid consulting gig even more fun. Being a megacorp lifer and LBYM, I've never really had to worry earning X to pay for Y. I don't really now, but find it kind of rewarding to get a consulting check and say to myself "this pays for my laptop and Aeron chair".



For folks that are FIRE, what are your strategies for "extra" income? Do you chuck it in your portfolio, blow the dough, offset your planned spending, or something else?

I often target it for a nice vacation. Like going on a European cruise instead of just Florida.

 

[DrRoy]

Before RE, when I had some unexpected income, I would spend 10-20% on something fun and save the rest. Your plan seems fine.

 

[flintnational]

Personally I fall into the money is fungible camp. However, in my extended family there is a concept known as "found money". From what I can tell found money has mystical powers and is not subject to fungibility. Also, from observation, found money seems to be the best kind of money since it does not come with obligations to save, invest or pay bills and apparently demands to be spent on frivolous items. Found money seems to bring great joy to those fortunate enough to posses it (no matter how short the possession period).

 

[joeea]

That makes no sense to me.

He’s calling it extra income because it’s more than they had counted on or budgeted for, and it’s beyond what they are pulling from their investments.

So of course it’s extra.

Thus, one should budget for 80% of your normal income.
That makes the remaining 20% "extra" - splurges await! YOLO!

 

[audreyh1]

Personally I fall into the money is fungible camp. However, in my extended family there is a concept known as "found money". From what I can tell found money has mystical powers and is not subject to fungibility. Also, from observation, found money seems to be the best kind of money since it does not come with obligations to save, invest or pay bills and apparently demands to be spent on frivolous items. Found money seems to bring great joy to those fortunate enough to posses it (no matter how short the possession period).

But what does “money is fungible” mean in this context? It doesn’t mean anything. They have more.

So what if someone wants to splurge when they receive additional income when they are already retired, so apparently have already saved “enough”, supposedly no debt other than mortgage, are already living within their means, etc.

In the OP’s context he has more income. He has no obligation to add it to his retirement portfolio. It makes more sense for him to enjoy it now while he can. Personal choices, of course.

 

[audreyh1]

For folks that are FIRE, what are your strategies for "extra" income? Do you chuck it in your portfolio, blow the dough, offset your planned spending, or something else?

We consistently underspend our income from our retirement portfolio. That is kind of like having extra income. I mean, it really is, because our current portfolio withdrawal does in fact exceed even our well-padded budget.

I don’t return unspent funds to the retirement portfolio because I think it’s big enough and I don’t want to take those long-term investment risks with unspent funds.

So I let excess funds accumulate in short term “safe” investments and they are available to draw on for whenever we want to splurge, or buy some big ticket item like a new car, or maybe our future income drops due to a series of bad market years, or maybe we need to help someone in a family emergency. It’s available for all of that and should be able to cover multiple situations (knock on wood!).

What if the short-term pile gets “too big”? Well I honestly don’t care about that. For me it represents incredible financial flexibility. Maybe, if things continue, we’ll end up focusing more on increasing our spending, including gifting, to reduce the additional unspent funds.

Some might suggest lowering our withdrawal rate. But I don’t see the point of dying with a bigger pile.

And as we age it probably makes more sense to increase the withdrawal rate instead.

 

[audreyh1]

Thus, one should budget for 80% of your normal income.
That makes the remaining 20% "extra" - splurges await! YOLO!

Well in that case 20% on splurges is in the budget.

Nothing wrong with allocating 20% of the budget on splurges.

But that is not the OP’s situation as his income increased.