Underestimating Living Expenses

[GenXguy]

40K sounded low to me for two of you, so I'm not at all surprised you are seeing 44k to 45k when tracking actual expenditures. In fact, even 45k sounds low to me. I tracked expenses for several years prior to ER and it was about 55k to 60k for just myself, pets, charities.

Wow, that sounds like a lot for one person. I've been spending about $15,000/yr in recent years for a single person, no pets, but I budget about $16,000/yr to cover long term home maintenance. When I FIRE, that will increase to $21,600/yr budgeted "required" living expenses due to higher health care costs, adding a car sinking fund, and edging up the home maintenance budget, which will leave about $26,400/mo for discretionary spending using a 3.4% WR before SS kicks in, and about 2.1% WR after SS kicks in.

Yeah, I've been spending less than $1000/yr on discretionary spending and am budgeting for $26,400/yr on discretionary spending when I FIRE. I'm not sure how I'll actually spend that much on discretionary without giving and throwing money away, but that's what the math tells me I can spend with a conservative 3.4% WR (and 2.1% WR with SS). If I was to use a full 4% WR, my discretionary budget would be about $33,000/yr, which is just getting more ridiculous. If I don't spend the discretionary funds, my WR will effectively be somewhere south of 3.4%. I'm sure I could cut through some serious discretionary funds by doing a lot of travel, but that's something I was never very interested in, so I'm not likely to sink a whole lot into that, and I generally don't like wasting money, while maintaining a savings rate of 70% to 80% in recent years.

Note: The above expenses do not include income taxes as expenses, although taxes are accounted for in coming to the above numbers.

 

[Katsmeow]

[FONT=&quot]

[FONT=&quot]My most recent expense estimate comes to just over 44K, based on what we are spending now. [/FONT][FONT=&quot][FONT=&quot]There are still many areas we could cut back if we needed to.[/FONT][/FONT]
[FONT=&quot][FONT=&quot]
[/FONT][/FONT]
[FONT=&quot]1800 Electric (150/mo - current is 125/mo)[/FONT]
[FONT=&quot]270 Garbage (45 every other month)[/FONT]
[FONT=&quot]9600 Grocery (800/mo)[/FONT]
[FONT=&quot]1080 Wife Gas (90/mo)[/FONT]
[FONT=&quot]1080 Husband Gas (90/mo)[/FONT]
[FONT=&quot]950 Home Insurance[/FONT]
[FONT=&quot]4600 Property Taxes[/FONT]
[FONT=&quot]800 Insurance for Vehicles[/FONT]
[FONT=&quot]200 Vehicle Licenses[/FONT]
[FONT=&quot]60 Safe Deposit Box[/FONT]
[FONT=&quot]600 Home and Cell Phones[/FONT]
[FONT=&quot]960 Internet (80/mo)[/FONT]
[FONT=&quot]360 Netflix[/FONT]
[FONT=&quot]300 Web Site Expenses[/FONT]
[FONT=&quot]7000 Health Care[/FONT]
[FONT=&quot]1500 Automotive Maintenance and Repairs[/FONT]
[FONT=&quot]2500 Home Improvement (repairs, painting, etc.)[/FONT]
[FONT=&quot]4500 Miscellaneous (clothing, computer parts, craft supplies, etc.)[/FONT]
[FONT=&quot]6000 Recreation (movies, dinners out, hiking, vacations, etc.)[/FONT]

[/FONT]

So this is interesting. I went and looked at ours over the last year. We had some expenses that are non-recurring so I didn't consider those. Just a few things were I see we spend differently:

1. Our electric is more. Just this week we replaced the 18 year old AC in our current house with a much more energy efficient heat pump. Hopefully that will help on the electric front.

2. I note your only utilities are electric and garbage. We also have to pay for water and natural gas. (With our new heat pump and the heat pump water heater we will soon have, we will only be using natural gas for the pool heater so will be paying the minimum).

3. One of the years where we spend less than you is gas now that both DH and I are retired. One advantage of our new house is that we are close to everything and we don't drive nearly as much far as we did when the closest grocery store was 20 minutes away. There are advantages to having most things 5 minutes away and most of the rest no more than 10 to 15 minutes.

4. Our home insurance is triple yours which may be mostly a location issue. Our house is not that large (about 2200 SF). Alas our property taxes are a lot more. But we don't have state income tax so there's that. Our vehicle insurance is more. We bought a new car last year so that is a factor.

5. Finally an area where we spend less. Our internet is much less, but our cell phones are more.

6. I have broken down miscellaneous. This area is where the biggest different exists. The biggest differences are probably in two areas -- personal care for me and our pets. I get my hair professionally done and it is the biggest part of my personal expenses. We do have pets so that is a fairly large expense.

7. Recreation was a little more but not much. Actually probably more than I thought as I just put dining out in our grocery budget rather than breaking it out in a separate category.

 

[Bir48die]

The first year I tracked everything by category. Now I just track the monthly total and travel.

+1

Even having some time to track this being retired I have lost my desire to get too detailed. Sure there have been times I overspent a bit but staying pretty close to monthly projections.

I’m fortunate in the fact like many I tracked and had major concerns over this. However I am at the stage in retirement that I’m not looking to deny myself the creature comforts.

 

[ivinsfan]

[FONT=&quot]
[/FONT]
[FONT=&quot]I suppose it depends on where you live and what your lifestyle is like. I still think we could live quite comfortably on 40K per year. Our total income last year (while still working) was less than 58K (before taxes), and a good chunk of that goes to savings or work related expenses that we won't have after retirement.
[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]My most recent expense estimate comes to just over 44K, based on what we are spending now. [/FONT][FONT=&quot][FONT=&quot]There are still many areas we could cut back if we needed to.[/FONT][/FONT]
[FONT=&quot][FONT=&quot]
[/FONT][/FONT]
[FONT=&quot]1800 Electric (150/mo - current is 125/mo)[/FONT]
[FONT=&quot]270 Garbage (45 every other month)[/FONT]
[FONT=&quot]9600 Grocery (800/mo)[/FONT]
[FONT=&quot]1080 Wife Gas (90/mo)[/FONT]
[FONT=&quot]1080 Husband Gas (90/mo)[/FONT]
[FONT=&quot]950 Home Insurance[/FONT]
[FONT=&quot]4600 Property Taxes[/FONT]
[FONT=&quot]800 Insurance for Vehicles[/FONT]
[FONT=&quot]200 Vehicle Licenses[/FONT]
[FONT=&quot]60 Safe Deposit Box[/FONT]
[FONT=&quot]600 Home and Cell Phones[/FONT]
[FONT=&quot]960 Internet (80/mo)[/FONT]
[FONT=&quot]360 Netflix[/FONT]
[FONT=&quot]300 Web Site Expenses[/FONT]
[FONT=&quot]7000 Health Care[/FONT]
[FONT=&quot]1500 Automotive Maintenance and Repairs[/FONT]
[FONT=&quot]2500 Home Improvement (repairs, painting, etc.)[/FONT]
[FONT=&quot]4500 Miscellaneous (clothing, computer parts, craft supplies, etc.)[/FONT]
[FONT=&quot]6000 Recreation (movies, dinners out, hiking, vacations, etc.)[/FONT]
[FONT=&quot]
[/FONT]

what happens when you need to replace a vehicle?

 

[mountainsoft]

Would getting rid of your home landline be a quick (positive) hit? We both have cells and got rid of ours years ago

We have a VOIP phone line. Dropping it would only save about $250 per year. It's certainly something that could be eliminated if money really got tight, but I still prefer talking on a real phone handset over a rectangular smart phone.

We use Tracfone for our cell's and only spend about $200 per year, per phone.

 

[mountainsoft]

1. Our electric is more. Just this week we replaced the 18 year old AC in our current house with a much more energy efficient heat pump. Hopefully that will help on the electric front.

2. I note your only utilities are electric and garbage. We also have to pay for water and natural gas. (With our new heat pump and the heat pump water heater we will soon have, we will only be using natural gas for the pool heater so will be paying the minimum).

3. One of the years where we spend less than you is gas now that both DH and I are retired. One advantage of our new house is that we are close to everything and we don't drive nearly as much far as we did when the closest grocery store was 20 minutes away. There are advantages to having most things 5 minutes away and most of the rest no more than 10 to 15 minutes.

4. Our home insurance is triple yours which may be mostly a location issue. Our house is not that large (about 2200 SF). Alas our property taxes are a lot more. But we don't have state income tax so there's that. Our vehicle insurance is more. We bought a new car last year so that is a factor.

5. Finally an area where we spend less. Our internet is much less, but our cell phones are more.

6. I have broken down miscellaneous. This area is where the biggest different exists. The biggest differences are probably in two areas -- personal care for me and our pets. I get my hair professionally done and it is the biggest part of my personal expenses. We do have pets so that is a fairly large expense.

7. Recreation was a little more but not much. Actually probably more than I thought as I just put dining out in our grocery budget rather than breaking it out in a separate category.

1. We don't have AC, and our 1500sq/ft house stays fairly cool in the summer being in the trees. We're on an equal pay plan and the electric utility recently lowered our payments from 148 to 125 due to declining usage. I'm still seeing our credit balance increasing despite the reduction, but that's fairly normal during the summer. I did replace all lights with LED's, and upgrading our washer/dryer made a noticeable difference in our electric usage (old machines were over 30 years old).

2. We get our water from a well, have a private septic system, and we're 100% electric (no gas). Heat is electric wall heaters, with supplemental woodstove (more for ambiance and emergencies than actual heating).

3. We're basically 20-30 minutes from anything, but I do expect our gas usage to drop significantly once we retire. Before I had to start taking care of my mom I was only logging about 2500 miles a year.

4. Yep, smaller 1500 sq/ft home, nothing extravagant or overly valuable to insure. Our property taxes are much higher than surrounding counties. If we can keep our income under 40K after we retire, we may qualify for senior deductions.

5. Unfortunately, Comcast is our only option for broadband internet, and they seem to raise rates every year. Cell phones are Tracfone, only cost about $200 each per year.

6. We no longer have pets and my wife cuts my hair and her own. Our miscellaneous spending is really random; stuff I buy on Amazon, Kindle Books, iTunes songs, clothes, etc. Many of the Amazon items probably belong in other categories (auto or home), but I didn't bother breaking those down.

7. Recreation this year has mostly been eating out at restaurants. We usually cook our own meals at home, but we've been so busy with our mom's that we've opted for the convenience of dining out while we're in town. I suspect our restaurant dining will decrease dramatically in a few years.

 

[mountainsoft]

what happens when you need to replace a vehicle?

Like other one time expenses (water heater, new roof, etc.) I factor that into our overall savings and don't include it as a yearly expense.

Of course, we only buy used vehicles and have never spent more than $4000 on a car (I paid $1900 for my current 2000 VW Jetta).

 

[mountainsoft]

May I suggest using an automated tool that automatically categorized and adds it up such as Mint?

I really don't like web based apps (such as Mint), and don't want to pay subscription fees for programs like Quicken. I also don't trust giving any of these businesses with the login information for my various financial accounts.

I use MoneyDance to manage my various accounts, but don't know if it would do what I'm wanting.

I've been trying a few different programs, and the only one I've seen so far that has any promise is "Alzex Personal Finance" (https://www.alzex.com/). It has a few quirks, but I think I can make it work for simple expense tracking. I just download the CSV transactions from my various accounts, import them into the program, and assign categories to the various transactions. It's only a minor step up from my manual method, but it might make the process slightly easier. Still playing with it before I decide if it's worth the $25 price.

 

[cyber888]

just add another 10% ?

 

[brett]

The thing is we were not looking to cut back on anything when we retired early.

We would not have decided to retire early if it meant cutting back on things that we enjoy or impacting our desired lifestyle in a negative fashion. We would have kept working until such time as the numbers balance. I realize that this would be different if we had a revenue challenge and an expense challenge but such is not the case. But, we do not live like millionaires and splash our money around like drunken sailers either. Hard to when you were raised and taught by canny Scots Presbyterians. I only want to spend so much time on money. I would much rather review an investment/allocation spreadship and tax data than pour over an expenditure spreadsheet the lists everything down to haircuts and last case of wine that I picked up on sale.

We expected to spend more, but differently. Lifestyle changes as a result of early retirement and downsizing meant additional savings that went into travel etc. Our WR rate is about a half percent. We don't throw our money around and we shop on value for most things. Not going to turn down the heat in the fall, the AC in the summer to save on utilities. Gas could double and we would still be making regular day trips into the Rockies. Whatever we spend at the grocery store is what we spend. When we dine out it does not have to be gourmet but it is never fast food or a hunk of meat with a ton of fries followed by a fat/sugar laden dessert either. This is what we wanted from our early retirement-a degree of freedom to do what we want while we have the health and the inclination.

 

[NW-Bound]

... Our WR rate is about a half percent...

You are either really rich, or have a good pension.

At that WR, you can keep a big pile of cash under the mattress, and reach in to pull out some bank notes as you need it. No need to worry about stocks or bonds.

 

[brett]

The other part of this is that I am a numbers guy. I can remember what we paid for just about everything. I probably do an expenditure spreadsheet in my subconscious.

 

[audreyh1]

We had years of Quicken data to draw on when I started figuring out how much we might spend in retirement.

When we were working we spent very little on discretionary items. Too busy working to spend. Our vacations were limited time wise.

So I knew our retirement spending would include a lot of new spending, so I kept padding that budget.......

And set aside extra funds for extra travel those first few years.

But our spending is a lot higher than the OPs target.

 

[Dtail]

The thing is we were not looking to cut back on anything when we retired early.

We would not have decided to retire early if it meant cutting back on things that we enjoy or impacting our desired lifestyle in a negative fashion. We would have kept working until such time as the numbers balance. I realize that this would be different if we had a revenue challenge and an expense challenge but such is not the case. But, we do not live like millionaires and splash our money around like drunken sailers either. Hard to when you were raised and taught by canny Scots Presbyterians. I only want to spend so much time on money. I would much rather review an investment/allocation spreadship and tax data than pour over an expenditure spreadsheet the lists everything down to haircuts and last case of wine that I picked up on sale.

We expected to spend more, but differently. Lifestyle changes as a result of early retirement and downsizing meant additional savings that went into travel etc. Our WR rate is about a half percent. We don't throw our money around and we shop on value for most things. Not going to turn down the heat in the fall, the AC in the summer to save on utilities. Gas could double and we would still be making regular day trips into the Rockies. Whatever we spend at the grocery store is what we spend. When we dine out it does not have to be gourmet but it is never fast food or a hunk of meat with a ton of fries followed by a fat/sugar laden dessert either. This is what we wanted from our early retirement-a degree of freedom to do what we want while we have the health and the inclination.

Referring to the last paragraph, we have similar thoughts about spending, but our current WR% is 3% and not 0.5% and thus keeping roughly to a budget but still spending works for us.

 

[ivinsfan]

Like other one time expenses (water heater, new roof, etc.) I factor that into our overall savings and don't include it as a yearly expense.

Of course, we only buy used vehicles and have never spent more than $4000 on a car (I paid $1900 for my current 2000 VW Jetta).

Hold on, you do have a line for home upkeep that should include things like a new water heater. FWIW our well suddenly and with no warning blew-out last fall. We only had to drill to 75 feet and it still cost 7500.

And if you drive used cars that cost under 4K I have a hard time believing repair and upkeep of each one cost only 60 bucks a month.

My point is this is a bare bones not covering replacement and upkeep budget. Do you have a largish pile of cash set aside for this purpose only.?

 

[SumDay]

My point is this is a bare bones not covering replacement and upkeep budget. Do you have a largish pile of cash set aside for this purpose only.?

My thought exactly.

For example, in our first year of retirement we had to replace:
- Air conditioner and furnace
- Hot water heater
- Sump pump
- Garage door opener
- Dryer

This was a worst case scenario and something I'd budgeted for, but not really expected. Writing each of those checks made me a little light-headed, but I'm glad I had that $$ built in. And hopefully we have at least 15-20 years before all those need replacing again.

Our post-retirement budget is significantly larger than our pre-retirement budget. We were living below our means so we could blow that dough after we retired. But $hit happens and I don't like to be caught off guard.

 

[Senator]

There is a middle ground here too Senator, in fact in your three-year FIRE update you said you wished you had retired sooner. Obviously, you could have done so.

100% correct, I could have retired earlier. I wanted to pass the age 55 mark, to hopefully solidify my SS benefits. Add more pension benefits. Plus build up a solid base of capital.

I was retiring to do things, not get away from things. I probably only spent $30-$40K a year while working 100+ hour weeks at my W2 job, various side hustles, and remodeling and getting my rentals in shape. Now I spend what I want, with future income sources still to come in later years (SS, Pension, dividends, etc.). I have a 0% WR. I also take advantage of whatever rewards, subsidies and discounts I am able to get.

If you are laid off, or cannot physically or mentally do the work anymore, you have little choice. You retire on what you have. If your idea of retirement is reading books, you do not need much either. If you are retiring to do things, you need the capital to do it.

If an additional $5K every year is going to derail your retirement, you do not have enough to retire. Unless you are penny pinching and watching every cent you spend. Some people are OK with that, I am not. $5K is nothing in the scheme of living, and can come up fast. You can cut back the next year, and if you are near 60 years of age, that cutback year is ~5% of your life.

Taxes go up, one-time expenses, inflation, etc. can all eat away at your income pretty fast. My property taxes have gone up more than 10% in many years. Rents and home prices go up. Even gas taxes have gone up. Car and home insurance prices have increased. A simple storm damage claim can cost you the deductible, plus other out of pocket expenses. I spent almost $100 in tolls driving from MN to Ohio and back. With an Ipass that supposedly gives a discount on tolls. Plus $300+ in diesel.

A replacement HVAC system, the city issuing a corrective order or assessment, a used car will cost more when new car prices go up. A possible funeral expense, a kid coming back begging for money, even a legal expense can make a huge difference. A leaking toilet flapper can cost hundreds on a water bill. I would guess that every year I have a lot more than $5K in expenses that were not expected. $5K can go really fast in life, and it can happen every year.

A great way to see how much you spend, is to subtract the amount you saved from your annual income. Everything you did not save was spent, by definition.

 

[BeachOrCity]

I really don't like web based apps (such as Mint), and don't want to pay subscription fees for programs like Quicken. I also don't trust giving any of these businesses with the login information for my various financial accounts.

I use MoneyDance to manage my various accounts, but don't know if it would do what I'm wanting.

I've been trying a few different programs, and the only one I've seen so far that has any promise is "Alzex Personal Finance" (https://www.alzex.com/). It has a few quirks, but I think I can make it work for simple expense tracking. I just download the CSV transactions from my various accounts, import them into the program, and assign categories to the various transactions. It's only a minor step up from my manual method, but it might make the process slightly easier. Still playing with it before I decide if it's worth the $25 price.

If you don’t want to give one of these automated tools access that is a personal decision. Just make sure you are tracking your ACTUAL expenses and not estimating.
Given you don’t have a lot of room in the budget or withdrawal rate, knowing your real expenses is critical.

Most banks and credit cards will let you download a years statements as a csv file which you can import into a spreadsheet, sort it and ensure your spending is what you think it is.

Reading thru this thread makes me wonder if you might not be as FI as you wish or hope you are.

 

[Backpacker]

I've tracked our expenses for years, and have a post retirement budget which adjusts categories up or down. Eg. More travel and less for dry cleaning and clothing. Retirement budget is 45k, but I use 50k as spending amount in fire calc just to be certain. I've also "shock" tested fire calc by increasing spend rate until I DON'T get 100% success rate. Just shy of 70k before it dropped below 100% success.

We're about to find out how the retirement budget goes as my last day of work is August 2nd, 2019! DW has been retired for a year. I just turned 55 last week, and DW is 51. Hoping we can enjoy spending the travel part of our budget in the very near future.

 

[Senator]

If you don’t want to give one of these automated tools access that is a personal decision. Just make sure you are tracking your ACTUAL expenses and not estimating.
Given you don’t have a lot of room in the budget or withdrawal rate, knowing your real expenses is critical.

Most banks and credit cards will let you download a years statements as a csv file which you can import into a spreadsheet, sort it and ensure your spending is what you think it is.

Reading thru this thread makes me wonder if you might not be as FI as you wish or hope you are.

Exactly. Everyone is FI, it just depends on what you want to be your choices, and whether you make them or let others make them for you.

When I was 18, I was FI. I could have lived in a homeless encampment and felt fine. I had renters that never worked a single day in their life and were nearly 50 years old, they were FI (or maybe Financially dependent...), and lived pretty good.

If all a person wants to do is squeak by in retirement, they worked a lot of years for nothing.

 

[Teacher Terry]

MS, if your grocery budget is 800 and doesn’t include eating out that’s huge. Ours is 400 and we have a lot of company for dinner. You also have 6k for fun which leaves wiggle room. Since we bought a Toyota and Honda we have not had one repair despite them being 11 and 8 years old.

 

[jollystomper]

We had years of Quicken data to draw on when I started figuring out how much we might spend in retirement.

+1

I used quicken to come up with 5 and 10 year spending averages, then tweaked that based on our known plans to come up with our spending estimate.

For my first fiscal year of retirement, we exceeded the estimate by 15%, but that was all due to receiving additional unexpected income, and paying the taxes associated with that.

For the first 6 months of the year we are pretty much on target, and expenses were front-loaded as we took a lot of vacation in the first half so we might under spend for the rest of the year (I might fix that by buying a car ).


What was more important is that even with this spending, we have more than when I retired, and our cash depletion was much less than expected. Currently I am looking less at specific spending categories and more at our cash flow performance, since we set aside enough cash to avoid being forced to sell equities before we take SS. As long as we maintain that we can be very flexible with our spending.

 

[brett]

I believe that whatever your method the steps are similar. Understand your spend-be realistic. Adjust for inflation. Adjust for margin of error. Adjust for capital items and planned increases in travel, vehicles, etc. Have a cushion if you are responsible for large, unexpected health costs. We are spending less that I thought we would. But that could change in a flash due to unforeseen circumstances. But it won't change because we happen to be spending more on gas, dry cleaning, coffee, whatever.

 

[kcowan]

We spend more time reviewing our investment returns, risk, allocations, and evaluating our fee for service advice against these two. From our perspective revenue gains through investment vehicle selection and tax efficient planning far exceed the financial benefit of any item by item expense category review.

yes we did a zero budget review in the first year of retirement and eliminated excess items. Some have crept back in like 4 credit cards instead of two. And a full service cell plan for DW when NOTB.

Whoo Wee, 10% WR baby. And add SS or whatever other income on top of that.

That's a lot of Dom Perignon, real beluga caviar, Kobe beef, French foie gras, lobster, white truffle, Louis XIII Cognac... Just thinking about it makes me feel fat already.

Gotta throw in a new car each year, because I doubt anyone can eat that much.

Partly true. We now spend more on quality wine. Bought a new Mercedes and will be upgrading our 2008 Nissan in Mexico. In the process of spending an extra US$350k on our Mexican accommodations. Lot of smaller items too. But we are unlikely to make 10% WR (we amortize major purchases).

If Kcowan does 10%WR+his other income, he has my bet.

Thanks for the vote of confidence!

If all a person wants to do is squeak by in retirement, they worked a lot of years for nothing.

And because we had to squeak by during the first two years of retirement, we are confident we could do it again if necessary.

 

[daylatedollarshort]

I would agree with not having to penny pinch in retirement with some of the extreme bloggers ideas of riding a bike to the grocery store in the rain or making my own rakes. But in our case we weren't too careful about the small expenditures when we were both working and raising kids so now we have had many opportunities to cut back, save more and still maintain or even improve our quality of life.

Our area has gotten more expensive over the years as the tech workers have moved in and the middle class moved out, and the grocery stores price their goods accordingly. I have found that by shopping at Costco, ethnic markets and outlet stores I can get the identical foods and brands for an average of 1/3 the cost of my neighborhood supermarkets - just by driving 10 - 15 minutes further. To me that is worth it to save $6K or more a year on groceries. I would rather put that $6K to use for fun or leave to the kids than supermarket corporate profits. Plus the produce at the ethnic markets seems to have higher turnover and is fresher than what I can buy at the local supermarkets.

We cut our cable / Internet bill by $60 a month on average by remembering to renegotiate every 6- 12 months, we price shopped insurance and raised our deductibles, dropped life and disability insurance once we were FI, switched to LED bulbs, replaced an energy hog TV, discovered the wonders of seat filler tickets, and optimized probably hundreds of other small expenses that really added up. I try to do a few little things each week or so and the cumulative impact has worked for us. This week I bought dryer balls to reduce drying time and bought some new bottles to make more of my own salad dressings with olive oil and other healthy ingredients, so those should be cheaper and healthier than most of the commercial dressings we used to buy.