free4now
Thinks s/he gets paid by the post
- Joined
- Dec 28, 2005
- Messages
- 1,228
Budgeting skills seen more important when ER than when working and saving for ER. At least in my case where I'm looking to ER on less income than I took when working. I'm trying to get together a plan for making sure I don't exceed my SWR in ER.
The most difficult part to figure out is dealing with "lumpy" expenses like replacing the car, replacing the furnace, dealing with unexpected health expenses, even replacing a computer. It seems that these can be lumped into two major categories, those that are relatively predictable and those that aren't predictable.
While working and saving for retirement I generally didn't do a whole lot of budgeting around these things... I spent a monthly average well below my means and then handled big lumpy expenses out of savings where necessary. The downside to this approach was that I never have a very clear idea of exactly how much I was spending per year on what.
It seems like the most conservative thing to do would be to handle lumpy expenses in the same way my condo association does: make up a list of all items that will need replacing or work done in the future, assign dates and costs, leave some extra for the expected unexpecteds, and then figure out the monthly payment that will fund a reserve fund such that it doesn't go below zero in the worst month.
I would probably want to keep two "funds" both of which are funded by regular monthly transfers out of the income pile:
1. Emergency fund for truly unpredictable things like health or car costs.
2. Savings fund for more predictable replacements of consumer goods.
The reason for having two separate accounts is that if there were only one account I think I might be tempted to spend the "emergency" portion on predictable expenses.
Whether to have actual accounts or just a spreadsheet is one decision point, and the other decision point is just how to determine the amount to fund these accounts.
As far as determining the monthly amounts to fund these accounts, that seems to be a process of looking at what past expenses have been and also looking forward to future known expenses. Perhaps once a year I should sit down and review the balances and funding of the accounts.
I'm very curious to hear how other people handle lumpy expenses in ER.
Do you use separate account(s)?
Do you distinguish between predictable and non predictable expenses?
How do you fund these accounts?
Do you have set rules for what categories of items come out of them?
What do you do if you have an expense greater than the amount in the account?
The most difficult part to figure out is dealing with "lumpy" expenses like replacing the car, replacing the furnace, dealing with unexpected health expenses, even replacing a computer. It seems that these can be lumped into two major categories, those that are relatively predictable and those that aren't predictable.
While working and saving for retirement I generally didn't do a whole lot of budgeting around these things... I spent a monthly average well below my means and then handled big lumpy expenses out of savings where necessary. The downside to this approach was that I never have a very clear idea of exactly how much I was spending per year on what.
It seems like the most conservative thing to do would be to handle lumpy expenses in the same way my condo association does: make up a list of all items that will need replacing or work done in the future, assign dates and costs, leave some extra for the expected unexpecteds, and then figure out the monthly payment that will fund a reserve fund such that it doesn't go below zero in the worst month.
I would probably want to keep two "funds" both of which are funded by regular monthly transfers out of the income pile:
1. Emergency fund for truly unpredictable things like health or car costs.
2. Savings fund for more predictable replacements of consumer goods.
The reason for having two separate accounts is that if there were only one account I think I might be tempted to spend the "emergency" portion on predictable expenses.
Whether to have actual accounts or just a spreadsheet is one decision point, and the other decision point is just how to determine the amount to fund these accounts.
As far as determining the monthly amounts to fund these accounts, that seems to be a process of looking at what past expenses have been and also looking forward to future known expenses. Perhaps once a year I should sit down and review the balances and funding of the accounts.
I'm very curious to hear how other people handle lumpy expenses in ER.
Do you use separate account(s)?
Do you distinguish between predictable and non predictable expenses?
How do you fund these accounts?
Do you have set rules for what categories of items come out of them?
What do you do if you have an expense greater than the amount in the account?
