Do you budget to control spending or for planning only?

[Meadbh]

Since ER I have analyzed spending by category at the end of every month on my customized spreadsheet. I do look at taxes. I started with an annual budget for each category, based on previous spending. Each year I tweak the budget based on experience, but I have not yet given myself a raise. I use my expense spreadsheet primarily for planning. I find that for the most part, categories balance each other out over the year. Clothing and tuition are two categories that I greatly overestimated. One year I had a larger tax bill due to unexpected income, so I cut back on travel. So I guess I use the data for guidance rather than for control.

 

[braumeister]

I initially set up a budget that seemed reasonable to me, and it worked out to a WR of about 3.15%. Each year, the total amount has been increased to match inflation.

Over the years, we have never actually spent as much as the budget allowed, because we live a very modest lifestyle. For the last few years, we've dramatically increased our vacation travel spending, including things like business class flights on long hauls, better hotels, etc.

This year we will go over the budget amount for the first time, partly due to buying a new home and partly to pre-paying for a big vacation trip next year.

But even after that, next year's budget looks like being a WR of a little less than 3% so we're in good shape.

As others have said, we don't let the budget control our spending, but it is nice to be able to see how our spending works out against our "income."

 

[Walt34]

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.

That's about where we are too, except that we're both retired. We have enough wiggle room that the occasional splurge doesn't cause any havoc with the budget.

 

[Katsmeow]

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.

If it is truly something both of you agree is the best then it probably shouldn't be a problem. If it is something you insisted on and DW agreed to in order to keep the peace then it might be a problem.

I do believe in budgeting but it isn't rigid. The thing is that I have X amount in a category and we decide to spend more then we need to find where we will take from something else. That works fine.

I would also say that it has helped us to have some amount that we haven't included specifically in the budget but that we know we can spend beyond the budget if we want to. When we will spend it might be this year or next year or 3 years from now. But we have it in mind.

I also don't think every year has to have identical spending. There is nothing wrong with frontloading some spending, knowing that will mean spending a little less later on.

 

[Rustic23]

After almost 10 years of retirement I have a real good idea as to what it takes to live on. Our financial planning accounts for savings to replace the major components of the home, auto, and recreation. Therefore, our 'budgeting' is strictly informational. I download our spending into Quicken each month just to insure there are no surprises.

 

[FI by 2024]

Initially my budget was for control, but that was back when I was new to LBYM and getting my feet under me. Now it's mostly just for planning. It still gives me a limit as a goal, but if I'm a little over budget I don't stress. I also don't stress moving money between buckets. I spent too much on entertainment this month? No problem, I just won't go clothes shopping. As long as total spending is as planned, I'm good.


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[shortstop14]

So far, three years into retirement, budgeting is only for planning purposes. The only thing I track is total expenditures , and travel expenses as a subset of the total. One time infrastructure expenses like vehicle replacement and large home repairs are also tracked separately. We've never bothered to track to any lower level of detail, as we're both fairly frugal and try to keep expenses low, or at least of high utility.

Year over year we can see if standard expenses are creeping up, and we'd take corrective action if needed. The major lever is travel, which runs 20-25% of total expenditures and can be cut back if get up too high. So far, we've been closer to 4% than 3.5% withdrawal rate. But early in retirement the travel urge is high - mostly longer term non-luxury travel by preference. FireCalc and others still have us at 100% survival rate, especially with Social Security and small pensions starting in two to ten years.

My wife doesn't pay much attention to the financial details, but she knows enough to take over if I get hit by the proverbial truck. Since I initiate most of the travel, it's easier to adjust that and the timing of large one-time expenses than to pick at smaller expenses. We're pretty good at spending lockdown mode since that was our reality for quite a few years, but it would take a significant unplanned event or serious investment downturn to get back to that mindset.

 

[Pharmmgr]

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.

Danmar
If not to personal of a question, would you provide what items contributed to your over budget spend?

Thanks

Patrick

 

[Ronstar]

I created my budget from 5-10 years of actual spending numbers. So my budget is mainly for planning. Not much need to control since spending almost always falls in line with historical numbers.


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[chris2008]

We track spending and used the numbers of many years for ER planning. Now we track to know that we stay within the plan.

 

[old woman]

I don't have a written budget or really even a mental budget. I spend what I want to spend but don't like waste so don't over spend. When I turn 70 I can live on SS if I have to but at 67 have almost a million so if I take out 40K a year I can gift it or spend it or just leave alone. I need about 10K-15K to pay expenses more than SS so can gift about 25K or spend more foolishly but even if I spend an extra few thousand it isn't a big deal.

 

[Danmar]

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

This is a good point and will be true for most people I think. But it might take a few years of retirement to settle into a lifestyle. So best to be a little more careful early on.

In our case there are still "projects " that are fairly expensive that we try to spread out. Eg new vehicles, new boat, redecorating, daughter's wedding(ouch!!) Agree that basic standard items are now pretty consistent

 

[Danmar]

Danmar
If not to personal of a question, would you provide what items contributed to your over budget spend?

Thanks

Patrick

Each year is different but a couple of recent overages would include redecorating our Toronto condo(not in plan at all) ,my daughter's wedding which went way over plan, a lot of unanticipated maintenance at our lake house, and a new vehicle we weren't planning for. All the regular stuff balances out each year and is very easy to plan for.

 

[Midpack]

We've adhered to a budget/spending plan for over 30 years, and that continued into retirement. Having a budget lets us know we're on track. If we choose to over or under spend, we do so consciously and there aren't any surprises. Keeping a budget is reassuring to us, not a source of friction in any way...

 

[Meadbh]

Each year is different but a couple of recent overages would include redecorating our Toronto condo(not in plan at all) ,my daughter's wedding which went way over plan, a lot of unanticipated maintenance at our lake house, and a new vehicle we weren't planning for. All the regular stuff balances out each year and is very easy to plan for.

Do you have any concerns about your daughter's ability to LBHM? After all, your NW is an outlier, reversion to the mean is real, and inheritances can be spent down quickly without financial discipline.

 

[Danmar]

Do you have any concerns about your daughter's ability to LBHM? After all, your NW is an outlier, reversion to the mean is real, and inheritances can be spent down quickly without financial discipline.

No. She and her husband are very responsible and careful with money. They have good jobs and futures. We will help them financially along the way but don't have significant concerns in this regard. They don't feel or act entitled and have never asked for anything. We gifted her enough prior to the wedding to allow them a good down payment for a decent house in Toronto but they are in no hurry and will continue to rent for a few years.

She is not likely to receive her inheritance until in her 60's so she should be able to handle it. Her husband is a CPA so should be able to self manage it if they wish. My plan is to bring them more into our financial affairs as we age so it's not such an abrupt transition.

I feel there is only so much you can do in this regard. The best thing is to set a good example and hopefully we have done that.

 

[Meadbh]

No. She and her husband are very responsible and careful with money. They have good jobs and futures. We will help them financially along the way but don't have significant concerns in this regard. They don't feel or act entitled and have never asked for anything. We gifted her enough prior to the wedding to allow them a good down payment for a decent house in Toronto but they are in no hurry and will continue to rent for a few years.

She is not likely to receive her inheritance until in her 60's so she should be able to handle it. Her husband is a CPA so should be able to self manage it if they wish. My plan is to bring them more into our financial affairs as we age so it's not such an abrupt transition.

That's good to know. The bolded statement suggests she has her head screwed on!

 

[kcowan]

Each year is different but a couple of recent overages would include redecorating our Toronto condo(not in plan at all) ,my daughter's wedding which went way over plan, a lot of unanticipated maintenance at our lake house, and a new vehicle we weren't planning for. All the regular stuff balances out each year and is very easy to plan for.

We maintain an extra line of the spreadsheet for major items. We try to spread them over multiple years. The purchase of the condo was a different year than the purchase of the new car.

 

[Danmar]

That's good to know. The bolded statement suggests she has her head screwed on!

Yes, I am very proud of her.

 

[Danmar]

We maintain an extra line of the spreadsheet for major items. We try to spread them over multiple years. The purchase of the condo was a different year than the purchase of the new car.

I put the large special items in red but leave them in the appropriate category. We have a list of 3-4 items that are queued up over next 2-3 years. Eg new bathroom at lake house, new boat, etc

 

[petershk]

Fortunately my wife and I are both "savers" though she routinely wins at this game .

We budget by saving anything over monthly budget (around 8k) first and tracking every month. We go over sometimes and under others but it hovers pretty close.

For anything excessive we "fyi with veto" but that's never happened. I think we both stress about spending on big things enough that it doesn't seem to impact.

Things like vacation, etc we plan together so no biggie.

We are not fired yet though act as if we are in order to get comfortable. So far the only stress has been market volatility which has impacted post fire asset allocation... I'm not nearly as robust as I think I am .

But of course after fire maybe we'll go nuts or something. So far this hasn't been an issue.

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[scrabbler1]

With a SWR of only 2.5% and a considerable cushion built into my budget (and my overall portfolio), I use the budget to monitor, not control my spending.

 

[jkern]

Both, I use a budget to track essential expenses and control spending such as recreation and entertainment.

 

[athena53]

I'm a numbers person, always will be, so I download our credit card transactions and assign categories to all of our spending. I add the few things paid out of the checking account but don't bother with cash because it's negligible.


I know what we need from our brokerage accounts every month and as long as we stay within those limits I don't get crazy about where it goes. I do like to be able to back out one-time hits, like those related to our recent move, and purely discretionary travel (as opposed to occasional trips to see our granddaughter 3 hours away, which is NOT negotiable!) to get an idea of our baseline expenses. I also like to see which are changing substantially.

 

[kaudrey]

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.

Although we are still working, I can tell you this does work for two people, if the second person in question really has no interest in monetary details. DH is on board with our savings/retirement plan, and he lets me worry about the details.

If we have a month where the credit card bill is larger than normal for whatever reason, I just tell him we are broke for a little while and need next month's bill to be lower. So, he spends less on discretionary things, until I tell him we are OK again.

Obviously we aren't broke, but he knows it means our checking account balance is getting lower than I like.