FIRE budgeting questions wrt SWR

[Sojourner]

Say that FIRECalc tells me I can spend $X per year (100% safe, historically) for the next 50 years. Now let's say I want to come up with an all-inclusive, forward-looking budget that uses that $X figure as a rough cap on our annual spending. IOW, if the budget comes out to something less than $X, I can feel confident that we aren't overspending.

Two questions (for those of you who budget):

• Do you include Fund Management Fees as a line item in your budget? I first read about this in Work Less, Live More, with the idea being that you need to account for the fees being charged by your fund managers, since they're basically taking money out of your investment accounts each year that could otherwise be used for spending. However, doesn't FIRECalc already account for this? I think it does, by asking you to enter the overall expense ratio for your portfolio.
• In order to account for tax expenditures in your budget, is it sufficient to simply include line items for all taxes you typically pay throughout the year? In my case, that would be federal income tax, state income tax, and property tax (house, car, ad valorem, etc.). Is it okay to use something like the average amount of income and property tax you've paid over the past few years, maybe rounded up by a few percent just for safety?

Bonus question: Do you know of any software or apps that can analyze, say, your bank and/or credit card statements to come up with an accurate, detailed, categorized tally of your spending? I know the credit card companies offer something like this, but IME it's barely useful. The categories are overly broad and the data analysis isn't super-accurate.

 

[USGrant1962]

To your two bullet questions - yes, FIRECalc already includes investment fees as an entry. And yes, it is sufficient to sum up your taxes and forecast future taxes. Forecasting is the hard part, but the number you enter into FIRECalc for spending is acting as a forecast for the next 40 years anyway, so why pick on taxes?

Never heard of software to retroactively read and analyze your statements - interesting idea.

 

[Koolau]

Right, those two items are just expenses like utilities or medical insurance.

 

[Highbeam]

firecalc has a tab where you enter those management fees. If you haven't messed with it you might find the default quite high and so you have more money than you thought!

 

[Dtail]

I use a detailed spreadsheet to analyze expenses with many categories. There are others on this site who do as such but more in the minority.
However, a little-known fact is I do it daily for a grand total of 5 minutes daily.
There is a once a month new month setup for 15 minutes and a once a year setup for 2-3 hours.

 

[Sojourner]

Never heard of software to retroactively read and analyze your statements - interesting idea.

Yeah, neither have I, but I figured it it exists someone here would know about it! I'm thinking of writing my own little customizable app to do this. Might take a few days to get it just right, but I think it could be well worth the effort to make sure I can precisely account for and categorize all spending.

 

[Sojourner]

I use a detailed spreadsheet to analyze expenses with many categories. There are others on this site who do as such but more in the minority.
However, a little-known fact is I do it daily for a grand total of 5 minutes daily.
There is a once a month new month setup for 15 minutes and a once a year setup for 2-3 hours.

Wow... impressive! Wish I had that kind of discipline.

 

[markelp]

I use a detailed spreadsheet to analyze expenses with many categories. There are others on this site who do as such but more in the minority.
However, a little-known fact is I do it daily for a grand total of 5 minutes daily.
There is a once a month new month setup for 15 minutes and a once a year setup for 2-3 hours.

I do the same. We deal with a single bank (checking, savings, credit) and they allow download of transactions in CSV format for a date range. Once you get the categories set up in a table, it is pretty easy to sort by vendor and attach the appropriate category. Then totaling data and charting by category, month, quarter, etc flows from that process.

It would be nice to have a tool, but I’d be concerned about data privacy. Quicken, credit karma and mint.com are/were tools that provided similar functionality by connecting to your bank. Now they are all controlled by Intuit and I don’t trust them with my data. There may be others…

 

[Dtail]

I do the same. We deal with a single bank (checking, savings, credit) and they allow download of transactions in CSV format for a date range. Once you get the categories set up in a table, it is pretty easy to sort by vendor and attach the appropriate category. Then totaling data and charting by category, month, quarter, etc flows from that process.

It would be nice to have a tool, but I’d be concerned about data privacy. Quicken, credit karma and mint.com are/were tools that provided similar functionality by connecting to your bank. Now they are all controlled by Intuit and I don’t trust them with my data. There may be others…

I also use only 1 bank for expenses, but admit to checking the credit card expenses (all from the same bank) on a manual basis online each day.

 

[TickTock]

I use a detailed spreadsheet to analyze expenses with many categories. There are others on this site who do as such but more in the minority.
However, a little-known fact is I do it daily for a grand total of 5 minutes daily.
There is a once a month new month setup for 15 minutes and a once a year setup for 2-3 hours.

DW and I do a similar thing; once a month we take the CC statements and input them to the spreadsheet, then add whatever (few) items didn't go through the CCs. Takes ~1.5 hours / month

 

[surprising]

I do the same. We deal with a single bank (checking, savings, credit) and they allow download of transactions in CSV format for a date range. Once you get the categories set up in a table, it is pretty easy to sort by vendor and attach the appropriate category. Then totaling data and charting by category, month, quarter, etc flows from that process.

It would be nice to have a tool, but I’d be concerned about data privacy. Quicken, credit karma and mint.com are/were tools that provided similar functionality by connecting to your bank. Now they are all controlled by Intuit and I don’t trust them with my data. There may be others…

I use Monarch Money to aggregate all my accounts. I used to use Mint but looked elsewhere when they decided to fold parts of it into Credit Karma. Monarch is $99 a year and is similar to Mint. All transactions are pulled in and auto-categorized, and I use the Reports feature once a month to balance the books and also look back and see how we're spending.

I know a lot of people here use custom spreadsheets, but I cannot imagine the hassle of exporting and importing csvs from all my accounts manually, and then categorizing everything manually.

 

[Sojourner]

It would be nice to have a tool, but I’d be concerned about data privacy. Quicken, credit karma and mint.com are/were tools that provided similar functionality by connecting to your bank. Now they are all controlled by Intuit and I don’t trust them with my data. There may be others…

I have the same concerns, so I've decided to write a Python script that will import an Excel spreadsheet containing all of my annual spending (from CCs, bank transactions, etc.) and will categorize everything based on a custom lookup table that maps the description of each item to a predetermined category. This will let me tailor all my categories in a precise manner and give me a detailed, reliable spending report, with no privacy concerns whatsoever. It will all run locally on my PC using only local files of my own making.

 

[brett]

I do not use firecalc. I did use a similar program years ago. We have been retired for 13 years, FI for longer. The program comprehended the tax regime in our jurisdiction. I stopped using it well before we actually retired.

Our retirement planning, pre and post retirement, has always been done on the basis of after tax income. We applied the same to to any investments fees and/or real estate/legal fees from sale of property, etc. I prefer the net numbers to the gross numbers.

We never even tried to get it down precise numbers if only because our incomes, our ROI's, inflation, tax regime, etc were variable.

Our requirment was that it had to make common sense and that the bottom right hand number had to be in our ball park of acceptable (to us) percentage error.

 

[Out-to-Lunch]

(OP: You seem to have threadjacked your own thread with that throwaway question about autocategorization at the end! )

I use Quicken, and it does a not-totally-unreasonable job of categorizing, presumably using Merchant Category Codes (https://www.citibank.com/tts/solutions/commercial-cards/assets/docs/govt/Merchant-Category-Codes.pdf) and your past usage.

However, how do you propose to handle stuff like purchases from Amazon or eBay? They could wind up in any number of my categories. I always have to sit down and go through my purchase history to assign those.

 

[Jerry1]

DW was a bookkeeper and I’m a CPA so obviously we have records (Quicken) going back decades. However, if I was looking back and retroactively trying to create something, I’d start with two categories - Necessary and Discretionary. You might want to break out some other categories like taxes but ultimately, at least IMO, you’re really only looking at understanding what is my total spend an what if the stuff hit the fan, how much would I need to live on.

The next level of refinement might be a projected budget where you would add some new expenses in retirement (like travel) and delete some things that you’ll be giving up (like commuting).

Either way, if you haven’t already been keeping records with detailed categories (i.e. many categories), save yourself some effort and think in terms of very high level broad categories. It will save you a lot of time. At a minimum, don’t be afraid to have a big “miscellaneous” account. Just make sure it’s in the discretionary column.

 

[brett]

(OP: You seem to have threadjacked your own thread with that throwaway question about autocategorization at the end! )

I use Quicken, and it does a not-totally-unreasonable job of categorizing, presumably using Merchant Category Codes (https://www.citibank.com/tts/solutions/commercial-cards/assets/docs/govt/Merchant-Category-Codes.pdf) and your past usage.

However, how do you propose to handle stuff like purchases from Amazon or eBay? They could wind up in any number of my categories. I always have to sit down and go through my purchase history to assign those.

That is one reason why we never bothered with categorization. We did not care what we spent on food, gas, heating, clothes, etc. It could all be adjusted on the fly as necessary and we were both very cognizant of what and how we spent money.

Categorization was not relevent to us though it may well be to others. Why bother if we have a $300. spend at Costco? Not about to sort the receipt down to the beans and the jeans level as it were.

In our pre and post retirement years we simply took a monthly total for our bank current account of all cash withdrawals, credit card payments, and autopays. Net spending. It is now down typically six-eight numbers on our bank statement each month.

I only pay attention to the annual number because our shopping, travel, insurances number tend to be lumpy from one month to another...especially travel.

We have always focussed on the bigger costs..insurances, appliances, travel, comm costs, etc. that could be impacted by shopping. But, they were always included with the other items in our total monthly spend number.

 

[pjigar]

Bonus question: Do you know of any software or apps that can analyze, say, your bank and/or credit card statements to come up with an accurate, detailed, categorized tally of your spending? I know the credit card companies offer something like this, but IME it's barely useful. The categories are overly broad and the data analysis isn't super-accurate.

I have been using "My Accounts" feature at Bank of America for over 20 years to aggregate transactions. It auto-downloads and auto-categorizes all transactions. You may have to "train" the categorization engine for a year but then it mostly gets categorization right. I import the raw CSV data of all the transactions monthly into my excel sheet. My excel sheet has a lot of pivot tables to slice and dice the transaction data.

FWIW Bank of America's account aggregation is powered by Yodlee! in the backend. I knew a guy who worked at Yodlee! and he explained multiple levels of soft and hard security procedures in place for data protection. Either way, if you decide to use this feature then be sure to put in some common sense security practices of your own: i.e. enable multi-factor login for every login on Bank of America web site, use unique password for every financial institution, use two-factor password storage vault, etc.

 

[Sojourner]

(OP: You seem to have threadjacked your own thread with that throwaway question about autocategorization at the end! )

Yes, I guess I did! But that's okay. I am fine with a little thread hijacking (especially in one I started) if it furthers some interesting discussion.

However, how do you propose to handle stuff like purchases from Amazon or eBay? They could wind up in any number of my categories. I always have to sit down and go through my purchase history to assign those.

I think that's probably where I'd draw the line with category refinement. I'll probably just make a category called "Online shopping" that all Amazon and eBay purchases go into. Can't imagine drilling down into the dozens upon dozens of individual purchases just for the sake of micro-precise categorization.

That is one reason why we never bothered with categorization. We did not care what we spent on food, gas, heating, clothes, etc. It could all be adjusted on the fly as necessary and we were both very cognizant of what and how we spent money.

Categorization was not relevent to us though it may well be to others. Why bother if we have a $300. spend at Costco? Not about to sort the receipt down to the beans and the jeans level as it were.

That's exactly the way I've always done it, too, over my 10+ years of FIRE so far. But now, I'm feeling the need to dig a little deeper so that DW and I can make adjustments (both up and down) in an effort to fully enjoy and "optimize" our FIRE spending. Basically, we want to be sure we're not substantially "under spending" on a gross, annual basis while at the same time making sure we're not going way over budget in certain areas that might be unrecognized money pits. Having good data about our spending habits in various categories will, IMHO, help us spend in a more happy, healthy, and satisfying manner, since it'll give us reassurance that we're spending lavishly on what matters most and not throwing money away on stuff in more marginal categories.

 

[Out-to-Lunch]

I think that's probably where I'd draw the line with category refinement. I'll probably just make a category called "Online shopping" that all Amazon and eBay purchases go into. Can't imagine drilling down into the dozens upon dozens of individual purchases just for the sake of micro-precise categorization.

I do go through this exercise. I tend to do it near the end of the year, and just bang out the Amazon and eBay purchases one at a time. I personally would like to know the difference between money spent on home repair stuff (had a lot from Amazon last year) and clothes for DW.

 

[brett]

I tend to spend much more time on our income and investment items. As well as managing large on going expenses like insurances.

The only spend sheet I have is manual. An 8.5 X 11 paper divided up into small boxes.

Each side represents 2 years of spend. In each box I place the total monthly spend number ...really just an addition of the 6-8 outgoings from our current account. With an annual spend number included in the Dec. box.

Not very fancy, just a few pages in a file folder, stapled together. Only kept 2013 onwards but it does provide a YoY comparison for us.

 

[Koolau]

I use a detailed spreadsheet to analyze expenses with many categories. There are others on this site who do as such but more in the minority.
However, a little-known fact is I do it daily for a grand total of 5 minutes daily.
There is a once a month new month setup for 15 minutes and a once a year setup for 2-3 hours.

Wow... impressive! Wish I had that kind of discipline.

Once, ca 2011, I did do a very detailed (20 categories??) breakdown of one year's spending. I didn't find any huge surprises though a couple of "Hmmm! That's more (or less) than I thought" moments at the end of the year.

Then I thought to myself. Why did I do this? Will I change anything? (Answer: No.)

Do I still have "enough"? (Answer: Yes.)

Was it worth my efforts? Answer: Well, maybe just for one year - because I've never done it and everyone at FIRE Forums seems to do it.

So, I guess my questions to those doing detailed (or not so detailed) expense tracking: What is your ultimate goal of such efforts to track expenses? Are you "on the edge" financially? Will you or have you changed your spending because of past results? Were you ever (truly) surprised by your results - especially in one or more categories?

I'm just curious because, honestly, I found virtually no value in the process once I had tried it for a year. I know we are all different and please don't consider my questions as a criticism. I tend to make my spending decisions based on whether I need something or not and whether I consider it a value at the time I buy. Other than that, I don't think in terms of a budget or spending record. Just my thing and trying to understand how others thinking is different - and if I've missed something (wouldn't be the first time!) Thanks.

 

[Jerry1]

So, I guess my questions to those doing detailed (or not so detailed) expense tracking: What is your ultimate goal of such efforts to track expenses? Are you "on the edge" financially? Will you or have you changed your spending because of past results? Were you ever (truly) surprised by your results - especially in one or more categories?

I have this discussion with DW on occasion. To me, there’s a difference between tracking and categorizing. Tracking is very useful, imo, because it answers such questions like total spend and it also allows you to go back and know when you bought something (warranty) and who did the work. A basic check register set up in a spread sheet will do that. All you need is the search function for it to be useful. Spending time categorizing everything is less valuable except as I mentioned above to be able to know what your discretionary spend is. Even though I’m not “on the edge”, I like to know what my base living cost are as that gives me comfort when things go south.

 

[Koolau]

I have this discussion with DW on occasion. To me, there’s a difference between tracking and categorizing. Tracking is very useful, imo, because it answers such questions like total spend and it also allows you to go back and know when you bought something (warranty) and who did the work. A basic check register set up in a spread sheet will do that. All you need is the search function for it to be useful. Spending time categorizing everything is less valuable except as I mentioned above to be able to know what your discretionary spend is. Even though I’m not “on the edge”, I like to know what my base living cost are as that gives me comfort when things go south.

That makes a lot of sense. Thanks for sharing.

I know a lot of folks here have more or less "automatic" tracking. I had to sit down at my computer every day (well, when I got around to it ) and enter the data by hand on a spread sheet. That was a pain. If I had one of the apps that did it automatically, I suppose I'd at least look at the data occasionally to see if anything had changed. Maybe in my next life.

 

[Gotadimple]

You can do this with a spreadsheet or commercial software along with doing the spending entries manually (or downloading from your bank, credit card accounts). Quicken is one, Monarch Money is another, and then there is MoneyDance.

All of them do similar things, they can let you decide on the categories you want to track, help you reconcile accounts, produce reports, and compare your spending to an annual budget. With downloads from financial sites they may categorize differently than the way you want to see things reported. You can probably do a change in the software to take a group of things categorized one way and rename it to a different category so it tracks to your budget.

Most of them charge an annual fee and the data may reside in the cloud on or your system. I have found MoneyDance does it differently. Software can be downloaded to phone or computer, there is a fee for the software and if you never upgrade (or rarely see a reason to) there is no other investment needed. For those who like to keep up with the detailed upgrades, upgrading when notified is free.

 

[Koolau]

You can do this with a spreadsheet or commercial software along with doing the spending entries manually (or downloading from your bank, credit card accounts). Quicken is one, Monarch Money is another, and then there is MoneyDance.

All of them do similar things, they can let you decide on the categories you want to track, help you reconcile accounts, produce reports, and compare your spending to an annual budget. With downloads from financial sites they may categorize differently than the way you want to see things reported. You can probably do a change in the software to take a group of things categorized one way and rename it to a different category so it tracks to your budget.

Most of them charge an annual fee and the data may reside in the cloud on or your system. I have found MoneyDance does it differently. Software can be downloaded to phone or computer, there is a fee for the software and if you never upgrade (or rarely see a reason to) there is no other investment needed. For those who like to keep up with the detailed upgrades, upgrading when notified is free.

I probably do too many cash purchases for the trackers to be very effective but I certainly see how having that data available - one would likely look at the categories and perhaps make changes in spending?? Thanks for sharing.