FIRE budgeting questions wrt SWR

[brett]

What I found interesting is that I used our manual spend number for the five years leading up to early retirement a double check really on what our basic monthly expenses in retirement may look like. We had a 3700 sq foot home at that time. Two trips a year, one of them was always a warm weather cruise. Typical work expenses for me...clothing, lunches, vehicle, etc.

At retirement our lifestyle changed significantly. Homeless, then downsized condo living for four years, then our own home again 1500 sq. ft or so. Plus lots of international travel...on average at least four months per year. Two vehicles down to one.

Amazingly , the base annual spend number remained fairly constant, adjusted for inflation and the some larger travel expenses. Even though the spend was very different in certain areas.

What did change? My retirement calculations greatly under estimated investment returns and over estimated inflation over the past 13 years. Far too conservative but at the end of the day far better than the opposite.

Bottom line. Figure out what best works for you. There is no right answer.

 

[Sunset]

We don't have an FA, as paying them 1% (25% of our max 4% withdrawal) is just too much.
We are buy & hold broad based etf's mostly.

I track our spending according to my categories, use spending tracker on my phone (handy) and transfer the ~12 categories to my spreadsheet once per month.

So for me buying stuff at Costco is groceries, should I buy a trip at costco that would be travel.
I wouldn't break out a pair of jeans at costco from the groceries as not significant.

 

[surprising]

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?

When preparing for FIRE I used the categorization stuff to populate a spreadsheet for basic living expenses and tracked that over several years. During that time I was also building up a portfolio of income producing assets. Once my income producing assets covered my basic living expenses, I got more confident that I could FIRE. Today, as long as the dividends keep coming in, the market could stagnate or drop and we could hunker down and still live without selling any stock.

I also use the categorization to make sure expenses make sense. For example, food expenses last month for the 2 of us was $1800, roughly half groceries, and half eating out. It is outrageous to me and I want to get it under $1000. Step 1, stop getting $16 alcoholic drinks when eating out

 

[pjigar]

I also use the categorization to make sure expenses make sense. For example, food expenses last month for the 2 of us was $1800, roughly half groceries, and half eating out. It is outrageous to me and I want to get it under $1000. Step 1, stop getting $16 alcoholic drinks when eating out

We mainly use category expenses for this purpose. We don't have a hard budget for anything but I would like to know if something goes out of whack so we can control it back into its historic average. Typical categories that go out of control once in a while for us are: Hobbies, Tools, Restaurants, Home Improvements, Travel

 

[audreyh1]

We mainly use category expenses for this purpose. We don't have a hard budget for anything but I would like to know if something goes out of whack so we can control it back into its historic average. Typical categories that go out of control once in a while for us are: Hobbies, Tools, Restaurants, Home Improvements, Travel

Exactly! It’s monitoring and getting a big picture. Very valuable!

We’re actually not trying to save money during retirement, but I still like to see where it goes. We’re pretty good about sticking to our priorities in terms of spending.

 

[Dtail]

We mainly use category expenses for this purpose. We don't have a hard budget for anything but I would like to know if something goes out of whack so we can control it back into its historic average. Typical categories that go out of control once in a while for us are: Hobbies, Tools, Restaurants, Home Improvements, Travel

This is one of the multiple reasons that I continue to budget and perhaps the most important reason.

 

[Dtail]

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.

So for starters as I responded in another post, I like to keep track if anything gets reasonably out of whack, especially with the discretionary expenses.
For us in particular, we are not SIRE and depend to some extent on the performance of the market. This is an important aspect for those of us who still like to budget.
Additionally, some of us just love numbers and are very detailed about them.
I don't go crazy if a particular category goes over for the year, but will address it in next years' budget.
The budget is intertwined with the SWR which with I feel comfortable each year. for those who are SIRE or always around 1%SWR, then it really wouldn't matter the spending involved.
Quite a few folks on this site, got there by practicing LBYM and despite stated desires to BTD, are just not in their makeup and probably won't change.
Additionally, we came from a spending place that was 2x higher while working than in retirement. We are quite happy with the current spending, but can clearly spend more (potentially too much) if not keeping track of it.
Lastly, everyone is different and I know this is not a personal criticism of anyone, but I would also find it ridiculous only going out to eat once a month, not to mention a restaurant I rate below Mcd (Denny's).

 

[brett]

I do not need categorization to tell me if our spending on certain items is above normal for whatever reason.

I can pick it up very quickly as I line item eyeball our various monthly credit card statements.

My focus is on the average monthly spend. I am well aware that inflation has impacted travel. It does not mean we will cut back on travel. It means that I understand the reason for the increase. Ditto for some food costs, entertainment costs, insurance costs. I do not need to categorize everything to understand the spend on these items. I know that we are spending more on food. I see it when we shop. But this is not going to impact what we buy next month.

As long as the combined discretionary and base numbers are within our wheelhouse we have not had a reason to break expenses down by category. We see no real value in doing so based on our spending and our finances.

 

[pjigar]

I can pick it up very quickly as I review our credit card statements incorrect billings, etc. Especially the discretionary spending.

I hear you but it would be work for me. I like automated system. We use couple of different credit cards and analyzing individual entries will not catch "death by thousand cuts" cases. Case in point: Last Dec, our restaurant category was $1600. Not a single entry was over $100. It turned out that we just ate out too many times that month.

PS: Our secondary use case for categorization is managing rental income and expenses. This comes in very handy at tax time!

 

[Koolau]

Thanks for all the replies regarding the reasons for expense tracking and budgeting. We seem to have settled into a routine (spending) which doesn't vary much, certainly year to year but not even much month to month. It might be because I've been retired 20 years and we're in a spending "rut."

 

[TickTock]

We don't budget, but we do track expenses. Our reasons for more detailed expense tracking (which we didn't do before 2024, we just tracked total monthly and yearly spend) are 1. get a better understanding of where the almost 75% spend going through our credit cards [excluding federal and state income taxes] is going, and 2. shine some light on where we might want to change spending. We switched cell phone carrier and home security company. I'm going to review home/auto/umbrella insurance companies as well, but I've been putting it off...

It also affirms where we want to continue spending. Netflix - yes. Kindle - yes. Gym - yes.

 

[brett]

We don't budget, but we do track expenses. Our reasons for more detailed expense tracking (which we didn't do before 2024, we just tracked total monthly and yearly spend) are 1. get a better understanding of where the almost 75% spend going through our credit cards [excluding federal and state income taxes] is going, and 2. shine some light on where we might want to change spending. We switched cell phone carrier and home security company. I'm going to review home/auto/umbrella insurance companies as well, but I've been putting it off...

It also affirms where we want to continue spending. Netflix - yes. Kindle - yes. Gym - yes.

That is exactly my focus on expenses.

- On recurring charges like communciation, insurances, etc.

-Ditto for shopping travel products

- reviewing/updating our tax strategy to minimize or respective tax burdens

Not much saving to be realized in our day to day run rate items, nor is their a desire to do so or to change compared to the above.

 

[Sojourner]

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?

My goal (for 2024 and 2025, at least) is to find out how much DW and I spent in the roughly 55 categories I've identified and see how that compares to my budgeted/projected/"allowable" spending numbers that are informed by tools like FIRECalc. What I'd like is to see if, for example, we were substantially under, over, or right about inline with the $40k travel bucket that I've allocated within our annual safe spend. If we were substantially under, then I can feel comfortable upping our travel lifestyle in certain ways, or going on more trips, etc. What I'm ultimately trying to do is fine tune our spend so that our total annual SWR is just under what FIRECalc says is historically 100% safe, while at the same time trying to maximize our spend in "fun/luxury" categories and keeping it lower in categories like "homeowners insurance" and "dental expenses", etc.

 

[imjustawarrior]

the roughly 55 categories I've identified

That is an impressive number of categories.

It is interesting how personal "personal finance" truly is.

 

[pjigar]

I spent in the roughly 55 categories.

You made me look. We have 22 categories for personal spending. A dozen or so for rental income/expense.

 

[Koolau]

My goal (for 2024 and 2025, at least) is to find out how much DW and I spent in the roughly 55 categories I've identified and see how that compares to my budgeted/projected/"allowable" spending numbers that are informed by tools like FIRECalc. What I'd like is to see if, for example, we were substantially under, over, or right about inline with the $40k travel bucket that I've allocated within our annual safe spend. If we were substantially under, then I can feel comfortable upping our travel lifestyle in certain ways, or going on more trips, etc. What I'm ultimately trying to do is fine tune our spend so that our total annual SWR is just under what FIRECalc says is historically 100% safe, while at the same time trying to maximize our spend in "fun/luxury" categories and keeping it lower in categories like "homeowners insurance" and "dental expenses", etc.

Makes a lot of sense. Thanks for your response. I never did find anything useful in my figures, but I can see where it was helpful for you.

 

[Buckeye]

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.

I created a relatively simple spreadsheet in Google sheets that has 2 parts to track our spending by month, throughout the month. The top part of the spreadsheet is our fixed monthly expenditures (mortgage, insurance, electric, cell phone, streaming services, internet, etc.) and those values there are pretty steady (hopefully!). The bottom part of the spreadsheet is a running list of every expenditure we've made during the month (description, date, amount in the proper category). I have 7 categories into which I can record the expenditure. We record every expenditure that we make and have done so for years. The spreadsheet is in the cloud so I can access it on my phone and record an expenditure either real-time or later using a receipt or a credit card notification. It's a visual way to keep track of where we are for the month against our budget. Each expenditure decrements from the month's allowance so we can always see where we are. Helps keep us on track.

 

[Buckeye]

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.

Being able to go into our spreadsheet to see when I purchased something or when I paid someone, including medical expenses, has been really handy.