Personal GAAP - CapEx, OpEx

[Route246]

This is probably a bit deep in to CPA nerdism but here it goes....

I'm not an accountant or CPA but in the business world GAAP, CapEx and OpEx are buzzwords I hear a lot about, both with budgeting and quarterly and annual reporting for public corporations.

I have felt the alikeness of the following in my journey to FI.

Personal CapEx equivalences are acquiring transportation vehicles, buying a home, home appliances and improvements, paying for education of family members, investments in ventures and tax-deferred savings. This is not exactly GAAP but for personal outlays I deem these as having returns in the future.

Personal OpEx is rent and leases, food, utilities, energy, dining and drinking at restaurants, travel and vacations, repairs, personal, miscellaneous and home care services, deductibles, insurance plus anything related to instant gratification.

That said, I expended a great deal building FI by spending on CapEx while minimizing OpEx. It seems CapEx is not a lot of fun while certain aspects of OpEx can be very fun. But, once I made this observation things started to coalesce and the big picture became more clear.

I see the number one retirement activity here is guilt-free travel for some, volunteering for some others, immersion in hobbies and causes for those inclined, etc. All of these seem to lean towards OpEx and the beautiful cycle continues.

One big impediment for me (and probably a few others) is adjusting to guilt-free OpEx because we have been so disciplined reaching FI it is just a hard habit to break.

I was a road warrior at one time so travel is not my thing, I actually don't like it at all as it has become too unpleasant with all of the games and restrictions and most of all the security required to fly now. I still take trips but dealing with airports and airlines is just not as pleasant as it was when I was a road warrior.

For those of you who have cut loose from the highly disciplined life of being a saver managed to break free of those lifelong habits of save, save, save?

 

[LateToFIRE]

I've thought about our personal finances in a similar fashion, dividing cash uses into the following categories:

Investment - savings, financial investments, business ventures, income real estate, primary home, basically stuff that could grow in value and/or generate cash flow

Durable Goods (CapEx) - purchase of a vacation home, furniture, artwork, vehicles, jewelry, renovation and home improvement, basically stuff that tends to last a long time, if not hold its value. Different from investment because tends to depreciate over time (especially vehicles).

Maintenance OpEx - what it costs to keep the lights on (mortgage payments, utilities, eat in groceries, essential services, healthcare, etc.)

Discretionary OpEx - extras that could be cut back if needed (eat out, travel, non-essential services, etc.)

 

[big-papa]

As a retiree I want to be as far as possible from anything that reminds me of the corporate grind, including their accounting terminology.

Cheers

 

[frayne]

I think many of us here have number crunching type backgrounds and for the most part enjoy the challenge of not only understanding but being able to influence the numbers to our advantage. In my former life as a chemical plant operation superintendent and being responsible for budgets it made me a better manager of my own finances, i.e. understanding the differences between fixed, variable costs, CAPEX, etc. Every month I still print out and file my own version of a monthly control and profit/loss statement as kind of a validation of where things stand. Probably a little too much for most but it helps me keep my sanity and I enjoy it as well. YMMV but I think our K-12 school systems and even colleges should have required finance courses to prepare the up and coming generations for the hard realities of life. It ain't how much you make, it's how much you spend.

 

[pb4uski]

As a retiree I want to be as far as possible from anything that reminds me of the corporate grind, including their accounting terminology.

Cheers

+1 Retired CPA, CMA, CIA with an MBA to boot.

 

[big-papa]

I think many of us here have number crunching type backgrounds and for the most part enjoy the challenge of not only understanding but being able to influence the numbers to our advantage. In my former life as a chemical plant operation superintendent and being responsible for budgets it made me a better manager of my own finances, i.e. understanding the differences between fixed, variable costs, CAPEX, etc. Every month I still print out and file my own version of a monthly control and profit/loss statement as kind of a validation of where things stand. Probably a little too much for most but it helps me keep my sanity and I enjoy it as well. YMMV but I think our K-12 school systems and even colleges should have required finance courses to prepare the up and coming generations for the hard realities of life. It ain't how much you make, it's how much you spend.

Same here as a retired engineer with 40 years in the biz. I just would prefer not to use corporate terminology!

Cheers

 

[YVRRocketSurgery]

Not an accountant so I definitely don't know the minutiae of Capex and Opex. Mainly had the finance guys give my crap for mis-coding my project spends. And also kind of appreciate skimming the quarterly reports of the companies I invest in.

I loosely use the term Capex for my one time/infrequent big purchases when chatting with the missus. But from my understanding, Capex involves depreciation to smooth the spend over a period of time so the financials don't look lumpy in a high Capex year.

Instead, I'm mainly looking at assets and free cashflow. For my personal spend, I group based on: One time purchases, core spend (utilities, food, etc), discretionary spend, and travel. Travel obviously kind of falls under discretionary but it's a large and flexible enough category for us that I wanted to break it out. I suppose it's roughly the equivalent of Capex, Opex, and T&E.

I've been asked before if I was going to have trouble transitioning from saving mode to spending mode. So far it has not been a problem as I just completed 1 year of retirement.

I'm generally happy to spend all the yield/dividends from my taxable account. The amount is actually slightly more than what I was netting after all my payroll taxes and forced savings so it kind of feels like income replacement and I haven't skipped a beat. However, I'm trying to build up a bit of a cash cushion in the event I need liquidity. (The missus is still working though so it's not urgent.)

Where I might hesitate is when I crack open my tax-advantaged retirement accounts. I'm planning to start small annual withdrawals at the end of this year. The idea is that it's more fun, to have fun when you are younger than when ailments catch up to you as you age.