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Do you break out your budget for retirement planning into different types of expense? For instance, ordinary expenses, extraordinary expenses, travel, etc.? Or do you utilize an income -expense =remaining cash with all line items listed?
Did you base your costs, outside of sunk costs for living, on current levels or the difference between your assumed withdrawals minus ordinary expense?
I know this is an exercise in guessing, but wanted a feel for what worked or was more accurate?
I've never seen the point in having a budget. I simply spend less than I take in.
We have a budget and stick to it. The point of having a budget is this: there are two kinds of expenses - recurring costs and unplanned costs. Recurring costs are easy, those are food, utilities, gas, insurance, etc. They stay pretty constant month to month. Unplanned costs are, well, unplanned. Things like new tires for your car, medical emergency, replacing a broken water heater.
The recurring costs for us are about 70% of our budget. The unplanned stuff is the other 30%. We need to keep in-budget for the recurring stuff and keep saving for the unplanned stuff. It mostly looks like we are under-budget with our withdrawals but that is only because we are not paying for one of the big unplanned things. But you never know when those will happen, it is random. Could get 0 or 1 or 3 big ticket items in a year. You just don't know.
The amount budgeted for unplanned expenses is just a guess, but is based on years of experience. I have line items for "car maintenance", "house maintenance", and "medical over-costs".
I'm already retired and I tried a budget but gave it up but I am conscious of what I spend. I just monitor expenses and income and save a little each month. I use Quicken to keep things organized. I can print a report of what I spend by category and that helps keep track. You can also project a few months into the future based on what you know you will spend.
I have been plotting my budget for well over a year. I use actuals. I have lots of details including discretionary spending. I will retire anytime between this summer and next summer. I think its important to know if you can maintain a particular lifestyle.
Do you break out your budget for retirement planning into different types of expense? For instance, ordinary expenses, extraordinary expenses, travel, etc.? Or do you utilize an income -expense =remaining cash with all line items listed?
Did you base your costs, outside of sunk costs for living, on current levels or the difference between your assumed withdrawals minus ordinary expense?
I know this is an exercise in guessing, but wanted a feel for what worked or was more accurate?
A budget is a tool to get you where you want to be. It is definitely not an absolute thing.
I started tracking my expenses in 2013 when I retired at 53. We have always lived well below our means and our intent for tracking our expenses was simply to know what we were actually spending just to give my DW some assurance that she would not need to purchase the book "49 Ways to Prepare Alpo and Enjoy it" when she turned age 90. She felt so comfortable with our situation that she retired last year.
I was not planning to continue the exercise after this year. However, it has provided us a lot of information and we will continue to do it.
I'm going on my fourth year of tracking expenses in preparation for retirement. I record actual expenses in broad categories of Mortgage/Property Tax/Utilities to include internet and cable, Home Maintenance (repairs, yard work, housekeeper), Groceries/Paper Products/Cleaning Supplies, Dining Out, Medical, Pets, Toiletries/Haircuts/Pedicures, Clothing, Car/Gas, Vacations/Travel, Entertainment, Gifts/Christmas, and a miscellaneous category (e.g., income tax). But I identify the expenses so I can pick out what it cost for yard work that year or for a specific vacation. The point of this is to determine if my expenses are relatively stable, what unexpected costs can arise and how much to budget for these in a worst case scenario (e.g., house repairs, medical costs for pets), how much can I expect to spend on a vacation for future estimates of travel costs, where I can cut costs if needed, and to provide confidence that my retirement income will cover all my costs.
So far I am good to go but will try to cut down in some areas in retirement (e.g., cable, home maintenance when I downsize) but I expect other categories to increase (vacations, entertainment, gasoline). I also track my savings. I have no desire to be on an actual budget. My expenses show that I'm living below my means and am on track for retirement. Paying off my mortgage has helped. Some expenses such as home repairs are large one year but small the next but most are stable. Budgeting might get me to retirement a little faster but would not be worth the deprivation. I'm not sure this answers the OP's questions but it works for me.
I was doing good until my son died, that was costly but I certainly didn't care. It wasn't like I would be spending any more on him.
Then my car needed new tires. The next month was car insurance. Between these three things, I really had to dig into my savings.
Then I went a little crazy and spent money foolishly.
I'm fairly certain I am back on track now but did make a spreadsheet and will seriously try to stick to it and rebuild my savings. Even though I have investments, I really want to rebuild my savings. That is what saved me when I was hit so badly by life's unexpected costs. Yes, I could always take some money from my investments but it sure felt good to have that money in the bank.
We worked with budgets all during our working years, just so that we could have a retirement. Even when there was plenty left over, we socked it away. Frugal living becomes second nature after four decades!
I always let my wife handle the money. That way, if things fall apart, I can always blame her! Seriously, we use no credit, so we've gotten into the habit of keeping large cash balances. Things that others whip out a credit card for, we pull out a special debit card. That way, we aren't so tempted to be compulsive!
I guess we keep a rolling balance in our heads. Amazing how we both know how much has gone out so far during the month! I have never held my wife to too strict a budget. I like to keep her happy -- and she's more frugal than I am!
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