Budget: Expenses

I’ve budgeted for the past 20 years. Initially, I used Microsoft Money and, when that was discontinued, I migrated to Quicken.

There’s a business idiom “If you don’t measure it, you can’t manage it” which I think is applicable to managing personal finances. Off-the-top of my head, I have a reasonable hunch about monthly expenses including my mortgage, Internet, cellphone etc. Other bills, including gas and electric vary particulary between Winter and Summer. Infrequent expenses are what catch me out: vacations, gifts and my catch-all bucket “miscellany”. For me, most importantly, I wanted to save first from my income and then budget around|after that expense. Two unexpected benefits of budgeting for me have been: help with taxes; and being able to quantify how much I’ve spent on specific categories (e.g. dining out).

My retirement budget expenses aren’t significantly different from my previous budget. I’m no longer earning a salary and so my income is is reduced but I continue to earn interest and dividends on savings.

I don’t plan to actively save. I’ve saved when I have more income than expenses. Now that I’m eating my savings to pay for my expenses, anything I don’t spend continues to be saved but there’s no use in my budgeting to save.

My taxes will be reduced too but I must now manage the fact that, when e.g. selling assets to cover my expenses, I’m going to unavoidably generate income too (usually capital gains, mostly long-term) and must account for this expense. Assuming (!) an effective tax rate of 25% (assume the worst, hope for the best), I’ll need 1/(1-0.25) = 1⅓ the amount to cover the taxes :-(

The majority of my expenses are non-discretionary (mortage, insurances, bills etc.). Some of my non-discretionary expenses have wiggle-room, e.g. groceries. I think my grocery expenses are high but this is not because I’m frivolous. I would like to have the ability to “chop” my grocery spending by category and item but this is not easy to do without electronic receipts. It remains unclear to me whether there’s much|any room for reducing my grocery expenses. There are 2 other budget categories that are mostly discretionary. My catch-all “miscellany” and “vacation”. I’ve always taken vacations and have traveled to many places. I don’t plan to spend much of my (p)retirement traveling but I will have some travel needs (visiting family etc.). The miscellany bucket has been used to catch anything that didn’t fall under my other budget categories (e.g. clothing, coffee, books etc.). I will continue to spend on these items but be more diligent in keeping an eye on the total amount being spent.

As with everything, it’s not possible for me to predict all of my expenses and, in truth, it’s not straightforward to estimate my taxes either but, I plan to try. I can only make best estimates now and deal with the unexpected if it arises. As I mentioned in the previous post, I’m going to sell assets in 2020 sufficient to cover me through the next 5 years assuming that this budget holds.

Spreadsheet

There’s a sheet in the spreadsheet called “Budget”. This portrays a very simple budget of expenses. It uses the percentage (column G) to calculate the weekly, monthly and annual amounts based on the total value in cell Budget!F23. You’ll note that this is currently set to an annual budget of $1,000 which is more than my notional $25 annual budget. For convenience, I’ve bumped this amount to $1,000 to make the individual items more realistic.

The majority of my expenses are paid monthly and so I customarily derive the annual amount. These annual totals contribute to the annual budget but, for most other purposes, these numbers, while intimidating, aren’t terribly useful. I find it striking to see how much everything costs on a weekly basis. This total is my weekly run-rate (column “D”) of how much I need to live. The other useful metric for me is the percentage (column “G”). This shows what proportion each expenses is of my overall budget. Household mortgage|rent is usually everyone’s largest monthly expense. As I mentioned above, many other categories are non-discretionary and not easily changed. I think it doesn’t pay to tweak the smaller expenses (e.g. my daily coffee) even though the annual amount is not insignificant. I’d rather focus on the bigger items and try to tweak those.

https://docs.google.com/spreadsheets/d/1p5szQC2tapIZ2pwNhXJztP9up5HFYHDmZRsxbnvcr9E/