November 15, 2011

My 2012 budget...The First Draft

With Thanksgiving a week away and the end of the year just five weeks after that (Where oh where did 2011 go?) it is time to start looking at next year's budget to keep my satisfying retirement on track. There is enough information on what I've spent so far this year to project what categories will need to be adjusted.

In July I wrote about the categories that are in my personal budget in the post Jumping off the Financial Cliff Without a Net.  I'll use the same ones to see how things went this past year and what changes I should make.

  • Mortgage payments: I own my home so no payments No change
  • Real Estate Taxes:  should be somewhat lower next year due to decreased valuation of the home in 2010 (always lags by 2 years)  Reduce by 5%
  • Home Owners Insurance:  very stable over the last few years. No change.
  • Utilities: electric, gas, water, sewer/trash pickup  will go up.  Increase 10%
  • Home maintenance and repairs:  under budget this year, but house is one year older. Will hold with no change


  • Food and household supplies: under budget this year due to smarter shopping and coupon use, Expect food prices to continue to rise. Increase 10%
  • Internet and cable TV: doubt cable company will raise rates again. Too much pressure from other choices. No change
  • Cell phones: expect wife to get a smart phone. Will increase costs by $35 a month. Increase 25%
  • Decorations & furnishings: under budget this year. Don't need much in way of new furnishing or planting. No change.
  • Yard service:  No change

  • Clothing purchases: slightly under budget for year. Don't need much beyond basics. No change
  • Dry Cleaning/Laundry:  budget for entire year is $90 and only spent a little more than half that. Reduce by 30%
  • Entertainment: under budget for this year but purchased theater tickets for 2012. No change
  • Dining Out:  will be right on budget. No change
  • Auto gas, repairs, insurance, registration: bad year for cars - 36% over budget. Gas will go up. Increase 20%
  • Health insurance premiums, uncovered expenses, co-pays:   15% over budget this year even though I planned for an 18% increase in premiums. Increase 30%
  • Health supplies over-the-counter vitamins & medicines: slightly under budget. No change
  • Eyeglasses: neither of us are scheduled for new glasses next year. No change
  • Haircuts & beauty salon:  a bit under budget because I went five weeks between haircuts instead of four. No change

  • Gifts: under budget since decided to not exchange presents between adults at Christmas. Still over budget slightly due to unexpected wedding and baby showers. Reduce by 25%
  • Computer purchase, repair, software: way over budget due to replacing crashed computer, new printer, and a few external hard drives. I will need a new computer next year. Increase 20%
  • Subscriptions, postage stamps: under budget due to canceled subscriptions. Reduce by 15%
  • Charity:  on budget. No change
  • Vacations:  big trip to Hawaii and several day trips. Next year no biggie. Reduce by 50%.
  • Life insurance: will continue to buy policy on my life until I'm 65. No change.

Not surprisingly, next year I will be faced with increases in the categories you might expect: utilities, food, gasoline and car maintenance, health insurance, computers, and cell phones. Meaningful decreases can be taken in vacations and gifts.

The bottom line looks like a total monthly budget that should be about 5% more than this year. Both my wife and I will get our new health insurance premium information in a few weeks and that could cause a major pruning of other categories if my guess at the size of the increases is off by a lot.

How about your situation? An accurate budget is the only way to help you achieve a satisfying retirement. There is no other way to stay on top of your expenses and be sure your financial plan is working well. It is time to take a look at how you have done in 2011 and begin to think about next year. I welcome your comments and suggestions.

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  1. It must be in the air. We went through our budget on Sunday. OW! There is some serious pruning to be done :>) I like your way of looking at it. Instead of the numbers- I can put in the percents.
    We are fine- I just need to adjust.

    We have always over budgeted for taxes and insurance- paying the whole year when the bill comes instead of half at a time. Next year we will go back to paying half and a 10% increase (knowing that Kansas is the ONLY state in the union that believes that housing prices are still rising. They are not- but so few people sell- the stats are terrible.)

    We just started a "usage fee" for electricity. Yes, we get to pay $25 a month to have electricity to our house. Since we have a barn as well- the charge is $50 BEFORE the electricity is flowing. Our bill went up about 20% and we are using about the same number of watts. We need to cut the watts or house taxes and electricity will eventually make us sell this place:<(

    The unexpected travel this year hit two years worth of my side money-leaving little for 2012. All money for travel comes from my side jobs. Fortunately, the money for our 30th anniversary has been in the bank for a long time. I do not plan on plundering for smaller trips!

    Ah- the budget!

  2. Janette,

    The usage fee for electricity reminds me of the silly "convenience fees" and "facility fees" added to concert or show tickets. Some airlines now charge to make a reservation!

    A biggie in Phoenix are "resort fees" for the amenities at a resort. The charge is levied even if you don't use the spa or health club. Why can't they just have the common decency to be up-front and make them part of the room rate? Do they really think we are that dense?

    Don't touch that anniversary trip money. Good for you!

  3. Hmmm, I must confess that I do not do a budget. Never have. Probably should. But if I did, it would probably look somewhat like yours, with two exceptions. 1) My real-estate taxes always go up. They just increased again, by 5% for this year. 2) It's my daughter's last year in graduate school, and I've been paying for most of it b/c the university is pretty stingy with scholarship money and most of the loans are NOT a good deal. So that tuition item in my budget, which is the largest item by far, will go down by 100%. (And maybe now she'll get a job too!)

  4. You have a plan. That's half the battle of a budget, right? You are smart to increase some categories, especially food and gas. Hopefully we can decrease those categories, as I feel we OVERSPENT this year. We shall see.

  5. Sharon,

    I was inspired by your post of a few weeks ago to tackle my budget. Most years I'm close, with the over and unders balancing each other out. By December if I'm off target, I cut things like dining out and entertainment to get closer to even.

    This year, the car repairs and medical tests will throw everything into the red.

  6. Sightings,

    I can't stress enough how crucial I have found maintaining a realistic budget has been over the years. I'd feel completely out of control without one. While I don't track every dollar, my wife and I are rather conscientious about checking before we spend.

    I'm sure you will breathe a sigh of relief when the graduate bills stop!

  7. Yep, Ill be baring my soul out loud before too long. I'd rather chew sawdust, but it needs to be done.

  8. At age 52 I am still working full-time (and my spouse does not work outside of our home). In addition to tracking the discrete categories (every dollar spent), I find it brings some perspective to rank the categories by amount. Right now, 62% of our expenses are from three categories (in order): taxes, health care, charity.

    Years ago we used Quicken, and now we use an excel spreadsheet. A friend mentioned Mint as an improved and valuable source; and perhaps sometime I'll take a gander over there.

  9. Rick,

    I have used Quicken for years. In fact, I'm still using the 2002 version. Every time they have released an updated version it has become loaded down with features I don't need, so I stick with the basic program.

    One of my daughters uses Mint and finds it simple and helpful. From what I've sen it is an excellent program.

    My top three categories are health care, food, car expenses (2 vehicles).

  10. Barb,

    I'll look for it.

    Of course, this is just my first run-through. I expect the final budget will look a bit different. We'll we waiting for the end of the month "sticker shock" from the health insurance companies. At least I have only 2 more of these yearly panic attacks before I am eligible for Medicare.

  11. We made some major changes last year that increased our costs in the short term/2011, but decreased them substantially in the long. The biggest was moving from a high tax/high cost state (NY) to a lower cost one (TN) in late 2010. We bought a bigger, more expensive house (I thought one was supposed to downsize as they got older? Go figure) that increased our costs substantially upfront, as well as some changes we made to suit our tastes. Paid the mortgage off and put in all new infrastructure (appliances, etc) in 2011 so those costs will drop dramatically in 2012.

    Most costs decreased with the move. Think taxes (no income tax here versus almost 7% in NY, a big improvement) and insurance for things like autos and homes. But since the house is bigger our savings will not be too much in the utilities space. Medical will be higher not due to insurance costs (we have solid coverage there) but because I will pump more into the tax-deferred medical savings account for some elective work (2012 will be the last year you can put away a fairly high amount into these accounts). Lastly, car costs will hopefully drop in 2012 since I will have paid off both 0% loans I received when we purchased two vehicles new five years ago.

    Bottom line - comparing 2012 to 2013 will be more apples to apples for me due to the huge amounts spent in 2011, that set ourselves up for lower costs for years into the future. But it does not change the fact that your point is well taken. You need to have a yardstick, or at least a good idea of your expenses, to be able to navigate the coming year. I also realize this becomes more important than ever when one retires. Not there yet but will be in the not too distant future, so I need to prepare as well as you have. Keep up the great work, Bob.

  12. Chuck,

    Moving to almost anywhere from New York(except Massachusetts and Hawaii) will result in savings. Went bigger with the house..interesting. What was your space. hobbies? I'd be interested.

    You will be able to compare category increases and decreases as percentages, though the actual figures will be skewed due to the move. Obviously, you have thought all this through and are on track to a stable situation.

  13. Bob, The motivation for a bigger home:

    1. Value for the money. It was a solid home that went into foreclosure, and we picked it up for much lower than we ever thought possible. The house was built by a prominent builder for him and his wife, and they lived in it for about four years, before selling to another couple, who got into trouble after a few years. He put a lot of great touches in it.

    2. A one story home. While currently not an issue, I played a lot of sports over the years and the wife's knees are acting up, so might have problems with flights of stairs down the road. Much easier on the body, and you wind up doing a lot more walking in and outside the house, which is a plus.

    3. Home has the main part that we live in, as well as another part of the house that has three bedrooms and baths that have a separate furnace and water heater supporting them. We are able to shut the door leading to that end and not have to heat or cool it until needed, lowering our costs substantially. Went with the overall size to accommodate family and visitors that need to stay in that section. Has worked out well so far.

    4. Great neighborhood. Haven't found another one in the area, or in another city, that we like better. We were blessed in that regard.

    5. I wanted to do it for my wife as well. It is something she is proud of, so this was definitely one of the bigger non-financial reasons for the decision.

    Most of the reasons were non-financial as you can tell, but the differences in costs between a high-tax locale and here will be the icing on the cake that allows many people to do exactly as we did. Most of our neighbors are transplants from the North, Midwest, and West that did the same thing.

  14. Chuck,

    I figured your reasons would be logical, and they are. We have some friends who moved to Tennessee from Phoenix and love it.

    The house sounds like you have a perfect setup for visitors that you only have to heat and cool as needed..perfect.

    Our current home is 2 story (a rarity in Phoenix) and will eventually cause us some problems. But, the plan is to be into a one level condo within the next 6-9 years so the stairs and upkeep are no longer an issue.

  15. Bob,

    I've been tracking our expenses for six months now as we continue to test the validity of our proposed retirement budget. If all looks well at the 12 month mark, my spouse will consider that the go ahead to follow me into retirement sometime next year. When setting the budget we tried to account for every possible expenditure, including car repairs, home maintenance and appliance repairs, etc. So far, we've had no surprises, and we should have carry overs in every line other than Travel. (If I under spent my Travel budget I would take it as a personal failing!)

    It's amazing what a positive impact having more time to seek out free or practically-free activities has had on our budget. It's also amazing what a defined budget can do to one's willingness to go out and spend money. As a recent example, my husband's laptop began to crash daily and needed to be replaced. He was initially going to replace it with an Apple product. After I looked at our remaining Electronic budget funds for the year, I told him that it looked like an Apple laptop was feasible, but that it would complete deplete the Electronics account, meaning I'd have to limp along with my slow-boat-to-China laptop for another six months, when our new fiscal year began. Wonderful man that he is, he came home with a Toshiba instead. And I do attribute that to the power a budget has on controlling spend. (Well, that plus I might have hinted he could retire faster if he learned to embrace a less expensive laptop product.(!))

  16. Tamara,

    Great story about the laptop. FYI I am typing this on a Toshiba laptop and love it.

    You are absolutely correct about the power of the budget to control spending. If the food budget is running out before the month, it is no big deal to have grilled cheese sandwiches and soup or a few extra nights of spaghetti to make it work out. Want to see a movie? Is there money left in entertainment category? No? Then, stream something from Netflix.

  17. Precisely! At the end of the day it's really about attitude, isn't it?

  18. Appreciate the budget and comments. My wife and I (both 46) have transitioned into not needing to purchase anything and now focus on paying down debt. Our goal is to be debt free and mortgage free by age 51. How is that possible? My wife was out of work for one year and we learned to live off of my salary. Now back to work, my wife total salary goes to debt reduction. I also took out a 20yr term life policy at age 42, so we are covered until age 62. At that time, don't really need it. Best to get policy when you are healthy.. $90/mo for a $800K policy. Keep the posts coming.

  19. Anonymous,

    Keep up the good work...eliminate that debt! Being free and clear by 51 is a tremendous goal.

    We bought our last house in 2001 for cash. I wanted a mortgage free retirement. It makes a huge difference. Now we can wait until housing prices recover before selling to downsize to a condo.