December 21, 2015

Budget Building for 2016

I would feel lost without my budget. For the last forty-five years or so I have made it a point to plan my expenses for the coming year, matching needs and wants with income. Each purchase is recorded by category. Then, once a month I look at a report that compares my budget with reality. Sometime in December I do the planning all over again for the new year, based on actual expenses and projections for the new year.

I strongly believe this reliance on a budget and the careful tracking of expenses are part of what allowed Betty and me to retire as early as we did. Not knowing where our money went and hoping we didn't spend too much just wasn't in our genes. Now that we have inherited a portion of my parents' estate I really don't have to budget as religiously as in the past. But, I do. 

2015 was a year that made a bit of a mockery of the budget I developed a year ago. Our unexpected decision to move to a new home in May and all that entails with decorating and settling in, the reworking of our vacation plans, my heart attack in August, and a reordering of our priorities because we now live less than 5 minutes away from our grandkids forced major changes. Money was shifted around as certain categories were cut and others expanded. Even so, the expenses were only 4% higher than what had been planned for. 

I certainly expect 2016 to be a little more stable, though I thought the same thing for this year. Life is all about learning to adjust. A satisfying journey through retirement takes constant course corrections. A budget and careful tracking of expenses helps make that happen.

For 2016 I am expecting my income to remain unchanged. As a retiree with an IRA and investments to draw on, income is really the wrong word. Better would be to say the amount of money I will withdraw, coupled with Social Security, will be the same. 

One major change will be the withdrawal rate from my IRA: 0%. With tax free estate money now available, I do not plan on touching my IRA for years. Except for the minimum amount I must take out each year after I am 70.5 years old, there is a good possibility that the money in that account will (hopefully) compound and grow for the next few decades, untouched. It would be nice to have it available for our kids when the time comes.

I anticipate 2016 will be the year we finally cut back to one car. About to turn 13 years old, the car Betty uses for running errands is on borrowed time. We have decided to not put any more money into its repair and upkeep, except oil changes. It is driven less than 3,000 miles a year but is thisclose to having something important fail. Spending $20,000 on a replacement seems silly at this point in our life. 

With  our family so close to each other, gatherings at our house for meals, games, movie watching, and general merriment (!) have increased dramatically. So have our food and beverage expenses. The budget will contain a new category: Family meals and togetherness. Betty and I want to feel free to host as many get-togethers as we can without fretting over the costs, be it food, drink, or even lawn and board games that add to the fun.

Our fixed medical expenses will decrease in 2016. This year Betty was forced to buy health insurance on the open market and paid a lot. Next year, she will be able to use the Federal marketplace to get a much better rate. With Medicare and supplemental polices for me increasing only minimally, I have been able to trim that portion of our budget. Of course, no one can predict illness or injury, so doctor visits, pills, and even hospital stays could punch a huge hole in our planning - even with insurance. But, if that happens we will deal with it.

Baily, our dog, is getting to the age (now 4) that we need to plan for an increase in her health care. Cleaning human teeth is not cheap. Cleaning a dog's teeth is  worse. Her haircuts are almost three times more expensive than mine. The only kennel she will tolerate if we are gone on a trip without her costs over $80 a day. Her share of the budget will increase.

One of the best decisions we made when moving to our new home was to finally hire a house cleaner. Betty and I had been handling the chores since our first days together. Now, we felt our time and energy should be spent on other things, so we started using a service, twice a month, right after the move. It has made a tremendous difference to us, especially with family here so often. I think we would give up something else completely before we stopped that "luxury."  

Budget amounts for gifts, clothing, food and household expenses, RV costs, yard service, furnishings, charity, cell phones, and utilities all show slight adjustments, but everything balances out in the end with some judicious shifting between categories. I will take a final look at our 2015 expenses next week, and finalize the new budget on New Year's Day. 

2016: Bring it on!



38 comments:

  1. Good morning Bob. Another great post about an important topic that effects all of us! I have become more "relaxed" over the last couple of years regarding our budget. While I still monitor our expenditures monthly, I no longer worry about our financial state. Early in my retirement, my gut had a hard time acknowledging what my brain knew to be true: we are financially in good shape.

    As I read your post, it is clear that you are focusing on your priorities of family and experiences! Even your expenditure for house cleaning frees you up; more time for life affirming relationships and experiences, and less on the mundane.

    Experiences and relationships with friends and family will continue to be our focus for 2016. Fragile, precarious health of those close to us simply reaffirms how important this focus has become.

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    1. I have yet to receive a bill of any kind for my 2 night/3 day hospital stay in Portland after my heart problem in early August. I have seen what Medicare and my Medigap policies paid, but anything else the hospital wants to try to collect has yet to grace my mailbox. With an original charge over $30,000 (reduced significantly to the Medicare approved amounts) I am waiting to see what else may arise. So far, so good.

      Yes, family is the focus. We hosted two big dinners over the Thanksgiving weekend, had 12 here last night for football and a dinner, and will have 8 for a Christmas Eve meal. Without a budget adjustment Betty and I would be eating oatmeal and mac & cheese for weeks! But, it is all worth it.

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  2. Wonderful post for this holiday week..Ken and I are still struggling with re-doing our retirement plans and your blog continues to be an encouragement!! Merry Christmas to you and yours!

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    1. Merry Christmas to our close-by Gilbert neighbors!

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  3. I love it when there's money in the catagories to budget. Makes it so much easier.😀

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    1. How true! There were some years where I was unemployed and things were very, very tight. Raising two young girls and maintaining a household was not easy during those periods. But, we came out the other end of that test with flying colors and life is good.

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  4. For a year between the time I flunked out of college and went into the military for four years, I was "poor". I never forgot it , and decided I would never be poor again. For the next thirty years , if we had an extra dollar, we saved ninety cents. So, now we don't have to worry about a budget. Oh, by the way, our two vehicles are eighteen and nineteen years old.

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    1. Makes the 13 year old Hyundai sound like a teenager! I could abandon the budget process, too, but it would just feel "wrong." Ingrained habits are pretty powerful things.

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  5. Like you, Bob, I really appreciate the control having a defined budget affords us, particularly in our early, pre-65, retirement years. This coming year, 2016, will be the sixth year of utilizing the fairly detailed spreadsheet we maintain, and at this point it's very simple to keep updated - no more than 5 minutes a day.

    We frontload our budget each Jan 1, and our goal is to remain at or below our total defined withdrawal amount by year end. Though we generally do remain within each line item's defined budget, because after five full years of retirement we have a pretty good handle on how we like to spend our time, sometimes we have more 'fun' doing one particular thing than expected, in which case we just shift some of our allocation funds around to compensate.

    We have a couple of accrual funds to cover non-regular reoccurring items such as vehicle and RV replacement, major home repairs, and home updates. (The last category is my favorite - with no anticipated need to upgrade vehicles or RV anytime soon, we used some of the accrual funds to update our kitchen in 2015, and have plans to create a front yard patio in 2016.)

    It's also very interesting (and easy) to track changes in expenses such as utilities and insurance year over year within our budget spreadsheet. By reviewing last year's bill entry vs this year's, I'll often catch errors or changes that need to be revised. Just recently, as an example, our auto insurer pushed through a random mileage usage change, which I had reversed back out by providing an updated odometer reading. And I was also to scale down a recent tree trimming bill by reminding my gardener what we'd paid from 2012-2014 for the same service.

    I have a question for those that say they don't budget - my guess is that what is meant is that they don't do detail tracking, but rather have an annual dollar amount they know to stay at or under. Can anyone that stated this possibly respond, as I'm genuinely curious.

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    1. P.S. Giving up our housecleaning service would be pretty much the last thing to go should we ever get ourselves into a financial pinch . . . enjoy!

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    2. I'd be interested in the budget vs. total amount to be spent discussion, too.

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    3. I have never had a budget. I do keep track of my expenses. I have been living on my pension for the past five years. Some months I spend more than the monthly amount and some less. At the end of the year it works out. I have investment income and IRA. The pension covers all the basic expenses. If I want to do something extra-like a big trip-I will use investment income. I will take minimum distributions at 70 1/2 and probably wait until 70 for ss benefits. I just have never used a detailed budget and always lived below what I earned. This has worked for me.

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    4. Thanks Donna - your and Judy C's reply below indicate that most folk do track their spend, just in a variety of different ways.

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  6. I think it's wise to keep track of finances--whether you have much or not so much. When hub and I were first married, we kept track of every penny. It nearly drove me crazy, but the numbers don't lie. We found out where our money went, and figured out how to save and spend wisely. We don't track every cent any more, but at the end of every year, we look at our finances and discuss plans for the upcoming year. We got rid of hub's 20-year-old car this year and don't miss it. We still have two vehicles, and that's plenty! I think you and Betty are wise to plan on hosting more family celebrations. What a great investment. Kids grow up so quickly and life changes for all of us--smart to keep those dear ones at the table as long as possible. Merry Christmas!

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    1. The grandkids are at the right age: they are learning and enjoy most everything, but are grown up enough there are no longer any of the hygiene and clothing issues that are so much a part of young children.

      We have a built-in "escape value" at the end of the year. I have a category called miscellaneous, of a few hundred dollars. During the last few weeks of the year we go to more movies, have more dinners out, and always spend more on gifts than planned for. That is covered by the miscellaneous amount so I don't have to worry that certain categories are being overspent.

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  7. We don't have a formal budget but we have always kept a detailed account of what we spend so I guess we are really sort of budgeting in our heads as we go. We might say, you know if we eat out less, we could do so and so. The budget is just not strict and not on paper and there is a substantial slush fund. As for the second car thing, we are in our mid seventies and still do not want to give up the second car, although one of them is always older and the newer one is the "trip car". We still have such different interests and different schedules that more often than not we are going in different directions. I can't imagine having to coordinate. Are we unusual in that respect? You definitely have me thinking about a cleaning service. Might even be worth robbing that slush fund. With more freedom from household chores, I would need that second car even more.

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    1. The cleaning service every two weeks has been tremendous, esp. with the family here so much. Both Betty and I enjoy a clean home and are very pleased with the decision to budget for it.

      I also have a yard service come twice a month. In the summer time I am just not that interested in trimming, cutting, and blowing a yard in 100+ degree weather anymore.

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  8. Judy, when it comes to hiring a cleaning service, much depends on your personal likes and dislikes. But the one thing I read, recently, that has caused me to consider it, is the fact that many debilitating injuries occur when we seniors attempt to lift heavy items or climb stepstools/ladders. I'm really independent, and if my windows start bugging me, I just get the ladder out and wash them. However, I had a wake-up call when I took a tumble a few months ago, while coming down the ladder. I tried, but couldn't catch my balance, and ended up falling on my back, on concrete. I really ached, but didn't do lasting damage. My daughter (she's a RN) lectured me on the fact that as we age, our responses change, due to general decline in sight, hearing, muscles, bone density, etc. I got "orders" to make sure someone else is at home when I attempt herculean efforts. Two of my friends had bad falls this past year, resulting in surgery, one still has not recovered, fully. Makes me think maybe I should relent and hire some help. BTW, I'm keeping my own car as long as I can hold onto the keys!!

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  9. I am someone who needs a budget for peace of mind and it serves me well. I am generally a low maintenance, no frills girl, but getting a housecleaning service is priceless. They do all the boring stuff and I am glad to hand those chores off.

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    1. When our cleaning ladies leave I feel like sinking into an easy chair and enjoying that everything is in its place and the floors and furniture sparkle.

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  10. Pam, surely am glad you did no lasting damage with your fall. Thanks for the advice. Just one more good reason to get help.

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    1. I hadn't thought of the safety issue, but Pam is right: too many seniors fall or otherwise hurt themselves around the house. Scrubbing the floor isn't as dangerous as replacing a tile on the roof, but we can get hurt doing anything.

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  11. Budgeting is the smart thing to do. But I've never been able to figure out how to do it. Both my income and my expenses can vary by as much as 100% in a year. (Do I sell an investment? Do I buy a car? Do I face a big dental bill?) But one thing I do know. We budget $15 (plus tip) for our neighbor's kid to take care of our dog while we're away.

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    1. Send that neighbor boy out my way!

      Income/outgo with that much swing must be murder to plan for.

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  12. Great job, Bob. Your detail on the retirement budget is greater than mine. I have a certain $ amount that I want to get to per year in spending costs, which is under 4% of assets. So far we are in great shape after both of us have been out for 2 and 6 years respectively, so I really shouldn't worry. I still have SS to tap down the road so that will make things even easier.

    But to be honest, I still have an issue mentally with not having the inflow from working for virtually my whole life, starting at 7. It doesn't hamstring me but it still difficult to wrestle with the fact that I don't have more coming in per year than we need per year. I guess someday that will change.

    A safe and very Merry Christmas to you and Betty, Bob. Be safe my friend.

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    1. Up through this year I have managed to keep by drawdown at 3-3.5%. With my parents' estate, I noted it will be zero starting in 2016.....something that is impossible to do without very thoughtful and disciplined parents!

      That SS deposit hitting your bank every month does give you a very warm feeling!

      Great holidays to you and Deb.

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  13. I've tracked just about every cent coming in and going out for 15 years. Makes me feel more in control, though I know it's a complete illusion.

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    1. Good point, Linda: a budget is our best guess before life gets in the way.

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  14. Your budgeting process sounds very similar to mine. I made my own custom budget spreadsheet many years ago (before Excel!)and now just update it each year. One of the features I built in was a running monthly average of how much I am spending in each category. I like being able to take that quick look at how I am doing. Updating the budget for the new year is part of my New Year's Day ritual. This was my first year without a paycheck coming in, and having a budget to reassure me kept me sane. -Jean

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    1. I have been using Quicken for years but their product has slipped badly in the last few years and the parent company is selling the program next year, so I figured it was time to switch to something else. I found a program based on Excel that doesn't require I store all sorts of important information on someone else's server.

      That first year without a regular paycheck is a little scary, but we all survive quite nicely.

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    2. Bob,
      Would you mind mentioning what program you decided to use in place of Quicken? I've been considering doing the same thing and am looking for options.
      I've been a long time reader of your blog and really appreciate your insights on retirement. Duane

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    3. I have experimented with pearbudget.com It has a free 30 day trial and then is $50 a year. It is easy but I am not a big fan of having my info on the cloud.

      I am also playing with simpleplanning.com. It uses the Excel program on your computer so there is no risk of data corruption or loss on the Internet. There is a limited basic version for about $16 or the more expansive version for around $40. That is a one time only charge so you can use it forever. This Is the one I am likely to stick with.

      Hope that helps, Duane.

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  15. Merry Christmas, Bob!
    Great post on a big topic in most households.
    We have always had accounts for: presents, propane (heat), dogs (kennel here is $60 a night), and taxes . Our move has proved good on the pocket book for taxes, but not so great on gas and tolls- driving to my daughter's house twice a week. We bought a new car and are "repaying " our savings for it. We don't budget for the small things. I did have to reign in my husband's Kindle account. LOL.
    Life is good.
    2015 was a great year!

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    1. I had to break my addiction to buying hardcover books at Barnes & Nobles or Amazon. Our library has become my best friend!

      Our gas bill will fall noticeably next year now that we will not have once or twice a week 30-40 minute drives to the grandkids or my dad's home. Our youngest daughter lives about 25 minutes away so that isn't too bad, and most of the time, she and her puppy come here.

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  16. I don't have a detailed budget but do track my income/expenses so that I can live within my means (and below) so that there is a "slush" fund for fun and the unexpected. Retirement on a reduced income has resulted in some reduction in discretionary spending, i.e. meals out, personal care (manis, pedis), fresh flowers, etc. I will continue to do my housecleaning and yard work as long as I am able. In fact, I believe the exercise involved in those activities contribute to my ongoing physical ability and even mental well-being.
    Merry Christmas to all.

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    1. You are absolutely right, Mona. You can burn up to 400 calories per hour doing yard work and 300 per hour cleaning your house! That is substantially more than even walking on a treadmill at the gym.

      Merry Christmas to you.

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  17. Our regular dog sitter (free) passed away two years ago, but we found that the website dogvacay.com (this is NOT an ad, BTW) listed lots of "people who will watch our Bernese Mountain dog" in their own home, with their own dog for him to play with. Once we found the perfect match, we've hired their service many times, at $35/night in Atlanta. You might find a local who will watch your dog for far less than $80/night, and in a real home to boot, not a kennel).

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    1. Actually, that was our first choice, but the three that were recommended to us were booked for the time we needed the service. Considering how nervous Bailey is, I am considering the type of sitter who comes to your home twice during the day and then overnight. It costs less than the kennel and the dog is in her familiar surroundings.

      I will definitely check out that web site. Thanks, and happy holidays.

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