Retiring With $2M: Here's How We'd Spend It

foreign how you doing I'm good man how are you this was I'm awesome this is the second time we've recorded this episode just so everybody has some backstory here they're gonna know how much we care about this topic and it's one of your favorites budgets um you know we've gotten a number of inquiries about you know sharing some more details on our budget and you know the fact that we've had these recent conversations about withdrawal rate really I think makes it an ideal time to you know dig in a little bit more and and discuss how we do or don't budget so I'm so excited to talk about budgets man I really are I do remember you telling me about 18 months before you um stepped away from the workplace and stepped into re that you were doing a pretty granular budget and I'm actually suddenly starting to see the wisdom of that now I'm I'm probably more than 18 months out on my my fire date but you know the beginning of this year it was supposed to be exactly 18 months um you know as I look back the last time I really did a budget was kind of big life pivot point for me when I started the business 10 years ago and that kind of set the the course for me and so I can see the value here it's not something I check in day to day but you have a framework for this and you had a very detailed budget before you stepped into re so why don't you set up how you and I created these budgets which we're going to share with everybody yeah absolutely and uh I I for one would like to give you credit for really starting to dig into the budgets a little more and no one finds this exciting or at least very few people myself included by the way I don't think it's exciting I thought you liked it but I find it helpful that's where the the nice comes in but uh you know we also wanted to make sure that this was relatable and everyone's circumstances are different um and so like we've done in the past we thought about defining a model portfolio of two million dollars a withdrawal rate of about three percent or sixty thousand dollars a year and that would give us five thousand dollars a month to work with as a budget and so what you and I did was uh basically scale our actual budgets we went through and captured everything and scaled them to this withdrawal rate this five thousand dollars a month 6 sixty thousand dollars a year and use the same categories to make it much easier to compare side to side because as it turns out a lot of people think about and categorize these things differently so I think that was a really great suggestion you had so maybe just briefly uh what are those four big categories so the first fixed expenses these are those boring must-haves we all have to deal with commitments you know ones that are you know static or they really don't change a lot you know mortgages utilities Insurance you know things like that variable expenses I think for both of us we decided this was really kind of like shopping these things move around a lot but you know you always got to buy groceries home goods buy new clothes Etc the third category something you and I have talked about a lot uh on two sides of Phi is sinking funds these are the you know money we put aside and build up over time for irregular but you know definitely eventual expenses some of these are awesome things like vacation some of these are necessary like medical expenses out of pocket pets uh taking care of your cars you you know maybe even Future car purchases back to the positive side but you know setting aside money for that and lastly things that are wholly discretionary right those things we would never want to cut but they're the easiest to cut in you know when times are tough um this is fun stuff like you know dining out at restaurants entertainment alcohol bars you know any kind of fun stuff so that's where we started and uh yeah hopefully that makes sense to people are these categories correlated with your original budget or is this just a much more sort of streamlined categorization they actually are very similar I used to have even at a high level a little bit more granularity um you know things that were kind of scheduled payments I had lined up a certain way and I think a lot of that honestly Eric had to do with just the fact that I was using you need a budget uh software ynap many people call it and that was sort of a you know kind of built into how people tend to use that tool to think about it that way these days I collapsed it um you know at some prodding by you to be totally honest into a little more streamlined set of categories and then for each of these top level um you know classifications there's essentially you know a number of you know more granular line items as well okay so I think it'd be helpful just to look at each one of the categories and say okay you know do some comparative analysis here um so if we think about the the different categories fixed expenses percentage-wise in the budget where do you sit here for your fixed expenses yeah so this will be one of our biggest differences right I chose to hold a mortgage uh post re and so that means my fixed expenses are really 34 of my entire monthly spend or on a five thousand dollar budget about Seventeen hundred dollars okay great so yeah comparatively mine are 31 uh 1 550 as part of a five thousand dollar a month budget and I think the differences here um are obviously I don't have a mortgage but I think my medical premiums are accounted for a little bit differently I have a larger family and this is one area where as I started digging into the budget I really learned a lot about what my future expenses are going to be in in re and I should say if you are listening on the podcast go to the YouTube channel hit that like And subscribe button and also you'll get to see all of this on the screen this may be a little bit hard to listen to we're going to make these budgets available so you can see the sort of differences between the two and maybe use it to structure your own we'll also have these posted in the show notes on two sidesofy.com so you can look for all of that there as we drill into the exact category so in this category I have essentially so I have medical premiums I have kind of utilities I have insurance taxes and then there's a college line item which I realize is probably another point of difference between you and I when we were talking uh before this episode it's pretty clear that these uh Healthcare premiums were one of the biggest areas of uncertainty for you which is not surprising at all because clearly it's where a lot of people struggle I sure know I did but when I think about you you've got added complexity because you've got you know various income streams passive and otherwise that may continue for some period of time so how are you thinking about that in the context of your budget yeah I I quickly realized Jay going on the Maine's ACA exchange you know they have a website just go on there plug in your information for your size family and then you start looking at different plans and what the premiums are and also you know like what the coverages are and all these it's very complicated right and there's the the costs add up very very quickly and so I just did a couple of different assumptions here and I'm really trying to conservatively plan out like okay well maybe it could cost up to this much and so this is really um it's it's actually in red in my budget because it's just kind of a placeholder I don't really know what this is going to be so if the business continues to earn out I'm going to use treat this as a business expense you know I'm Laura and I are going to be working together and we'll you know we'll pay for it through the business um it's accounted for in here as a placeholder that's all I can say for now does that make sense it makes good sense and you know I like the idea and I I did this in my first budgets as well of saying here's kind of worst case and we even talked about this in uh our much earlier episode about Healthcare and we can link that in the show notes where I was you know planning for no subsidy at all just not knowing what my income was going to look like if I was going to do occasional Consulting and so I did what I called worst case modeling was this level of healthcare with no subsidy whatsoever and that has not proven to be the case but you know I certainly feel better that I went big in my budgets to make sure that I wasn't surprised in the bad way it just highlights how managing income in retirement is it's a tricky calculus here if you're trying to qualify for a subsidy or you don't care about that or you're trying to meet a low end income so that you're not on Medicaid right right um it becomes complex very quickly and I think it's it's great to have this kind of framework so that you can start moving the chess pieces around and look at what these different figures would mean to your overall budget because I guarantee it's going to be a big part of it yeah absolutely it's certainly in in our budgets one of the most important things to consider I think when I look at my budget fixed expenses you know barring the mortgage that I already mentioned and that's my all-in cost with insurance and property taxes as well everything else is pretty straightforward it's things we all have utilities car insurance Etc you know this category doesn't really change change for me yeah no I'm I'm in the same way I I where I do see it changing is in the insurance right now I have two teenage boys and yeah our insurance here in Maine went up 40 this year and combined with an accident for one of them unfortunately um it's so I do see that one changing a little bit um and then I also did have a college line item in here Jay and I I have that in there for a fixed period of time because we're going to be paying for a college out of pocket um sort of for the first couple years and so I just wanted to account for that and that's a significant um line item in there yeah it's a good point I haven't put a line item in here for college I mean we're relying on the 529 funding being sufficient based on the types of schools that our team is now targeting if that proves to be wrong uh my budget's gonna have to change because it's not set up for that right now yeah I mean I think all this is just about knowing the situation and making some baseline plan for it and you can guys plan for 529 it's way in advance of us we got started way late just because we never thought we could ever be able to afford it and so now we're having to kind of scramble a little bit on the back end and seeing that the 529s are you know they took a hit like everyone else's did and um sure you know during the during covid and this sort of recent recession here and you know it makes more sense probably just to fund it out of the budget spend rather than cashing in the 529s just save those till the end of the College Years so I think this is just a temporary plan but it does kind of mean I guess it's another chess piece to move into another category at some future point so do we want to talk about our variable expenses how do you think about those yeah uh that's a good Next Step as I mentioned I really think about these as as just shopping and the these normal expenses they move around different vendors and types of expenses based on what we're doing but they're always there and they're always important and this is an example of an area that I used to track at a pretty granular level because I was interested in the idea of where the different money is going groceries versus other expenses it has stayed fairly consistent it's around 22 percent of my budget right now or about eleven hundred dollars in this model but when I simplified my budget I really took away a lot of that tracking and so that's why there's no breakdown in my budget on this because while I track it closely at a top level I don't really drill down but this is largely about groceries clothes shopping you know Home Goods things like that yeah cool we're at the same exact percentage man 22 1100 of the 5000 goes to variable expenses so maybe uh maybe my grocery bill is higher than yours but I'm not shopping at Target as much yeah that's probably right I think the Target and Amazon bills that somebody in this household incurs it might be higher than yours no comments it all evens out yeah it's funny when I when you know you gave me a hassle about my grocery a little bit and um and it's something I'm paying attention to it's it's uh man it's higher than I want it to be but it's funny when my son went out off to college last fall I got to see the grocery bill just kind of way down because we spend everything on our credit card so at the end of the year the way that we look at these expenses and you know it's it's some moderate level of tracking but we can group it all and we can see okay you know this is where the money's going and um and you can map it out month by month I don't know if that's how you're tracking these variable expenses or if you just have a do you have a different means of doing that is it all yeah I actually love that method and I definitely used it years ago and for people who are afraid of budgeting we've never done it before I think it's an awesome place to start especially if you're using like One credit card you know your rewards card or whatever because they do a lot of the hard work for you and then you can you know start there and it's it's a good kind of Baseline I still use you need a budget you know YNAB the budget program I use I'll link to it in the show notes but um I can just search by vendor and there's a couple of Heavy Hitters in there like you know our grocery store Target Amazon and that gives me a really good kind of cut of the top expenses and of course there's a long tail from there but I do look at them and see how they Trend over the year that gives us something to think about if we see something trending up and we're not really sure why it's really quick to go in there and look at it but it's not something we spend a lot of energy on at our house as long as we are kind of staying with the limits yeah totally and it's actually just a real accounting of what you're spending as long as I mean there's very few spends of hours that don't go on the credit card and so looking back at that you know you know how you can say well we spend roughly X dollars a month but the reality is like some months are just you know you gotta buy a set of four tires for the car or what you know something you got to replace your washing machine or something like that and I don't know where this starts to interface and overlap with sinking funds but um maybe that's not a bad transition point because I think you're think you think about think syncing funds a little bit different than I do you want to just kind of paint the broad brush of what syncing funds are to you sure and I'm interested in this section because I want to know if any of the changes I've made over the years last year have brought us closer together or farther apart in how we think about these for me I think about this is making sure we have enough money to fund these things that come at times during the year or maybe even down the road longer term but we don't want to be surprised when they pop up we want to make sure we have money we don't have to you know draw down more than we were planning I like to keep that pretty regular myself for anything but enormous expenses right that you can't even plan for so things like vacation you know just uh you know making sure that we're putting enough money aside if you will every month into this bucket so that when trips come up we're ready to have the money is there it's part of my cash allocation effectively okay and I can fund them and so um you know some of these are a little more defined than others right like like medical out of pocket this is one I want to talk about for sure because I know that we've had discussions about this and we do differ uh you know it's about looking at what I've spent out of pocket in medical for the last few years and just deciding well this is an average maybe I will put this much aside every month to make sure when those medical bills come we're just ready to pay them um borrowing any big surprise expenses how do you think about them is that different well I wanted to ask you so first of all the overall category represents what percentage of your budget oh yeah absolutely so it's it's exactly the same as variable expenses for me it's 22 or about eleven hundred dollars in this mock budget okay so it's lower than Mine mine's at 34 mine's at 1700 out of 5 000. so um how I think about this is is evolving I would say because and I'll say the the initial take that I had on this especially with respect to medical costs here was you know if I look at a maximum out of pocket for a family twice what the individual out of pocket maximum is let's just say it's around 14 15 000 a year okay and then it's going to vary with whatever plan you have but do you take that and then just subdivide that into 12 little chunks and that's your monthly syncing fund yeah the most conservative way would be to do that right and and then but then you know you encouraged me to think well I mean are you going to have bad year after bad year after bad year and I mean maybe uh you know so yeah the most conservative plan would plan for that but also what if you leverage an HSA isn't an HSA supposed to backstop that in some ways so you could fund it fully fund it in the first year well I don't know how much you can put in HSA uh per year 7 500. I actually forget what this year's number is I think that might be right um I already did my funding and I know it's it's over 7200 which was last year's I think yeah so I mean at a certain point you're going to be able to cover that expense even an emergency right but you know as you have you know marched now through a couple years of retirement you have a better idea of what your actual spend is and then you also have a contingency for covering some more catastrophic event where you're going to be reaching maximum out of pocket in the family so could you just talk about that because my first budget was like okay take that max amount of pocket divide by 12. and it made it huge and so I've since reduced that to you know quite a bit less it's nine percent of the total yeah sure I mean I guess at the end of the day I view this as a balancing act between worst case scenarios and knowing that with a two-year cash out cash allocation even if I absolutely didn't want to touch my portfolio I sell things for you know to when emergencies come up I've got cash cushion there to work with and so I've decided for the for the time being I just literally look at the average of the last three or four years where have we come in on average and then divide that by 12 and that's what comes out every month knowing that some months I won't spend anything like that some months I will spend over it I will say in the last three years now since uh re I've only had one expense for health care where I needed to pull out extra money specifically because I was underfunded on my out-of-pocket medical and that was for a dental implant and so I did take extra money out of my cash allocation so that will be extra money I have to refill when it comes to my may you know mid-year period when I do rebalancing but I still feel fine about that because I wasn't just pulling more money out of the portfolio as I went so I'm not saying that's like the right way but it's definitely the way that Lori and I have decided works for us but is it just mental accounting essentially here I think so because I mean we can set all this this money aside and in my budget 34 of it that's a significant chunk right so I don't want to just like Park that in a high yield savings account necessarily even though interest rates are decent right now um so it should maybe just sit as part of my cash allocation is what you're saying you're doing right if you're doing it in the way that I am so for me medical is 21 of my syncing funds about five percent overall and to me that feels right you know maybe at this age it's a little easier to not be super conservative knowing that well maybe it's one in six or seven years I hit my out of pocket max based on our past to date sure okay I'm willing to accept that yeah okay that's cool so I mean these other categories you know I'm talking maintenance and new cars things like that like you you may have things earmarked in here because you know you're going to replace the computer every two years or whatever that is but you know there's maybe some overlap with some of this variable spending right like yeah yeah and this is going to save up for a laptop well I mean right I'll put myself on the spot here um when I first started uh my budget I did put stuff in there like that I had a higher I had a bigger car maintenance category because obviously it replaced tires every so often and you know that's not that's not inexpensive right and you replace laptops every so often and I had that stuff in there but honestly in the last year I spent those down I reallocated those funds and they're not part of my budget anymore because I've decided that things that are big ticket guaranteed items in a given year like vacation that should be properly funded I always as Lori's told me I don't ever want to have to think about are we okay to do these things like traveling is one of the things we really wanted to do in re but buying a laptop if money's that tight we're going to hold off on buying a new laptop but in most cases okay we'll go into the cash allocation and we'll buy the laptop that we need I mean that that's that's the kind of Middle Ground that we've come to and honestly I'm pretty comfortable with it three years ago I was not is there a cut off then we didn't set a dollar amount or anything like that I but it was just kind of like what felt right to us yeah yeah maybe I should be modeling things like roof replacement and car you know replacement which is much less frequent than anything else we're talking about just pop those numbers into the safe withdrawal rate toolbox right from our earlier episode and then just have that be in there as withdrawals that come at some frequency and just you know model the overall withdrawal based on that instead of funding them explicitly here I don't know if that's right or wrong but I was thinking about that might be something I could do yeah I mean as a margin of uh planning and safety to it probably it's more granular than this but yeah I don't know man yeah I have no idea I haven't done it obviously I'm not following the fritz plan uh which I do like a lot Fritz Gilbert where he you know puts you know has these bigger buckets for these you know large home repairs and I think he's got one for vehicles if I'm not mistaken there's Merit to that I just haven't done it the deeper I get into this though I'm just like I don't know if that's how I want to spend my time man no I don't know if that's good value but I do want to talk about the vacation category man because this is the largest percent in this category for me it's 44 it's 15 of my total spend um so where does it sit for you total spend we're almost the same minus 14 okay it's a larger percentage of my category but it's also I think presently largely driven by the out-of-pocket medical sinking funds difference so mine is 63 of the category for vacation yep okay so 15 of the total so we're we're pretty well aligned here right and yeah I I don't think I even my budget when I was first going through this and I was reviewing this with Laura I was saying okay how's this feel to you you know the the real actual numbers that we're using and and she's like I don't know the thing that this tells me is like do we have enough allocated for our travel budget um and I know yours is adjusted up too did you have a similar discussion with Laurie yeah we did so you know following our safe withdrawal uh episodes I went back into the budget you know I I took your feedback to heart you know as I generally do I don't I don't always discount it no I uh I took it to heart I really went in and looked at how much we spend you know not playing this game of like honestly it seemed to me like I was just playing it way too safe leading more money in the portfolio versus just bringing out into a sinking fund I did the math on like the interest that I was gaining you know in my money market of fidelity versus my my uh savings account that I hold syncing funds and I'm like well this is just stupid right right so I properly funded vacation and more importantly I went in and looked year by year what we've been spending and had a conversation with Lori and we agreed to increase the funding and it was the right thing to do and it feels really good now honestly it was giving me hesitation that I was you know explicitly underfunding this knowing I was going to end up taking more money out anyway so that was crazy mental accounting I 100 agree but I do worry and I want to talk about this with you that we're still planning for like today's vacations yeah and what if in the future we have very different interests and needs or we get into cruising or these other really expensive things like does that keep you up at night I don't know I mean I you know it's something I'm starting to think about only because you're pointing it out but I'll tell you where this really this really hit me when I started to look at some of the medical premiums and how they increase yeah they do not increase in a linear fashion it's very scary older you get you know the curve goes way up so so you're doing like the Medicare math and stuff and looking at those premiums I mean I started looking at it because I was like well geez you know how do I need to account for this adjusting over time does it just adjust with inflation no it does not adjust with inflation so taking your inflation adjustment every year is not going to cover those medical ones you know but speaking to the the vacation piece it's just it's more reason to kind of buffer your your withdrawal a little bit your withdrawal rate because yeah I don't know I don't know how to account for this man if I think about my college funds those those funds they're going right into the travel budget because I just want to be able to do as much as I can um especially when we're young you know I mean you think I don't know if you've read that book die with zero but it's it's making the rounds so it's it is making the rounds it's on my list I haven't read it yet but the concept is something I'm thinking about a lot yeah and it's just you know spending certain amounts of money at certain decades and times in your life when it makes the most sense you know getting the highest dollar value out of your money at whatever age range you're in you know I mean we're not going to be climbing the Himalaya when we're in our 80s probably so if you want to do that kind of thing it makes sense to spend up front and so I really want to find a way to um be be more intelligent about the spend in this category you know for cruising I see that kind of stuff happening maybe a little bit when we get a little bit older you know yeah and maybe by that point our portfolio is just on one of those See Fire Sims oh yes right to the Moon well what do you think are you uh are you patting this at all well honestly Eric here's here's a fun conversation um you know you can't have it both ways you've been pushing me to increase my withdrawal rate which I did yes but now I've taken away padding that makes me feel comfortable about exactly this kind of topic so now I'm gonna have to go in and go model Medicare and premium increases it's still Fail-Safe you still you're still at the fails aren't you I know I know I know but you but but something I've pointed out before and I know I'm not the only one doing this based on feedback we've gotten in the comments you know under spending under withdrawing sometimes to ridiculous degrees I I agree right I've taken the feedback you know it gives you sort of mental kind of safety nets and you know it's you know what I mean that's still an adjustment for me yes I have a safe withdrawal rate um it's not Fail-Safe it's not zero but you know it's very low yeah no theoretically the thing about this so it's not when I when I read a bunch of those comments you know there's a lot of people who were sitting in your Camp saying hey yeah I uh I feel this you know I'm this kind of person yeah and uh they basically were saying wait we just wait till Eric gets there he's not gonna spend the money yeah I saw that I'm fighting every every step of the way man I'm gonna spend it I want to think you are I think you are and I'm learning from your example it'll be fun when I mean the tables can't turn because I'm already there you're just gonna be the new one to it right but I am very interested in seeing what happens in year one versus year two maybe you only have a shaky like three months instead of like first year or two like you know you'll just accelerate it but I feel like most of us go on this journey I I'm sure it'll happen man I I feel a little bit insulated because of the business um yeah that's the thing right like you once once you turn the faucet of the paycheck off that's scary I can feel that it's a difference it's a little weird yeah yeah all right so uh vacation looks like we can go on vacation together man we can say we're gonna do it we got to make it happen everybody wants to see two sides of fire on the road oh man it's gonna happen soon all right I'm up for it all right let's talk about let's talk about even more fun let's go into discretionary I mean discretionary is is one of my favorites besides uh the vacation part is sinking funds but it's basically equivalent to what I spend on variable expenses and sinking funds 21 also about eleven hundred dollars out of the five thousand dollar budget how about you mine's only thirteen percent man what the heck I've not had a dollar amount on that I'm not having as much fun as you no way man you got to do better 650 bucks on this maybe I'm just spending all that all that uh money elsewhere wait you've been the one encouraging me to spend more so I think we need to we need to work on your budget a little bit and maybe it's just the you're right and I'm wrong here I'm gonna get stranded with medical expenses someday well I got freaked out about my medical man that's our big difference here I know I used to be really freaked out about it too uh but now I figure like hey man worst case I spend up to the out-of-pocket maximum that year it's not going to keep happening probably and if it does I gotta change the whole budget and that's gonna make sense but yeah how should I bump up my spending here I've got dining alcohol entertainment that's at nine percent of my total budget I don't know does that need to go up anymore what's yours um so out of that 1100 about 70 of it is you know dining out at restaurants uh all alcohol spending goes in here whether it's for the home or out uh other entertainment going to shows theater I mean things you care about too at least to go into shows part I mean that's an important category for us um you know the other stuff there's some subscriptions in there like streaming services whatever that's much smaller right that's only one percent of total budget or seven percent of the category honestly there's a long tail of stuff that I put into here uh kind of some fun money that each of us have in the budget every month right can spend without question a few other things like that that basically is the bulk of the remainder yeah okay well it sounds like I got some work to do here man but but to be honest I have so much I have so much concert travel planned this year it's ridiculous yeah well so maybe maybe I just need to go back and uh recalculate we bought tickets to see Duran Duran okay this is not a show I'd ever thought dude they are so good live I gotta tell you you're gonna be happy they're very good live so even now we bought it with friends of ours you know I love it end of an evening we're like oh we should go see these guys and sure enough they're touring but you know they're old enough where they realize that the audience what what kind of cash the audience has so it's they're stupid expensive man like yeah I mean hey I understand I we just spent a ton of money going to see Billy Joel and Stevie Nicks to date myself even more than Duran Duran and that's because my teenager is into the Retro so you know I'm gonna go see those two so I did and it was a lot of money but hey like you said die with zero we're having making memories now and having a great time and I know that's how you feel about shows totally man yeah we're going maybe you wouldn't pick Duran Duran first you'd rather have Metallica but hey it's all good you're going to see them too yes yeah and also Lamb of God and Pantera I've never seen Pantera before oh there you go you got all bases covered no Insane Clown Posse I've seen them this maybe still full bathtub is on tour hey you know what candle mass is on tour indestructible noise command dude I think they self-destructible noise commanded I really hope somebody in our audience likes any of those acts because it'll be amazing okay I've got a question about your uh discretionary budget do you still have uh a cleaning service in here my cleaning service went went in there yeah okay so talk about that because this is this is truly discretionary but is it it must be important you've left it in the budget well no I had it under fixed in the first round of this budget and you're like dude really that's a fixed expense like let's think about the discretionary category as doing things you could possibly cut and I'm thinking oh yeah that's good point because right now you're working you don't have a lot of time you know we prioritize that pretty high being able to have a clean house to come home to when we're retired maybe not so important right our two teenage mess hounds leave you know maybe we've got to clean our house anyway so I kind of cut the uh I cut it in half okay so it's every other week and um I still kept it in there but I mean I think the point with all this discretionary stuff is like times get tight you can do a little cutting in this category it looks like you have more room to cut than I do yeah I do and you know and we set it up that way from the start and if there's one category Lori's been a big advocate for and and in our last round of budget work she put even more money in it's this one yeah cool it's because she doesn't like the idea of having to think about this stuff I mean like we talked about in the safe withdrawal rate part two episode you know she does not want to be in the situation where you know her or our kid are like hey let's go out to dinner tonight and I'm like but just a little tight guys uh not going to be doing that I mean like why did we do this right like why did we go on this path and and make the sacrifices we did if you know someone's like well let's spend 50 bucks on like take out Chinese food and Dad's like I don't think so kids budget right no I it's funny because I asked Laura I said are you feeling constrained by any spending right now and um you know she's there was a few things that came up she's like well sometimes I feel a little guilty if I buy some extra clothes you know and it's shoes man it's always shoes oh yeah it's shoes yeah for sure shoes yeah well anyway and then when you travel you know you're going to have the travel outfits and like I don't get that I don't have travel outfits I don't have travel I got like this that's it you are pretty consistent let our audience be confused otherwise but I mean you know you got to make room for that stuff right that's so she's telling me that's a constraint just like Lori was telling you we want to go out to eat more you gotta dial it up and so like I I love having done this exercise because it's taught me some things I'm learning from you and how you've set up your budget which seems to be pretty smart in several of these categories and you know this is another spot where I'm just gonna revisit and say okay does this make sense like this is a spot where I actually should be bumping this up a little bit it's nice comparing these kind of percentages even though we've you know we've normalized this to that two million dollar budget and yeah it's just nice to seeing kind of where you're where you're filling the the buckets here did did anything change from your original pre-fly budget once you got into re yeah I mean so first of all the absolute amounts have increased they didn't increase at all for the first almost two years I didn't take an inflationary adjustment in year two until we were pretty late in the year and then this year um that amount went up again so I'm up more than 20 percent overall uh but that is largely about me releasing some of the constraints you know and partially in response to some of our recent conversations partly in response to conversations I've had with Lori and just you know being a little more realistic about safe withdrawal so that's the biggest change I think other than that it's been about the granularity of my budget which is feedback you know I rightfully took again from you but also just I realized I wasn't benefiting from the level of granularity I was tracking and I also understood my spending a lot better so I realized I could collapse things not only has that been really effective and made it easier for me to budget it also made it much easier for me to summarize for an exercise like this so it makes it easier for me to talk to other people you Lori anybody who I would be talking about my budget with makes it much easier to have that conversation but the flip side if I'm being honest is in losing some of that granularity I'm now a little more cognizant that any Trend changes could be masked by just looking at top level and so I don't mean that that's like created a whole bunch of new work for me but I it does sort of like at least it's now in my head well if I see anything change you know maybe I should look at kind of by you know vendor don't you think that's good I think it is good I think I think I'm just going to step in here and say it's super healthy because you know your focused on the details and I've been guilty of this in the past too like you know grubbing about little tiny expenses and then like you see the seed of of discontent that's planted when you do that right it's like you know that your partner's looking at you like really really so no I think that's a good good positive change so would you say that the the inflation increase went to primarily two categories vacation and dining out slash entertainment yeah I would say so I did increase our our uh variable expenses a little bit okay uh some of that I think was just cost of groceries for example going up and some Home Goods um and that's you know that's normal that's something I you know was probably tied around last year than I should have been and taking that adjustment definitely made that better foreign do you think there'll ever come a time when you don't hold a budget I love this question honestly and I'm pausing because I I'm not sure the best way to answer it yes I really do think it's gonna get a lot softer I don't know when I could get to the point that you know Fritz Gilbert talks about where it's like he funds his whole year and put basically puts it in checking and just spends out of that it doesn't sound like there's any budgeting or detailed kind of accounting that's happening at least the way I understand him describe it he said seven minutes a quarter yeah I don't know if I can get quite to that level I love the idea and Lino Lori would be thrilled because if she sees me out with the budget I always wonder if she's like oh how much time are you spending on this do I think I will always be at this level honestly I don't I think I will get just that much more comfortable our spending will become more consistent maybe it's lumpier in the beginning but um I think it will but I honestly can't tell you that I know when that is so what about for you so you've done this budgeting exercise what do you think it's going to look like when you get started um you know post re and how quickly will that change if at all I think we'll maintain this for a little while I kind of think of the the crossing the finish line of Phi as this focusing point so as we get closer to it you know you got to have certain things in place and then as you cross that threshold and you move further away from it it probably goes more out of focus that's kind of how I'm thinking of it but a budget for me has never been more than setting a course Direction I I am never going to get in this thing and like dial the numbers up and down to the 50 amount it's just like not going to do it it's it's not a productive use of my time um no so that's kind of how I see it but it's nice having done the exercise just because I know for you in the same way that you know if something is looming out there as a potential Trend curve in the wrong direction like oh oh spending's going going off the rails for me having this budget here is a is a suggestion that I got it mostly figured out there's not things I'm forgetting you know unless you had looked at mine and said oh there's something missing here no nothing at nothing at a high level I think you know the same challenges exist for all of us um and they're much more challenging the younger we are not older like us yeah um and that you know projecting future spending is difficult I think about the biggest thing you and I have hit on unsurprisingly that is less known today is just will our vacation desires and therefore spending change and what will our medical expenses look like in the future and we can't really know those um doing some kind of back in the envelope modeling is probably really smart and accounting for extra spend as we've talked about you know when doing our safe withdrawal rate mapping is also probably really smart um but it's impossible to know what it will look like and I think I'm okay with that and uncertainty because I don't feel like it's all over the map I feel like it's largely focused in a couple areas yeah and I we're also not accounting for any expensive hobbies that you and I may adopt it's true you know Laura and I went down to visit the family in Florida and uh we stopped by her on uncle's place and he has this radio video controlled sailboat collection and I'm like oh man oh and anytime I see anything radio controlled I'm like I gotta have it I gotta have it I remember that I'm like so sick about that stuff have you ever seen these these uh remote control sailboats I have they're really impressive so sick yeah and they're they're probably a lot easier to deal with than say model uh radio controlled airplanes which I got into briefly because I love everything Aviation but thankfully that's harder than I want to put the time into to get good at so I'm just like well I'm okay I want to get into those giant scale model rockets the ones that you need like permits to like quarter scale yeah I mean they're just enormous that's dangerous man I mean is it what if you're far away it's not that dangerous come on trained scientist like we can do this yeah right it tips over and and it's just giant firework heading into your neighborhood beware anyone living near Jason geez what else was there oh yeah model railroading man I'm definitely getting back into that I know you are that's gonna be that's a future hobby that's not a that's not life Energy's best spent when I'm in my 50s probably that's right yeah you know it's about the time that whittling starts to sound like a good use of time and I think model railroading really increases in uh desirability you know one thing in my budget Jay that um you know you flagged the last time you and I discussed this was if we're going to be living part of the time elsewhere yeah I need to account for that in some way in the fixed expense and I was thinking maybe when that college expense goes away that's where that's kind of the placeholder for that yeah yeah I totally agree um I think that's a really important thing to think about if that's something you're going to prioritize and I think so yeah starting with any kind of starting point is something right you know you need a placeholder put a little work into it and if it becomes a priority then it's worth putting a little more work into right make it real yeah I mean I I an example you know related but a little different that Lori and I were talking about recently is you know we have this idea and I know you're interested in it too of you know spending months abroad for example yes and maybe doing that you know a few times a year perhaps while maintaining you know a permanent residence too and so I did the math of like well what would that look like if we're not in our home you know what expenses are no longer needed what stay with the house you know certain basal utilities and taxes Etc and then I just said well all that you know normal shopping we do and food shopping and blah blah all those things just becomes now part of our budget for living somewhere else and that actually gave us some clarity on you know what could we spend over that period of time and even just the the little bit of time it took I mean maybe a half an hour thinking about it was a great starting point for conversation about okay well what could that actually look like where could we go on that kind of budget and would we need to make other trade-offs if we wanted to do something a little more elaborate um so I don't know if you and Laura have thought about that yet but um having the real data in the budget for me made that so much easier yeah I I mean we're definitely considering that as a life plan as you and I uh have both talked about but uh yeah I haven't put a lot of bounds on it yet man that's but it's nice having yeah that variable spent is going to track with you right that's exactly it's nice having that category but are you going to rent rent the home don't know I mean obviously that would change the calculus completely right if we were doing home exchange or uh you know something like that um yeah that's a funny thing options in here is like the your home is this asset right and uh you can either let it let it just be passive where you can turn it into something and um yeah I mean it's it's definitely something to consider I mean we made the choice to pay our home off because for us that provides a level of padding to all these numbers that and a level of comfort that we didn't have before doing that and I I I'm so happy that we did it even though it's not the most financially optimized decision it made so much room and head space for us to be able to make the moves we're making now so I know it's not a great choice for everybody but yeah it's nice to think about that as another chess piece here absolutely no it's a it's an excellent point all right I'm just going to wad this budget up and throw it in the trash now throw it out man now I would save it you don't have to revisit it anytime soon but you know you put the work into it don't delete it yeah or give it to Laura so hold on are we actually going to upload these things for people to see or does nobody care I don't know if they care but I think we should definitely put them in the show notes and maybe you'll flash them up at key points in the episode and yeah I think you know honestly Eric obviously everyone's life and their priorities are different and costs are different everywhere and the way people think about priorities is different so my thought about making the budgets available at least you can see a framework this is maybe uh something they could take as a starting point if they're not already budgeting if they are budgeting and just want to see you know on a relative percentage basis how we're thinking about these expenses maybe there's utility in that so yeah let's make them available and If the percentages change between when we talked about this and what you see online too bad oh we're sorry is what art needs to say uh life is fluid as are the numbers we've been known to lie about our numbers before how about lie I think maybe misrepresent that we were going to share them that's true and accused of that few times all right should we share our numbers now I mean for everyone who waited till the end of this episode we're just going to give you a great surprise all right this is just for our members members only conversation members only conversation the actual numbers foreign [Music] [Music]

Channel: Two Sides Of FI

Views: 24,253

Keywords: financial independence retire early, financial independence, fire movement, early retirement, early retirement planning, early retirement planning tips, retire early lifestyle, retire early fire, retire early fire movement, retire early fire method, first year in early retirement, eric reinholdt, two sides of fi, financial independence retire early fire, how to retire early, asset allocation, stocks, bear market, market crash, safe withdrawal rate, sequence of return risk

Id: mzR98CkGZok

Length: 45min 40sec (2740 seconds)

Published: Sun Apr 09 2023