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I HAVE ONLY A VAGUE idea of how much I spend. I figured it was time to find out.
I’ve never budgeted because I’ve never seen the need. From my early 20s until three-plus years ago, I kept an iron grip on my wallet, spending with the utmost care and saving great heaps of money. Over those 35 years of fierce frugality, I don’t feel like I deprived myself, but I do feel like I thought about money far too much—and tracking my spending would only have made that worse.
But now retirement looms, though I haven’t yet decided when I’ll retire or, indeed, if I’ll ever fully retire. Still, it strikes me that the point has arrived when it would be useful to know how much I spend, especially as I’ve recently been spending more than ever.
To get a handle on where my dollars go, I scrolled through three months of credit card statements and check book entries. What did I learn? Let’s start with fixed living costs.
It looks like our utilities run around $4,800 a year if I combine water, gas, electricity, cellphone and internet, while our 2024 property taxes are $5,800. Random Amazon orders, which include cleaning products, toilet paper, streaming services, specialty foods and so on, add another $3,000.
Groceries and wine come to some $12,000 a year, though that’s the least accurate number here. We live two blocks from two small supermarkets, and it seems Elaine or I pick up at least a few items almost every day. That means that every month we each amass a slew of relatively small credit card charges. Meanwhile, insurance—homeowner’s, flood, umbrella liability, health, vision and dental—amounts to $10,300 a year, with health insurance accounting for two-thirds of that total.
Add it all up, and we’re looking at close to $36,000 a year. Throw in other expenses—clothes, shoes, hair, gym fees, bicycle repairs, home maintenance, taxis, cosmetics and other costs incurred individually by Elaine and me—and the total annual tab rises to maybe $45,000.
You’ll notice I haven’t mentioned three key expenses. Housing and car costs account for half of the typical U.S. household’s spending, but we have neither a car nor a mortgage. What about a third key expense, income taxes? That all depends on how much we earn, so—while it’s a regular cost—it’s far from fixed.
No doubt I’ve missed a few items. Still, it strikes me that our everyday expenses are far from extravagant, which isn’t surprising, given that we have no car and no mortgage. I’ve long believed there’s great virtue in holding down fixed living costs.
Not only does that reduce money stress, but also it’s been the key to my financial success—far more than, say, owning index funds or tilting heavily toward stocks. Modest fixed living costs were the reason I was able to save prodigious sums throughout my career.
Some claim you need 80% or even 100% of your preretirement income to retire in comfort. Based on our fixed living costs, that’s not true for me—unless the benchmark is how much I earned at age 27, the year I started at The Wall Street Journal. In fact, our everyday living expenses will be easily covered by my Social Security benefit, which—if I wait until age 70, as planned—will be some $55,500 a year.
Moreover, if it became necessary, there’s definitely some fat that could be trimmed from our everyday spending. Elaine loves to cook and, by happy coincidence, I love to eat. One consequence: We buy a fair amount of fresh seafood, better cuts of meat and specialty condiments, all of which could potentially be cut back.
But these days, the real fat is to be found in our discretionary spending, which encompasses travel, eating out, concerts, home improvements, and financial gifts to family and charity. This year, such expenses will easily exceed our fixed living costs.
Just one example: We’re slated to travel to England in November for 10 days. The two premium economy plane tickets and the Airbnb in London will cost $5,500, and the final tab will be notably higher, especially after figuring in restaurant meals. That brings me to a rule of thumb I’ve adopted—one that I’m almost embarrassed to reveal: While others may find ways to travel far more cheaply, for us the all-in cost of international trips often approaches $1,000 a day.
When I look at that figure, I get a little twitchy. Partly, it’s what I call old people disease: Thanks to a lifetime of inflation, everything now seems so much more expensive. But partly, it’s because I’ve never spent like this before. I trace the change to October 2020, when I moved to Philadelphia from just north of New York City. What prompted me to open my wallet?
A small part of it might be post-pandemic splurging. But mostly, it’s other factors. I’ve come to realize that there’s little reason to keep saving, that there’s scant risk I’ll exhaust the nest egg I’ve amassed, that the time has come to enjoy the money I’ve saved, that it makes more sense to provide financial help to my kids and to charities now rather than upon my death, that I’m likely to continue earning at least some money through my 60s and perhaps into my 70s, and that we have maybe 15 years to do the sort of traveling we envisage.
A lifetime of frugality has made such spending and giving a whole lot sweeter. It really does feel wonderfully luxurious. And whenever the cash outflow makes me a little uncomfortable, I reassure myself that such expenditures are indeed discretionary and, if necessary, we could eliminate them and our annual spending would plunge.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on X @ClementsMoney, on Facebook and on Threads, and check out his earlier articles.
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I worked over 30 years as an IT developer, you would think I would use many tools, the reality I have used none for budgeting because good estimation is enough. I never used excel for that either, I mostly used a simple investing/withdraws calculators.
How can we go wrong, if we saved first, we pay all our bills on time = never being late, and never pulled money from our 401K?
I retired in 2018 when we have over 25 times our annual expenses (my goal), I doubled our portfolio since than.
About 1.5 years ago we decided we should “spend” a lot more than normal because we can and we can’t take is with us. We spend about $200K on 2 new vehicle and home improvement. The portfolio is still growing.
But, we are still frugal IMO. Both vehicles were just $75K.
We do a lot of travel but we never spend much because we love the experience more than the luxury.
examples: we love simple Mediterranean food in small and cheap restaurants, we also love Mexican and Thai food.
Hotels: 3 stars B&B far the typical tourists. You get to know the owners, you experience more of the local authentic food. The room is about the same, we don’t care about the lobby or the bar.
We use mostly free walking tours by experience local tour guides, we hike, and we immerse into the local culture.
Google knows everything from driving, to walking, public transportation, great restaurants and other experiences.
I always do all the driving and stop when and where we want. It has been my life long love for planning and traveling for weeks and months. You can’t get the same experiences with dozens of other tourists.
Google is so great now that it knows more than the locals. In big cities where it’s expensive to drive and park, we use the local transportation, many think it’s too much, we love the experience. Last year we have 3+ weeks in the England, Wales and Scotland. We returned the car at London and just used the public transportation. No need to do any planning how to get from place A to B. You just open Google map and tell it where you want to go and it tells you everything, such as, walk 2 blocks, bus 44 will be there in 10 minutes, ride 5 stops, take the underground for 6 stops, get off, walk 5 miles to your destination. No local person is as good as Google. Get lost is the past.
I get a lot of pleasure learning about other countries by just planning.
If I get lost which is difficult now, we love stopping the locals and ask for help and most times it grows to longer conversations.
We did several Caribbeans cruises, but as long as we can drive, walk and go deeper, we are not using cruises where you spend only several hours in these beautiful interesting places.
I also know how to find deals, the internet opened up lots of opportunities if you have the will.
This why we have been to so many places and countries, even when we didn’t have as much as now.
I also do stuff that most don’t and it’s all based on numbers, not emotions.
If I can buy a big item on very low credit (0-1.99%) I take it, I know I can make more, but I also know I can pay it anytime.
For the last 2 vehicles I paid the down payment using my credit card because Fidelity and Penfed pay me 2% cash on everything.
I even took in 2012, at the bottom of interest rate home equity loan at 1.99% while my money was invested, just because I could
I always ask and many times get concessions because I have an excellent credit.
I took SS at age 65, I don’t need it because the other money is invested at 99+%, no cash. I thought I could make at least 8%, I made more.
IMO, the more money you have the more you can take calculated small risk with much better reward.
Interesting discussion. Most folks here appear to be using Social Security to cover fixed and if sufficient variable expenses – with portfolio income covering leisure/travel.
I am doing the precise inverse.
That is, utilizing recurring portfolio income (while letting the equity portion grow) to cover all expenses – with Social Security funding leisure/travel.
Works for me.
I had a similar experience while working (being somewhat frugal). After the death of my mother (in her 40s) and my father (in his 60s) both from illness, it impacted my thought process. I swung the pendulum the other way and max’ed out our $25K credit card back in the 80s. It took about five years to dig myself out of that mess and reverted back to being somewhat frugal again, though not as bad.
One “leftover” from lessons learned about my parents was that they planned all these trips for after retirement. Since my mother fell ill during my father’s retirement ceremony (and passed away three days later), none of those plans came to pass. That had a big impact on me and made it easier to decide to “enjoy life while you can.” Prior to retiring we did some traveling and visited about 20 countries while still working. After retiring (11 years now), we have visited 30 new countries. It was only since 2019 that I decided that we can afford to go first class. At the time, the thought of spending that kind of money was bit “weird” but now, I view it as “just money” (so long as you have enough) and the amount (that we spend) has little impact to our long term finances. We also have a built-in spending “guardrail” of sorts now. Since we are now withdrawing our RMDs, I don’t really think much about our spending while our full RMDs have not been taken. So far, I’ve been able to reduce our taxable RMDs via QCDs and take the final portion in early Dec to pay via withholdings any federal taxes due (for Roth conversions or prior RMD withdrawals).
Three years prior to retiring, I also did not know how much we were spending. I only got concerned if the bank account balance dropped below a certain threshold. When my wife retired (three years before me), I finally started to get some sense of our spending. It was difficult to know how to translate our current spending to what we might spend in retirement. I made my best attempt and did something similar to you by breaking out our essential versus discretionary expenses. When I retired, I also transitioned almost all our spending to credit cards since I preferred the documentation options (spreadsheet) for our transactions. The cash back didn’t hurt either. I was able to process these monthly statements, put every item into one of 35 categories (semi-automatically), and sum up each expense category in a spreadsheet. I also added a mutually exclusive flag for each item being either essential or discretionary. I would then use this data to update the NewRetirement PlannerPlus “budgeter” worksheet and the Fidelity Retirement Analysis Tool budget worksheet. This update is our actual expense ledger for that year and accounts for over 99% of our income and withdrawals. Since I keep an annual copy of these reports, I also have a running expense history that provides some insight to our personal inflation rate for these expense categories and can analyze our spending trends.
Thanks for your final paragraph. I printed it off and I am going to try and implement it.
I have never been a big budgeting person, at least not formally. I like the way you set yours up and I have a subscription to NewRetirement. I will check out Fidelity’s tool as well.
We lived a very similar personal finance trajectory. After I read “the Millionaire Next Door” when it first came out, it was game on. I was frugal to a fault: counting pennies, driving junky cars and living in apartments well below what my income could have allowed. I saved until it hurt, then saved more. Now that I am approaching retirement, I find myself enjoying the fruits of my frugality: 89 vs 87 octane gas; overtipping; and a nice german watch. I have more than enough socked away for the rest of my life and a nice pension to match – to include minimal medical care worries. As long as my health stays with me, I should be in a very good place. My biggest dilemmas will be deciding business vs first and whether to remain a renter or spending the money on a condo or co-op.
In the words of George S. Kaufman and Moss Hart, You Can’t Take It With You.
Now, I’m too much the natural fiscal conservative to live that way — and as a Jew married to a Chinese I’d be swimming upstream against approximately 12,000 cumulative years of cultural influence to do so — but I do try to repeat it to myself every once in a while anyway.
Don’t feel bad about the daily cost of your travel, Jonathan. I’m starting to look at group tours and cruises for 2025, after the grandson graduates, and costs easily run $500-$1000/day per person, admittedly with guides and various amenities included but still ……
I think of my cash flow like flowing water. My water supply is fine, and is constantly replenished as needed. I have some reservoirs.
The tap is always open, but I can sense when the flow is heavy and when it is light. I expect it to be heavy in December with charitable giving, Christmas and my property taxes, and in those four months when Federal and state estimated taxes are due. I also expect to see blips when I have to pay insurance or take off for a comparatively extravagant vacation somewhere.
I trust my gut to tell me when to be careful and when I can relax. Having been a lifelong saver, I get nervous when I have three or four big expenses at one time, but I know the flowing water will even out in a few months. I may check my balances on line when I wonder what the impact is of recent spending (like buying a car or having some landscaping done), and I still eyeball my statements every month for anything that is even slightly out of line. However, I don’t feel the need to balance my checkbook to the penny very often any more. I am much calmer about money in retirement than I thought I would be – a point reached only after a year or two post-working, when I reached an equilibrium (and my water found its right level).
Good analogy
I retired 10 years ago and we now have more in retirement savings than what we started with, despite having spent a considerable amount in the intervening years. Absent some unforeseen event, it seems unlikely that we will outlive our money. Nevertheless, a lifetime of saving habit is hard to switch off and I doubt I will ever be convinced that we shouldn’t spend less and save more.
Gross income – all taxes = net income – savings = spendable income = budget. What else is there?
If that equation doesn’t work, what has to be cut? Actually if it doesn’t work, isn’t there growing consumer debt?
When you are ~5 years away from retirement, it is beneficial to get a good handle on your current spending as well as an idea of your future spending in retirement.
For example, the Medicare premium and Medicare supplement can cost 6K-12K/year for a couple. If you plan to have a large capital gain above $206K for married couples, plan ahead for an additional IRMAA charge (Medicare income adjustment) of up to $6K taken out of your SS (hits 2 years after the gain).
Healthcare expenses (plus deductibles, copays) will be higher in retirement depending on your health. Medicare doesn’t cover many preventive exams/tests. And the larger percentage of dental procedures will be out of pocket. Fidelity estimates that an average couple will need $315K to cover medical expenses in retirement (excluding LTC).
You may incur one-time expenses such as replacing home appliances, roof, upgrading your car, etc. during retirement.
If you are planning to age in place, you may want to budget for additional services such as lawn care, house cleaning, house maintenance, grocery delivery, rides for doctor/dental appointments, etc.in addition to in-home LTC.
Also, add retirement fun & travel and home remodeling projects to the list.
Emergency fund
Fixed Expenses
Discretionary Expenses
Healthcare Expenses
LTC Expenses
One-time Expenses
Retirement Fun & Travel
Home Projects
Don’t focus on the $315,000. That is a lifetime. Out of pocket for most health care will be very low. You will get a big number too if you figure property taxes over the years of retirement.
R Quinn – you make a good point that you’ll “get a big number if you figure property taxes over the years of retirement”. However, it’s not a bad estimate if you don’t have time to detail out your healthcare costs in retirement.
Here’s the url
https://institutional.fidelity.com/app/literature/item/907163.html
Fidelity’s estimate includes Medicare Part D and B premiums, out-of-pocket prescription drugs, copays, deductibles, and excluded benefits. It also includes a 5.1%/year increase in costs. It does not include over-the-counter medications, most dental services, and LTC.
I couldn’t find more detail on the Fidelity estimate, so I used our 2024 medical expenses
· $2,096 Medicare Part B Premium (deducted from SS)
· $ 240 Medicare Part B Deductible
· $3,032 MediGap Supplement (Plan G)
· $ 6 Part D Drug Insurance
· $ 300 Prescription
$ 5,675 Total
$11,350 for two
The kicker is increasing costs 5% per year. If I increase costs by 5% per year for 18 years, it adds up to $319K (age 65 to age 83). However, these costs above don’t include out of pocket medical expenses or additional prescriptions. And they don’t include dental insurance, out of pocket dental expenses, a vision exam, or glasses.
FYI, the Medicare Part B premium increased $117.60 from last year or 5.94%. The Part B deductible increased $14 or 6.19% from last year. And my MediGap Supplement increased $123 or 4.23%.
If your income is fixed like a pension or annuity, even SS where the COLA is 2-3%, healthcare expenses can be a bigger part of your spending over time.
That’s very high. I suspect they are looking at worse case for someone with health problems. Our prescription coverage with Wellcare is only $.50 a month. We don’t take many prescription drugs. We don’t have dental coverage but get dental cleanings twice a year. Maybe costs $400 combined. I’m sure there are some who will have huge expenses, and they should make sure they stay away from Medicare Advantage, run by for-profit insurance companies. Their goal is to pay as little as possible to keep profits high.
I expect most of those over 65 on this thread have Medigap supplement coverage. I’ve been on Medicare Advantage for nine years since I turned 65. It’s worked well for me and last year I was in the hospital for six days and, separately, had my gallbladder removed. My total out of pocket expense for those medical events was about $2,000. My annual maximum out of pocket is $3,400, should I ever reach that number. I’ve always paid $0 in monthly premiums, and that includes drugs. Also included are two dental cleanings per year, (plus a bit more towards other dental expenses) and an annual eye exam plus $250 towards glasses or contacts. So far, I’ve saved $20,000+ on premiums over the nine years I’ve been on MA. That’s way more than my actual medical, dental and vision expenses over that time, which includes the hospital stay and one surgery. Primary care visits have a $0 copay, specialists $35. I also get a free gym membership and quite a few free OTC products. I have a nationwide PPO and have had no trouble finding excellent providers and facilities in the very large network.
That’s fine as long as you’re healthy, although insurance premiums will add up unless you’re on a cheap Medicare Advantage plan, in which case co-pays may add up. But my periodontal work this winter was $6,000, and that’s a third less than the first quote. The drug I was taking until recently was running me $6,000/year with insurance.
You got me thinking (differently) again, Jonathan.
In the years immediately before I retired I never thought of retirement as a time to change our lifestyle, we weren’t planing to relocate, we didn’t think about the possibility of cutting back or trimming spending. Life would go on as it was with the added benefit of free time and travel. We never viewed retirement as covering basic living expenses.
When I did retire in January 2010 our pension and SS income was slightly higher than my base salary at the time. We had no debt. Over the last fourteen years the pension income has not changed and will not, so buying power is eroding each year. Still we have not cut back nor have we used money from investments. We still have flexibility to deal with inflation.
I maintain that is only possible because of the income replacement percentage when starting retirement. I worked until age 67 and I met my 100% goal, a plan I understand many people would find unacceptable.
To me there is a big difference between expenses and spending. Our spending includes a significant amount of discretionary spending on travel, gifts, family assistance, 529 plans and donations, but that was the case before retirement as well – and we still save a small amount each month in a emergency fund.
Each month my pension and our social security net of taxes and deductions are deposited in bank accounts. Basic living expenses including property taxes, insurance, utilities, etc. come from one account that receives $4,300 a month. I adjust that as so-called fixed expenses increase. The balance of the deposits go to other accounts from which all other spending (including discretionary) is taken.
The bottom line is that our income determines our budget.
The question is, can living in retirement as desired be accomplished starting with 70-80% income replacement? No doubt the answer lies in ”as desired.”
You really don’t need a budget or expense tracking system if you have a lot of flexibility. I think we can decrease our expenses by over 50% if we need to. Obviously, there is a lot of extraneous expense at this point, but we are enjoying our retirement.
Do you want to cut expenses? What would you be giving up?
Soft drinks and alcoholic beverages when you dine out. Those can really add up.
We have been over this ad nauseam. I just checked, and since I retired in 2000 the equivalent of my salary then would be nearly twice as much today. My income, including RMDs, is about the same number as my salary in 2000 so about half my equivalent salary today. I am living quite comfortably, thank you.
I think that’s what I said. I started with 100% but today inflation has eroded about 40% of buying power since 2010 and we are still living as we desire. It would be a different story if I started with 70%, lifestyle would have had to change or we would need an additional source of income. Could it be otherwise? Seems like simple math. Input and output need to balance over time.
I retired on a pension that was 40% of my salary. My full SS didn’t kick until 2017, and RMDs about the same time. My standard of living didn’t change over the years. I already wrote about it.
Anyone who can retire in their 50s on 40% income replacement while spending years traveling extensively deserves a lot of credit. My hats off to you.
Thanks, but it was a good salary, and I’m frugal. My point was that I’m currently living on the equivalent of 50% of that salary.
I enjoyed Jonathon’s article, especially since it is pretty close to our experience over the years.
One potential expense I would add is long-term health care. You may or may not need it, but if it comes up it can really foul up the best laid plans. I paid into a plan over 10 years and am now fully vested – no further premiums! I purchased it while in my 50’s which was far less expensive than paying for a program now in my 70’s. Today the plan will pay about $275/day for in-home or nursing home care for up to 3 years for myself and my wife, and the daily benefit rises a guaranteed 5%/year. It may not be enough to fully pay for all care but it will provide a nice buffer should the need arise. Of course, if neither of us needs it we will have lost the 10 years of premiums which could have gone into investments, but the peace of mind is worth it to us.
Visicalc was my first software purchase after buying an Apple II in the early 80’s, followed couple of years later by Quicken. Excel has supplanted Visicalc. These programs have allowed me to set up mechanisms to track income, spending, and taxes. Now in retirement my biggest problem is predicting how much tax will be owed next year. I can get reasonably accurate estimates of social security, interest, and dividend income. The bugaboo is capital gains. I use a guesstimate based on inflation-adjusted personal capital gains data over the past 20 years and try to fine tune it the last 2-3 weeks in December. but it’s still just an educated guess.
I didn’t realize that some LTC plans could become fully vested.
I definitely see a pattern among many people writing articles and posting comments on HD. Reasonable life styles in the accumulation phase of life, freedom from mortgage and car payments in retirement are keys to financial success. Of course good health is also paramount, but we can’t always control that.
In January I gather the prior year spending on Excel. Except for last year when we built and furnished the new house, our spending is a fraction of our income with the excess going into savings. So long as those numbers stay consistent year to year I feel like we really don’t need no stinkin’ budget.
I’m another fan of Quicken – my records go back to 1999. All those small credit card charges get downloaded painlessly. I’ve never obsessed about budgeting, but the records did come in handy when I paid a financial planner to confirm I could afford to move to a CCRC.
If you’re planning on travel, can I recommend using a credit card that gets you frequent flyer miles? The reason I use my CC for everything is because everything gets me miles, and then I can fly in comfort. I find the notion of spending $1,000/day startling, but then my trips lasted months rather than weeks.
Jonathan, thank you for sharing and I like your savings focus during accumulation vs. traditional budgeting. If you don’t mind saying, what savings percentage(s) did you target? I wasn’t sure if you set a savings goal and spent the rest or if you saved everything but your fixed living expenses.
I never targeted a particular savings rate. But I did make sure I maxed out my 401(k) every year, while building up my taxable account and making large extra-principal payments on my mortgage.
Although I never did it, its a good idea to keep tax returns, bank/checking statements, cc statements, and year end brokerage statements forever.
Why-with todays divorce rates having those docs readily available makes the divorce process easier and faster
I have been using Quicken to track spending for over 25 years. The reports make it easy to see actual amounts spent by category and to see how spending varies by year. This provides a realistic basis for future planning. It also provides me with a financial diary. When I want to know when I bought something or what restaurant we ate at on a long ago trip, the detail is available.
I use a nifty little phone app called “Spending Tracker” (v3.1 at present) that costs just a few dollars from the App Store. Once I set up notifications to get an email for every transaction when we use our several credit cards, it is simple and fast to log and categorize every expense. Once that is done tracking expenses is done with very little effort.
I’m another fan of Quicken. Years ago, they had a Quicken Ambassador program, and I was one. It was short lived (because it wasn’t that successful). But at least I can include “Former Ambassador” on my retirement resume. (smile)
Since we have tracked every purchase over the years, if (God forbid) we have a total home loss, I can produce an inventory of all of our contents within a day (I’d need to download my online backup at that point). Most homeowner inventories after a total loss are vague recollections and then a lot of people go to a store and walk down the aisles and say, “Oh, we had one of those” and add it to their list.
Ron Leaf,
+1000!
We have been Quicken users for over 2 decades too.
I like to enter our daily expenses. I have always been into minutiae.
My wife likes to balance the accounts. She has always been a big picture gal.
I also like the fact that it provides standard reports.
And the facility to write your own reports.
If that isn’t enough you are also able to export the income and expense amounts along with their categories into a spreadsheet.
I’m a big fan of Quicken as well! And you can easily download all your transactions into Quicken from your bank or brokerage account.
I have used the free Empower App (formerly Personal Capital), along with Mint. These have allowed me to not only track my spending but to realize when I have deviated from my averages. Both work best if you mostly use a credit card for spending. Recently Mint was shut down. Empower is not only an excellent spending tracker, it has one of the best Monte Carlo Retirement tools built in. It uses your actual current financial spending as well as current portfolio value along with SS income to project confidence levels.
Great article Jonathan. I dod a yearly review of our credit card spending. They do a decent job of categorizing expenditures, so I dump int into a spreadsheet and can then use data analysis tools to see what we are spending on what. I have a “cash flow” spreadsheet that includes state and federal tax calculations. I built all this when I started consulting and needed to figure out estimated and self-employment taxes. It also helped “optimize” year end solo 401K contributions, or Roth conversions.
Now with 2 houses, 2 mortgages, and the first year of rental income, I’m less comfortable than I was a few years ago. I’ll be keeping a close watch on the rental property expenses and income. I think have a few more big ticket items left in the new house, a modest basement remodel and patio extension. My pension and my wife’s SS cover our basic expenses, and my SS will add another $50K in a few years.
Did I mention we are signed up for a 19 day Dalmatian Coast trip in September? This is a splurge, and I estimate will cost about $1,200 per day combined.
We do keep track of expenses. It’s like having gauges on the dashboard of a car. RPM too high? Better back off a bit. One thing we’ve learned is that just about everything that requires maintenance is almost twice as expensive. The maintenance many times costs as much or more than the original purchase. We had an in-ground sprinkler system installed 25 years ago. We’ve now spent more maintaining it than we did buying it. Plus, we’ve probably watered more because it was easier than dragging a hose around at 5:00am in the morning.
Now we like to focus on expenses that have non-recurring costs. Travel is an example, in a way. A trip is generally once-and-done.
My current arch nemesis is subscriptions. I have a system of tracking those and it’s absolutely amazing how much money they regularly extract from us. Currently I cancel most subscriptions as soon as I set them up. That way they’ll automatically lapse and if we want them, we can always restart.
May I suggest the library, if by “subscriptions” you meant magazines?
Libby is one of many apps that allows digital reading. And trees get saved!
Our subscriptions include TV streaming, cell phone monthly charges, software (online cloud storage), car wash (really nice in cold weather), etc. It seems every company wants to have a subscription. We call it their “their annuity. Even Costco is a subscription to us. But the deals…! (smile)
And now gold bars! 😀
Always appreciate your articles. I find it very difficult to track spending as we have 7-8 active credit cards and I still have a son using one. I am exhausted after work each day and can’t imagine sitting in front of a computer any longer after work. We have hundreds of mico-payments through the month and to categorize each of those would take time away from my wife and family. Maybe I will give it another go but it seems easier to take my after tax and savings net income and use that as a yard stick for future.
Piggybacking on Jonathan’s comment, take shortcuts. Nail down housing and other fixed costs and the balance of that subtracted from (net income less savings) should approximate discretionary spending. Tweak as needed.
PS Quicken can download bank and credit card activity, so minor data entry is possible, depending on the depth/detail of your expense categories and subcategories.
If you know your after-tax income and you know how much you save, you should have a good handle on how much you spend.
Exactly, assuming there is no credit card balance month after month.
Jonathan, thanks for the article, I always look forward to your Saturday insights. I have tracked our expenses for around a decade. Not in minute detail, but pre-retirement I was curious what our fixed and discretionary costs were so I would have an idea of what we needed in retirement. We have been retired going on 5 years now. Our fixed living expenses (utilities, insurance, taxes, internet, cell phones, gas, groceries, etc…) come in around 45k per year. All other expenses except for travel bump it up to around 65k per year. We live very comfortably on that level of expenditures, and it has hovered around that amount for a decade. We have no debt, so that helps. We are in our ‘go-go’ years so we spend around 50k per year on travel. We started taking a monthly ‘paycheck’ from our IRA’s last year (less than 3 percent) and I was hesitant to do that (we are mid-sixties) but realized we should spend a bit more while we are in good health and travelling.
Spot on, Jonathan. I am curious, though, on how you and Elaine handle not having a car? Like you, we live in a walk and bike- friendly community with decent public transit options. Even so, the need arises often enough that it would kill a lot of time relying on ride sharing services.
On the few occasions each year that we need a car, we rent — and the rental place is a 20-minute walk away. Otherwise, the airport and Amtrak are a 15-minute Uber away — and Ubers usually arrive within five or six minutes of us ordering — and there’s a bus stop at the end of our street.
Still, at some point in the next few years, we may buy a car, in part because we’re thinking of taking some longer driving vacations. But I’m resisting. Having a car in the city is a hassle. I hate hunting for parking spots.
For sure. Kudos for being so mindful about it. It would be better for us and the environment if more of us were. But hard to give up that emotional factor of wanting the instant convenience.
Most car rental companies in the US have upper age limits for renting a car. Some are at age 70 others at age 75. While it is a hassle to own a car in a big city, if you don’t acquire one and get it insured before you get much past 70, you may not be able to get insurance at all. Accident rates for those over 75 can be similar to those of younger drivers.
Sorry, but must dispute: “MOST car rental companies in the US have upper age limits for renting a car.” Please Google it. Thx.
The AARP car insurance program through Hartford might work for the over 70 ages for owned cars. (I’m not on commission…).
What Is the AARP Auto Insurance Program From The Hartford’s Minimum Age for Benefits?
To purchase a policy with the AARP® Auto Insurance Program from The Hartford,1 you must be at least 50 years old. The AARP minimum age for their full membership is the same. However, there is no AARP age requirement for adding spouses or partners to your policy.
My brother has lived in the same apartment in San Francisco for decades and just recently decided to get a car. He would use Zipcar, ridesharing, and public transit when the need arose. He decided to get one because he likes to get out of the city on weekends for drives and hikes and he’s found that renting cars has become more and more expensive.
I have been retired for 10 years. I recently created a basic budget, just for fun. My total ordinary living expenses are 19.37% of income, my Federal income taxes are 11.89% of income, and state income taxes are 2.70% of income. So I have a lot of wiggle room. I do budget an addition 10.27% for extras and unexpected expenses.
Needless to say, I don’t have a lot of stress over spending.
Way to go loosening the iron grip! There is no prize for being the richest man in the cemetery.
Excellent and timely for me as I recently turned 61, retired 4 years ago, and promised myself (and my wife) on my birthday that I would do a better job of just this “And whenever the cash outflow makes me a little uncomfortable, I reassure myself that such expenditures are indeed discretionary and, if necessary, we could eliminate them”. We just booked a 2 week fall trip to Italy with flight and lodging expenses around 7 grand and I still have to mutter to myself ” this is what the money is for, Brian, this is what the money if for”. I don’t think I’ll ever get past my lifetime of frugality mindset but I am trying. Thank you for capturing this so eloquently
You will love Italy. Enjoy!
Jonathan for keeping track of your travel itinerary I urge you to try http://www.tripit.com. Just forward your emails about itinerary and they download it to your account. You have all details of your trip: flight, activities, hotels on your phone. Bon voyage
That’s one of the rare things for which I use a spreadsheet.
Have you tried tripit? The free version is much better than a spreadsheet, is available on your phone also.
No. I avoid apps to the extent possible. “Spreadsheet” is being polite: I could just as easily use a text editor. I’ve been doing it this way since my first long trip in 2001.
I’ve been using TripIt for at least 15 years. In addition to the obvious real-time benefits, you can go back and look at details of previous trips if you need/want to, such as “What was the name of that great B & B we stayed at in Queenstown, NZ, back in 2015?”
Another benefit of Quicken 😀
Very interesting article, Jonathan–similar to one I’ve had on my list of potential pieces. I’ve got years of spending data in my spreadsheets (of course). Like you and Elaine, our spending habits are not typical for people of similar means. Your numbers mimic ours in a lot of cases, but your travel expenditures–not surprisingly–diverge significantly from ours. In retirement, I’m no longer interested in tracking every dollar as I did for several years immediately prior to the Big Event.
I too have amassed unneeded wealth in retirement Jonathan, but am still cautious going forward at age 83. I’ve heard others on this forum choosing to spend down their seemingly unneeded assets in retirement, but one can never know future needs. The X factor for retirees is health care, long term health care. I consciously decided not to purchase same years ago, a decision I do not regret today and a whole other story, but long term health care can be very expensive, especially if both you and your spouse must go in, a situation that has destroyed many a portfolio. There will be plenty of time at death to move assets to my chosen heirs.
I have some real-time (this week) numbers from my in-laws, who are in their 80s, and we’re helping both manage their LTC claims and their care. She has advanced Alzheimer’s and has a LTC policy that’s been activated.
They’ve been using in-home care part-time since fall through an agency. It costs $35/hour. The LTC policy covers up to a maximum of $4620 a month, plus the premium is waived once you have an active claim after a 90-day elimination period. If they were to go to 24/7 care for her, it would cost about $23,000 a month and $18-19K out of pocket after the LTC reimbursement.
The in-home care thing is not a workable solution for her as her condition progresses, and my FIL just signed a contract for a private room in a memory care facility to which she’ll move in a few weeks. That will cost around $8300/month, and LTC insurance again will cover around $4600 of that. If she should happen to need skilled nursing, the daily benefit doubles and Medicare would kick in, too.
We live in California, and I’m guessing the numbers are lower elsewhere. I was surprised, though, at the huge delta between in-home care and residential care.
Three years ago my wife required in-home care for several months at a cost of $28/hour. What we found more troubling than the expense was the large turnover in care providers and individual differences in the quality of care. Unfortunately, I think this problem is likely to get worse as our elderly population continues to grow.
Exactly. Some of the caregivers get along with my MIL better than others, and what if someone quits or doesn’t show up or has a family emergency? It’s not a stable situation as to either quality or reliability.
When people say they’ll “age in place” and “hire care when we need it,” I wonder if they’ve really looked into what it’s actually like and what it costs.
The “break-even” point tips toward a facility too quickly, unfortunately.
My dad’s LTC reimburses $100/day. My parents could not keep up with all the premium price increases, otherwise they would be enjoying higher reimbursement levels.
A few years ago the company offered 4 options, buyback being one of them, for an obscenely low amount. Um, no thank you, we’ve paid on this policy for decades, jerks. So we took the lower lifetime cap and froze the premium payments at the current level. Now that the policy has been activated, that premium is waived.
For those purchasing LTC, please choose your company carefully. Almost as important, pick the “bulldog” in your family as your POA to wage war and advocate for you. My parents’ LTC company has been dreadful to work with.
Unfortunately this sounds a lot like my LTC company- I regularly get letters urging me to choose one of the four options. Because my husband died without needing long term care and thus his policy was discontinued, I’m currently able to afford the annual premium increases, but for two policies, it would be difficult.
Yes, we got one of those “buyback” options, too. So far we’ve been fortunate that the LTC company has been good to work with—nice and helpful reps on the phone (and short wait times!), rapid updating of the account on the website, prompt reimbursements. It’s through the state of California’s retirement system, and thankfully they seem to be pretty competent and caring.
Consider yourself fortunate.
You’re doing it right. You might be able to pay for LTC out of income right now, but if costs keep going up you might have to spend down some capital.
We have always had a budget and would stick to it. Now, in retirement, not so much.
Good for you! I’ve noticed some people cringe less with the term “spending plan” than “budget”–whatever gets one to the finish line of doing what s/he wants to do without worry!
Jonathan, sounds like you should be flying business class and staying for longer than 10 days 🙂
We went through a similar look back exercise after a couple of years of retirement and found our spending is also well below 80% of our pre-retirement income (net of 401k contributions etc).
We’ve realized that premium economy is the sweet spot if the flight is timed to where you probably wouldn’t sleep. New York or Philly to London is only about a six-hour flight, and if you take one in the daytime, you’ll just watch movies and eat, no need for a lie-flat seat.
Heading to Europe, daytime flights are rare, alas. Coming back is a different story.
I’ve kept a spreadsheet outlining my budget – and projections – for years. It was simple to set up, though it has taken some tweaking over the years. I do line-item taxes, as it can be a big chunk, and if I end up paying less in taxes, that money is icing on the cake.
Since entering retirement I have tracked my monthly expenses, even giving myself a budget to keep to for each month. I have never gone over budget! I also keep an annual budget for the big ticket items such as estimate federal and state taxes. All of this is unnecessary but I feel compelled to do so. Perhaps it gives me some sense of self-control, to ensure that I am not spending wildly, as if I would!
Spending wildly? You? Not a chance, Nick!
another great post Jonathan.
Almost 45 yrs ago we spent 5 weeks in Europe for $2,500. I agree with you now, budget at least $1,000/day. But that is why we saved all that money. Fly1st class or your kids will.
At 17, I spent a month traveling around Europe by train, and my total expenses for the month were around $400, including the Eurail pass. That’s not happening again!
Hi Jonathan,
Reading this was like reading my financial biography. We were frugal during our working years. As an example we bought a new two wheel drive standard cab Tacoma with manual transmission for 13K in 2002 and didn’t replace it until 2020, but then bought what I figure is my last pickup with 4 wheel drive (it got old stacking cinder blocks into the bed of the old one when it snowed), and all the bells and whistles. We are now on a two week 2500 mile road trip and can drive for hours in creature comfort.
Our financial plan has an 80K budget, with 10K for house upgrades and 20K for travel, but last year we spent a total of 60K which included a 2 week trip to Greece, and 6K in unexpected house repairs.
This year is starting out with in unexpected 5-10K expense to install central air as my 102 1/4 year old mother in law is going to move in with us soon. The plan was to keep using a window unit just for the downstairs for a few more years but the upstairs bedrooms would be dangerously hot during the summer for someone her age. But even with this unplanned expense and continued inflation I doubt we’ll exceed 60K in expenses this year as well.
One key to our low expenses, our house is paid off and we have no car payments, ie no debt!
Quick HD reader poll: Anyone else so frugal that they pack the shower soap bar from the first hotel and use for subsequent hotels and then hoard the rest for use when returning home?
Guilty as charged!
I travel with my own soap, I have sensitive skin. Also my own shampoo. Those little bottles are an environmental disaster.
There are shanpoo bars that one can travel with, but I’m sure you’re already in the know.
A friend of mine was in a dates apartment and when he went to the bathroom noticed that the bar soap was an accumulation of old bar soaps all pressed together. He decided he should marry this girl. Between the two of them, starting from nothing, they amassed $10 million dollars. That’s my soap story.
People I’d like to meet! A Soap-Sister!
I can’t claim to be as frugal as this but my husband and I both had well paid jobs and we did look after our money so we were able to retire at a relatively young age. We travelled a fair amount in Europe in younger years but it has lost its allure now by comparison with our comfy home, these days we spend a lot on children and grandchildren and have been proud to help our two children through education and into the property ladder. I know lots of retired people live to travel but for us real contentment has been found in our many hobbies and spending lots of time with family and friends. My advice to my younger relatives is save and pay into a pension, you will bless the day you did so.
Great article. I think everyone should analyze their spending. There is a lot to be learned.