FREE NEWSLETTER
Go to main Forum page »
Based on the feedback I have received on HD over the years mostly directed at my failure to budget or track expenses in detail using spreadsheets, my selection of some high expense investments and to not pay much attention at all to our investments, failure to use financial or retirement planning services, retaining life insurance in retirement, beginning Social Security at FRA while working, buying cars for cash, retiring at age 67(part of my income replacement strategy), paying for our children’s college and maintaining multiple bank accounts … I should be in a financial mess or at least required to a keep a close eye on our lifestyle spending.
Neither is the case, so either we are just lucky or all the worrying, detailed analysis and planning aren’t as important as they appear – at least in every case.
Yes, I have a good pension- the foundation of income in retirement. On the other hand, we were a one income family our entire marriage. I have never stopped saving and investing since my first job at age 18 and I did make foolish and risky financial moves like buying a vacation home with a 9-3/4 % mortgage the year before our oldest child started college.
Is it possible to just be a tad frugal, a prudent spender, a persistent (even if inefficient), investor, not follow conventional ideas on them all and still with success?
While I don’t recommend do as I do, it is possible. KEEP CALM and CARRY ON.
Just goes to show that spending less than you earn is numero Uno. Many arguments can be made about two, three and four. If you invest poorly, the school of hard knocks will gradually steer you in the right direction. It’s just a shame that I could not have found Vanguard in my twenties 🥴
We followed the Dick Quinn method (and didn’t even have to pay him any royalties!). My wife and I decided at the start of our earning lives to save 20% of our income each year in retirement accounts and live off the rest. No financial planning/planner, just hoped/trusted that would be enough. No spreadsheets or budgeting, just being disciplined in spending. Early on we thought we were spending too much but didn’t know where it was going, so we kept track of spending for a few months and discovered we were spending a lot more than we had realized on take-out food, so we cut back on that. Our self-employment income was somewhat irregular so we used a HELOC to smooth it out; somewhat risky but we trusted our ability to earn more $. During the pandemic our income dropped and we just didn’t have enough money to make the full 20% retirement contributions for 2 years, but our retirement accounts had done well to that point so it was ok. We’re planning to 80-90% retire at the end of this year at age 69. At that point I am planning to keep track of our spending for awhile, but for the opposite reason as before: to make sure we’re not spending/giving too little! I’ve witnessed that it can be hard to transition to spending more, especially when you’re drawing down your assets instead of building them (no pensions, only SS will be coming in at age 70).
I am a spreadsheet guy, and like to calculate various scenarios. However, knowing and learning about finances, being disciplined and most of all using a lot of Common Sense, can get you there. It is OK to do it your way, no budget needed. Congrats.
After reading through the comments and
argumentsdiscussions contained therein, I find it a bit strange that the subject contained in the title of this post is questioning the need for either a spreadsheet or planning, yet the main thread of the article is about not needing a budget.I agree – you don’t need a budget. However that has nothing to do with whether or not one should do planning or use a spreadsheet.
Once again, I find myself in strong agreement with the commenters who are calling you out on the points you’re trying to make because they’re based on outdated personal finance assumptions. Pensions are gone for most people. Spreadsheets are free and easy to use. People don’t retire at 65 and take a dirt nap at 70 or 75. Health and longevity greatly change the math on retirement planning. It must be done now.
Give it up, Dick – everyone’s got an opinion (including me). However it seems to me that posting on this blog should be about educating those who are still on their journey to retirement, not a nostalgic look in the rearview mirror about the good old days.
Opinion, challenging traditional thinking perhaps, suggesting alternatives is all it is. Accept or reject as you will.
I would hope that the discussion in favor or opposed to my way of thinking helps some people make their own better decisions.
I make no claim to expertise nor do I encourage anyone to simply do as I do – which is pretty apparent they don’t.
I am very aware how things are different these days, but it’s not because of the lack of pensions.
I have four children in their 50s. Three struggle every day despite having masters degrees. Two work two jobs to keep things going, they have been faced with family medical issues, two preventing their spouses from working. Only one even has a 401k from an employer.
I don’t know the details of their finances, but at least a couple are investing as they can for the future. One who is 54 has three small children and may never be able to retire from selling real estate. One works seven days a week with one child now in college.
I see every day people living very differently from how my life was and is today. In the case of my family I am and plan to do everything possible to help them financially now and as a legacy. Because I think it’s the right thing to do and an obligation.
I believe Mr. Quinn possibly has a life style that lends its self to retirement success. Using spreadsheets and intensely studying investment prospects doesn’t help these folk as much.
Someone that can not, will not separate wants, from needs certainly will have to spend more time and effort in the ol investment research game to nail a healthy retirement.
Both my sons know the value of paying off a loan such as their homes. It raises your net spendable every month. If one paid for home is good, isn’t two better?
I showed my neighbor a leaky wealth bucket illustration and applied the concept to her home payment. At the end she said, ‘I’ll talk to Joan, she’s really smart with mortgages.’ Sigh…of course those people make money from keeping you in debt. Then, just last month she mentioned that she bought a $1200 . . . heated bidet toilet seat.
I think a lifetime of simply living well within means and maximizing any retirement benefits offered will go a very long way for a comfortable retirement.
Mostly because if the means change, the retirees living also will by nature.
During my working years and all of our marriage we had and have a lifestyle based on living within our means.
Over fifty years the means improved, but our lifestyle did not appreciably change in terms of spending. We lived in the same house for 45 years and drove Chevy sedans.
There were two occasions when we took risks, buying a second home and ten years with 1,2 or three children in college. But we found away to get through and those were years when I was a lower level manager. One was starting a small side business. The other renting the vacation home in the summer.
Our big financial break came five years before I retired when I was 62 and my compensation package improved significantly.
I always knew the income I wanted in retirement- my base pay. That way spending would not be an issue. That’s one reason we never lived off any compensation above base pay. It’s also why we made sure mortgages were paid off before retirement and why I worked to nearly age 67.
Now some people look at us and see two wealthy 80 year olds and suggest we don’t know the real world.
Perhaps not, but I suspect many people would not welcome the lifestyle it took to get where we are today – FIRE, but without the E and yeah, no budgets or spreadsheets just fiscal discipline and the lack of misfortune.
No need for a budget? Agreed. Sure. Why bother? If you’re disciplined in your spending. IF. Then you’ll probably be ok and will ‘feel’ when you’re spending too much. We did it that way for most of our earning years and still managed to take some nice vacations and splurge on some purchases. OTOH, we were both seriously frugalista.
As we got to within 5 years of retiring, though, we did start tracking two things: spending and total portfolio value.
With no pension, you really can’t know when it’s time to quit working without these two things. You can’t just ‘feel’ when you have the right amount to last you the next 30-40 years (as in our case). No one can – at least not unless you have $8-10m stashed.
We had nine investment accounts strewn across a couple of brokerages: his/her IRAs, his/her ROTHs, his/her 401k’s, his/her ESPPs (actually, we had 3-4 of those) and a taxable account. Oh, and bank savings and checking accounts. Oh, and two small (<$100k cash value) pension accounts from previous employers.
I never really added it all up for most of the time I was working. A part of me didn’t want to know, because I wanted to be surprised – wake up one day and be ‘rich.’
So we just kept our heads down and worked. Sometime into my early 50s I started really tracking our total pile and teaching myself about personal finance. I played with lots of different retirement calculators and read bunches of stuff about how to figure out when you have enough and how to make it last.
I couldn’t have retired with any confidence at all unless I knew how much we had, how much we would need to spend, and some estimate of how long it would all last. But then again, we had no pension. If you don’t have big mailbox money or expect a big inheritance, you must figure these things out. There is no other way.
Before we retired at 62 I “felt”, without using a spread sheet, that we had enough savings to retire, but utilized a fee only CFP who confirmed. AFTER we retired is when my daughter helped me set up a spread sheet so I could keep a close eye on our portfolio worth, not our spending, while lived off our assets prior to claiming Social Security at 70 in, 2 1/2 and 3 1/2 years. The spreadsheet allows me to closely monitor our balance, and as I’ve written before will let me know if our balance drops to a predetermined, but somewhat random amount. If it reaches that level my wife, the lower wage earner, will claim her Social Security benefits to decrease our portfolio withdrawls.
I can understand why you want to do that, I monitor our investment balances every day – it’s an unnecessary obsession, but why the need for a spreadsheet to do it?
All our investments are consolidated at Fidelity – IRAs, brokerage account, individual stocks and even a link to our bank accounts.
I log in and each account and total assets are right there plus the changes each day, all in and out activity and accumulated earnings for each investment and current net worth. And a wealth of other information on each investment.
Nothing to do except pick up my iPad.
Is using the spreadsheet an activity you enjoy?
All of our accounts are with Vanguard, but 5 1/2 years ago I inherited my parents traditional and Roth retirement accounts from TRowe, Fidelity, and American Funds. I am in the process of taking RMDs from all of the traditional accounts, and the spending down the smallest funds to close them out. I have eliminated one mutual fund company but two others of theirs still exist. It’s been a bit of an accounting nightmare, but it’s also a nice problem to have as well. My brother’s lawyer friend who is a tax attorney suggested not trying to combine like accounts into one mutual fund company as he thinks their is too much risk in something going wrong.
That’s one reason I say a steady income stream is necessary in retirement. Build a pension via an annuity and dividends and interest. The annuity covering basic spending needs.
I once read a list of “truths” about money. Two that stuck are “no one cares more about your money than you” and “if you live within your means you don’t need to budget”. Yet, as you say, some type of planning is called for to be sure your retirement income will meet your needs. Today, with all the available tools, a person would be remiss not to think ahead.
On your list of 10 failures, I have failed at 7 of them, and I also have no issue using SS to pay for the necessities of life in retirement. I’m privileged to join your club.
I believe the real issue is financial discipline, not obsessive planning. A discipline of living below your means, paying bills on time, not spending on emotions, etc. That discipline will support most of those failures.
Dave Ramsey, love him or hate him, made his fortune not as a financial planner, but by selling his behavioral change technique to engage that discipline. I don’t believe he would disagree that he is in the business of behavioral change.
I recall starting my career and filling out the forms for investing in the company’s savings plans. I put 0%. HR had my manager talk to me. I was so angry that someone was telling me what to do with my money; I was so clueless. I changed it to something like 5% to appease my boss and HR.
I started noticing that savings grow. I began reading that one should save between 10-15%. I followed this advice blindly – not taking into account any expenses, any budget. I don’t even think I had a concept of what retirement savings meant.
Then, my take home pay was my budget. And, most importantly, my savings habit established.
Dick, I find your articles entertaining – especially the comments. There’s a couple of folks you trigger no matter the topic and all hell breaks loose. I propose a WWE-style match, 5 minutes, no holds barred, winner takes all. Let’s decide this thing once and for all!
Thanks
It’s those darn red arrows that drive me nuts when all I did was answer a question.
And you don’t know what the dislike is about.
The red arrows are a curiosity. Especially when the comment is benign.
I frequently comment if I have a disagreement with something, but I never down arrow!
I see the comments as a place where people with different perspectives get to voice them. I’ve disagreed with you a bunch, even though I think on the whole you present some reasonable perspectives.
Never had a $$$ goal. Never a hard budget. More of a mindset to prioritizing savings. We maximized employer based retirement plans, jumped on the Roth IRA bandwagon when they became available in 1998, always saved first/spent later, alternated between tax deferred and Roth 410(k) contributions depending on marginal tax rate in any given year, avoided debt except when absolutely necessary and, maybe most importantly, committed to being 100% debt free before entering retirement. Wasn’t sure exactly where we’d end up, but figured if we did those things we’d be fine and probably better off than 95% of others based on reported savings rates.
“If you don’t know where you are going any road will get you there” – Lewis Carroll.
After reading the comments I’d like to add that I’ve read that retirement planning is a math problem. Success becomes more difficult if one’s finances are tight. Planning may be more important if our expenses equal or exceed our income. Many things can derail our wishes; a financial emergency, health issues, loss of a job, high inflation, insufficient savings, overspending, catastrophe, etc.
Success, I think is also due to providence and good luck.
I suppose running a business influenced me. That combined with raising a family. The list of “wants, needs and desires” was always far longer than my corporate and personal pockets were deep.
Plans don’t define well-being but they may facilitate it. “Well-being is the experience of health, happiness, and prosperity that includes mental, physical, social, workplace, and societal well-being.”
I’ve always thought that a goal of budgeting or planning was to provide me with the opportunity to generate experiences and add resilience to my plans. My “plans” have never been cast in stone. As much as I’d prefer certainty, that is out of my hands.
As others have suggested, it’s possible just not probable. The important thing is to maximize your probability of success – planning and execution increase those probabilities.
A spreadsheet just helps you see where the money is going, can go, and how long it might last given certain variables. I have a “this is what your life costs per day” sheet and it allows me to stay calm when the waters get choppy. It doesn’t control my spending, but if there’s is a 300-500 dollar surplus per day on top of overestimated buckets of spending, I think it’s pretty safe to pay a buddy’s green fees, buy beers for the boys, or take the extra road trip. RQ has obviously done this without a spreadsheet, but some of us are data nerds and I find this approach feeds the beast.
Two of our sons are like that using spreadsheets. As I said, I am more macro. I just watch bank account balances and will never end a month at zero in a checking account, including paying credit cards in full before month end.
I cancelled one of your downvotes. I’m a pencil and paper kind of guy myself who devises an annual spending plan, but I know others who do fine without the bother. It comes down to personality I guess.
I distinguish between agreeing or disagreeing with advice being offered, versus someone describing what has worked for themselves.
You’d want to examine efficiency and best practice, not just possibility, because expected value is more important than possible value.
Said differently, is it possible to get rich as an athlete? Absolutely, is it a good plan to count on that working out? No because the expected value is very low due to the massive number of athletes that earn zero at sports.
Flipping that coin again, it’s pretty easy to do some minimum of planning, minimum budgeting and you might not get the best result, but easy and a good result. A strong expected value.
Is this another self justifying brag? Of course it is possible but the question really should be -is it efficient?
For everyone with a frugal “natural saver” personality there is at least someone who is a spendthrift and without taking control through some sort of planning they are destined to be always in a spend til it’s gone situation.
Clearly you overworked in time given the surplus income you throw off so one could say your approach wasn’t the most efficient in financial terms. That’s not to say it was wrong for you personally given your extreme “caution” personality and your somewhat irrational belief in total income replacement in retirement.
But as you often like to adopt the position of concern for the average worker you also have to recognise that your era is passed when it comes to level of pension and lack of other planning. So to be an active advocate for no plan /no budget is to condemn lots of them to a path that will not serve them well.
There are different ways to manage money and spending and IMO it all comes down to individual behavior, not if you set up a budget or not.
Having a budget does not guarantee sticking with it or avoiding unwise debt. Not having a budget does not mean a person isn’t saving and avoiding unnecessary debt.
I read in a few places from experts that you need a budget so you know what you will have to save.
Every time I read that I wince. From my perspective that is totally illogical. Spending should not determine what you can save. Saving should determine what you have to spend.
This doesn’t mean you don’t keep an eye on spending and make adjustments as necessary or find a way to increase income. But it does mean living within a means that excludes credit card debt.
Perhaps you could help us understand how a person should manage their affairs using your save first approach. Lets consider a new college graduate who is just beginning his/her life on their first job. Perhaps they might be a new school teacher. How could such a person make a decision about how much they could save each month? What we know is that is person will be paid $5000/month for the 9 month academic year. How and what should they consider in reaching this decision?
Pick a number, it doesn’t really matter at that point. Say $500 a month. Just do it. Then with a bit of living experience make adjustments to both the saving and the spending.
I think that you have lived so long with an abundance of money that you are not remembering what it was like when you didn’t have any. I remember being a 2nd Lt. in the USAF in 1968 as my first real job after university. I was making around $340/mo plus $42 (not taxed) for food. I didn’t have any savings then. I had a 1964 VW that I received as a graduation present. Before I passed one year of service and got a small raise, I was married and two of us were trying to live on that income in
a $75/mo 1b apt.
My spouse couldn’t drive a stick shift, and when I had to go on alert at the base she was stuck in that little place for a day and a half in a hot climate with no AC. Fortunately, there were no credit cards then or I might still be paying off the interest.
Only careful planning allows someone with a small income to arrive at the end of a month and still have food to eat let alone extra $$. Even with the commissary available to get groceries at a reduced price, not eating out, and other thrifty actions, it was close every month until I hit that first year mark.
Ultimately, she learned the stick, got a job and we were off of our minimalist lifestyle.
I think it is disingenuous to suggest that people should not plan, or don’t need to plan. Everyone plans. The question is how detailed plans need to be. Budget isn’t bad word, it is just one kind of plan. When your income and required expenses are close in size your planning must be more detailed. When your income is twice your expenses your planning can be very general. When a big change in lifestyle is on the horizon, such as retirement, planning might need to be very detailed. Whether a budget will be needed in retirement will depend of future relationship between income and expenses. And, having an abundance of resources for retirement won’t lessen the need for planning, it will just change the type of plans needed.
Re Wincing – you get hung up on your interpretation of semantics.
The “Expert” view that you need a budget to know what you need to save is based around the perspective that people will have inadequate secured income in retirement as in just handed to them. And the what they need to save is a target to get them to a point at which they can retire with numbers that “should” see them out if they live roughly to the budget.
Obviously people can get there with a “save first” mentality but what should that be: 20% of gross income, 30%, 40%,10%? Or should they live on ramen all their lives and never take a vacation? You see you need some idea of what its for to justify the pain in getting there or alternately the time.
Without a plan how can someone at say age 60 retire? Yet if they defer to 70 they’ve had a cost of 10 years of their life restricted, which are most likely to be healthiest and potentially most active years of their remaining life.
Saving of course determines what you have to spend but your view is so distorted by the fact that your saving is your fun money – you don’t actually need it as you keep telling us. You are an outlier in terms of your financial security given the luck of the draw you had in your career path.
I said nothing about what a person needs to save. That is an important question and one that should be a priority.
I said you can’t set a budget and then from that determine what is left to save. You determine what you need to save based on your goals and that amount determines what is left to spend, hence your budget.
what is distorted in my view?
we don’t use savings to live on now, but it is very important for the future – inflation. LTC possibility, survivor benefits, legacy.
I first decided how much to invest each year and followed the “pay yourself first” approach. This determined how much I could spend each year, and a budget was designed to efficiently allocate those funds. It’s about priorities.
Exactly. I think Buffett once said “Spending is what you do after you’re done saving. It’s not the other way around.”
How did you decide? And how old were you when you started doing that?
I was 32 when I put pencil to paper, based on formulas in a Money Magazine article. For me it was eye opening and hammered home the Pay Yourself First philosophy.
So I’m on board with the folks who say save first and live on what’s left over.
And yes, that can be a tall order for young adults just getting started, but then again, the amount necessary to set aside at age 20 is much less than for those who wait until a later age.
In 1988, I was 35, just out of residency training, and knew nothing about investing. I was enrolled in our group money purchase plan and profit sharing plan. Years later these were converted into a 401-k. Over the next couple years, I read about the concept of “paying yourself first”, and setting aside 10% of income for the long term in “The Richest Man in Babylon”. Psychologically, I thought I’d more likely stick with it, if the process was automated. And ten percent seemed doable, and could be calculated easily.
To answer your question, In 1990 I began setting aside 10% of gross salary and bonuses which went to paying off student loans and all non-mortgage debt. This of course was separate from my employer sponsored plan. When I turned 40, those debts were paid off, and all new cash invested was used primarily to purchase stocks.
These actions determined the amount of cash available to spend, and a budget (revised innumerable times) guided me in allocating it efficiently.
Sounds like a good plan – and you did budget! I was thinking that someone in their early twenties would have a hard time figuring what they might need in forty years.
Thanks Kathy. When I was in my twenties I never gave such matters a thought! When I finally did start investing I sensed that my simple plan, was far better than having no plan at all. It worked out well.
Exactly
But you’re wilfully misinterpreting what expert advice is to fit your budget aversion worldview…
The advice is work out what your budget needs to be in retirement then you have a savings target in order to be able to service that budget.
FYI. Just asked an AI tool. “Do i need a budget to know what I can save.” Here is the answer.
“Yes, absolutely! Setting a budget is an excellent way to figure out how much you can save.”
Hmm citing generic AI advice as your defence of your interpretation of “experts” is questionable at best.
Again I feel I’m heading my head against a brick wall
Of course setting a current budget (or knowing what you intend to spend or usually spend) is a way of knowing how much you can save. That’s not bad advice or wrong.
It doesn’t tell you what you should save relative to desired outcomes (which again you have to be able to articulate and quantify hence that pesky budgeting/forecasting again).
For those that are fortunate to earn heaps more than they spend they can probably not sweat it too much, save as much as possible, get to age 45/50 then start planning a bit more seriously. But as you like to play the everyman card that is certainly rarer than those who develop a taste for certain vices/luxuries or have life events (like kids, illnesses, divorces etc) impact them.
The AI tool searches Google and prepares a synopsis of various sites. Just saves individual searching in this case.
You are going in a different direction. I was not talking about determining what needs to be saved. I wasn’t even talking about a budget in retirement.
I said you can’t set the budget you want and let that determine what is left to save. Just that simple.
Whatever a person determines they need to save and no matter how they determine that, the saving comes before setting a budget. You certainly don’t determine saving with what is left after setting a spending budget.
Perhaps if you cite your sources when you write phrases like
I interpret that “have” as “need to” rather than “have left currently”. I’m pretty sure my interpretation squares with what your denigrated “experts” actually say in this area.
I’d be really interested in your answer to the question of an ordinary joe coming up to you who has been seduced by your “save first” philosophy – what % of their gross do you tell them they should save?
you miss the point, I’m not telling anyone how much to save I’m just saying save first.
but if someone did ask, off the top of my head I would say at least 15% (including any employer match if applicable) and increase it with growing income.
I don’t think I miss the point. I think the point is precisely that “save first” is an empty mantra without quantification.
Some sort of planning or idea of what a particular savings rate is going to achieve is necessary because there is opportunity cost in just blindly “saving first”. The savings rate may be too low to really achieve much or too high cutting off life opportunities.
What if a young couple decide they can’t afford a baby because they are “saving first” without any plan?
And BTW if you tell me that your 15% isn’t just made up off the top of your head but based on studies done or results modelled by (someone) – guess what you’ve just done some of your hated planning/budgeting 😉
You seem to be arguing with yourself. I agree you ideally need know what you need to save for what ever goals you have.
But you do not establish a budget and then say the budget ALLOWS you to save $X.
You establish the needed savings rate and then figure out what you have to spend – budget if you want.
Just curious, isn’t it meaningless if you don’t get the math (the budget) right. You can pick any savings rate, doesn’t mean you can accomplish it. That requires knowing the details that you call a budget.
Also, since if you never really lean into knowing the details, do you think that pushes someone towards being very conservative, which deprives you of a chance at higher returns?
That’s the general argument I see in favor of a planning approach, that it leads to more accurately allocating resources and maximizing rates of return.
You’re the only person on this thread and possibly this whole forum who is pretending that that is completely what expert advice is.
Because the word “budget” is kryptonite to you let’s use the word plan.
I think you’ve conceded you need to have a plan to know what to save. To test the plan you need to know it is feasible – what do I spend now and thus what surplus can I “afford” to save and can I make adjustments to that spending to save more if needed for the long term plan.
In reality this is what most people do – lots of little micro budgeting decisions either in conscious or deliberate thinking – that brand product isn’t worth the extra over the white label in the grocery store, I’ll pay $100 to see that band but not $500. Even those who yell YOLO and max out the credit card ultimately have a day of reckoning.
I think you like to affect a position that you’ve got through life without ever having to think about a spreadsheet etc but I think if you were really honest with yourself you’ve been doing lots of budgeting decisions continuously throughout your life. I don’t think anyone who has a non-working spouse and decides to have 4 kids and pays their way through college doesn’t unless they are sitting on a big trust fund or earning 7 figures in their 30s. You simply haven’t called it budgeting because you attach that term narrowly to your hated spreadsheets.
You seem to be assuming that all spending is discretionary. Most people have fixed expenses – mortgage/rent, car payment, insurance, gas, food etc. – that must be met before allocating money for saving and optional expenses – eating out, vacations, music lessons etc. You can’t know how much is available for saving and discretionary expenses without tracking your spending. You don’t have to do it all the time, but you need to do it often enough to know you’re on track. You apparently keep track by using separate bank accounts.
Tracking expenses is not budgeting. I track spending to the extent I am sure I have funds in Checking accounts at the end of the month and have paid all credit cards in full.
The balances are net of all required and discretionary spending.
But even in retirement I follow the save first model. The first of the month our contributions to eleven 529 plans for grandchildren and money to an emergency fund come from our accounts.
Taxes and deductions for health insurance have already been taken.
What is left in accounts by the 3rd of each month is what we have to spend – our default budget if you want to call it that.
That is essentially how we have always lived. While working, the save first was 401k contributions, plus bonuses if any. But with each increase in earnings I also increased savings a bit.
As has been said, you need to determine saving needs or at least the realistic possibility.
So, you determine an amount and see what happens after a month or two. Can you pay all your bills? Is there money left? And you make adjustments with the goal of saving as much as possible which may mean cuts to discretionary spending. Or, in the extreme trimming savings a bit.
I can easily see people setting their desired budget and concluding there is very little left to save rather than trimming the eating out, clothes and vacation budget line items. it’s just human nature.
I think you are basically agreeing with what everyone else is saying but because you have a hangup on the world “budget” you will never admit it. You probably live more rigourously to self-imposed spending rules than most people who actually use “budgeting” as a way of thinking through their needs and resource allocation.
And the way you denigrate people who use budgets implying that they are more likely to be profligate is just plain unfair. People who use a “spend what’s left” approach (or reverse budgeting) are just as likely to overspend based more on personality and circumstances than forward/reverse budgeting choice.
Can’t see there is any further mileage in this thread.
With the separate bank accounts being way more complicated in reality than maintaining a simple spreadsheet.
RDQ does budget – he just does it monthly in arrears and has the luxury of surplus cash flow in order to be able to do so. I think he also has a misguided notion of how complex a budget needs to be. It can be as simple as e.g. I need $4000 a month net – $1500 for bills and fixed costs, $1500 for regular lifestyle, $1000 for treats/gifts/vacation fund/capex fund.
Not complicated at all. I don’t do anything but look at them. In fact, each morning I get an alert from my bank telling me account balances.
And, the “regular lifestyle and treats, etc “ in a budget are exactly the parts set in advance that may limit saving instead of the other way around where saving limits them.
So you’re opposed to people having any sort of social or quality of life if they haven’t saved first?
Seems a bizarre and miserable way to live a life.
As I said above there is no actual difference for a given individual in given circumstances whether they budgeted then saved or saved then spent the balance.
My own approach in decumulation* will be to have a rough budget then draw down up to that amount. Actually it will have a conservative level and a max OK level. Below conservative level no worries, in the grey zone I’ll want to understand more about the personal “business case” for the spend, above max OK then the spend will have to be pretty exceptional (like family emergencies etc). None of that pre-budgeting will make me more likely to rent a Ferrari on a whim or go on a coke & strippers spree in Vegas because I’m me (yeah I know I sound less fun now 😉 ).
The enemy isn’t the “budget” it’s personal vices or indeed virtues (you can just as easily overdraw if you’re always the person solving others’ problems with your money).
Money is ultimately fungible. Your retirement fund doesn’t care about how you determined the amount you put in or what you are going to spend it on, only the amount you put in and what you invested it in.
*depending on how the market cyclical gods smile on me I’m hoping that decumulation will still be at least notional accumulation. But it it isn’t necessary if you believe in at least parts of the Die with Zero philosophy.
I am saying that living within your means is determined by the available resources left after saving first.
That is nothing new. I didn’t make it up.
” Living within your means” simply means spending no more than you make. (At least while you’re working, retirement is more complicated.) It has nothing to do with how you spend the money. Remember Mr. Micawber.
If you live in a country with a good government pension, company pensions with a COLA and universal healthcare you might not feel a need to save at all. If my US pension had had a COLA, as my UK one would have, I would have saved only because I am naturally frugal and uninterested in acquiring “stuff”.
Not sure of your point. But living within means is not based on what you make, but what you get to keep from wages.
How you spend money can affect that in terms of necessities vs other spending and their priority.
Seriously? If you had a pension COLA you see no need to save. That seems a bit risky.
But you are somehow saying that the order in which you approach trying to live within your means makes a major difference.
It doesn’t matter if I budget and spend 90 and then save 10 or you save 10 then spend 90 caring only about your bank balance as the means of keeping yourself in check.
Your belief system is such that you believe your way is superior. Guess what – people who save first still create credit card debt when they run short at the end of the month. What’s better then? – having saved despite the interest hit? And how do they get out of the debt hole fast? I’d suggest it’s by a form of budgeting you’d just say being frugal – potatoes/potatahs.
The fact that you don’t isn’t proof your system is flawless – it’s more a reflection on the fact that you have a high income relative to your needs.
And with that I’m out of this thread. It isn’t productive. It feels more like arguing with an agent provocateur who is closed to other perspectives.
In theory you are right it shouldn’t matter, but in the real world it does very much.
And yes, I do think save first, spend the balance and don’t carry credit card debt is superior.
And you’re right people can screw that up too.
People screw everything up from time to time one way or the other.
“Keep calm and eat pie”. I’ve posted a photo of an illuminated sign on one of my blogs from time to time.
My plans and sheets go back and I have copies from 1995. I’d say they have been useful. Over the years I’ve automated them, so I spend little time dealing with them.
Budgets have been useful because a budget is the one thing I really can control. Knowing the costs of discretionary and non-discretionary items indicates what to do in the event of a financial crisis. Items flagged as discretionary spending can cease or be trimmed.
At one time we spent part of the year in Illinois, part in Michigan, part in Arizona and about 6,000 miles trekking in a small RV. I knew the annual costs inherent in each of these locations. So, I knew how much I could reduce expenditures if any were eliminated from our annual costs, and what we could recover if any were sold.
In 2022 my illness required a significant change in thinking. To help cover unexpected bills I pulled $86k from retirement accounts. We quickly jettisoned the Illinois location and a site in Arizona. These actions stabilized our expenditures.
We relocated and after a year of treatment it became necessary to buy a home or rent something physically manageable. After a month in an ADA compliant room in a motel we purchased a house in a resort and closed 5 days later.
Having the budget information at my fingertips meant that I was able to boot the laptop while in a hospital bed and make the necessary financial decisions.
How much planning is really necessary? I’d say less is required if one lives within their means. Debt can also be a factor because income must cover not only our living expenditures but also our debt load.
Everyone makes financial mistakes from time to time. Investment mistakes may be with “funny money” and represent paper losses unless there is an immediate impact on necessary income. Over the years I’ve been aware that there is a certain amount of resilience to my financial plan. That resilience means I can tolerate breakdowns and other unexpected expenditures, or even a reduction in income. Building in such resilience may be more important than the budgeting, but it is the budgeting that has allowed me to determine how much resilience exists in my finances.
If you asked me what we pay in property taxes or HOA fees or cable or utilities I could tell you. If you asked me what spent on food I could look it up on credit card statements as it’s all charged for the rewards.
At the beginning of the month a set amount goes into our bank accounts. All spending comes from two checking accounts. Any time I want to know where we stand I just look at the account balances and the credit card statements.
I know where all spending goes if I care or need to know.
I’m pretty much the same way. I check my investments 2-3 times a week but don’t closely track expenses beyond checking the cc statement every month. If something unusual jumps out, I check it. But spreadsheets? Nope. Budgets? Nah.
Besides, we’re never at risk of overspending. I’m a Jew married into a Chinese family. We have mutual DNA on shopping — as Mike Ditka famously said of George Halas (and he admitted to stealing the line), we throw nickels around like manhole covers.
To me, considering most going forward will not have a DB plan for retirement, financial planning hinges on one very simple concept: Can a person spend less than they make, save and invest that difference over time, and compound it at the rate of growth of the S&P 500 (what I use for opportunity cost), for as long as possible. If a person doesn’t have the means or personality to do those things, there won’t be much need for sophisticated financial planning let alone spreadsheets. My parents were WWII generation and they always lived beneath their modest means. They never talked about money–heck, that generation never talked about anything with their kids–but they set a great example. Thus, a person’s first financial plan must start with how to spend less than they make, and it will all flow from there.
Absolutely agree. My parents never had much, never spent what they didn’t have, but unfortunately didn’t save much and never invested. They lived on SS in retirement. Most of the time growing up they didn’t own a car and only bought a house when my father was in his 60s despite my father working 6-7 days a week 12 hours a day.
What I learned about money was lessons on what not to do.
Patrick, this makes sense to me. Goes along with my comment, I think. Chris
I had never used spreadsheets or anything like Quicken during our married life until Spouse retired last year. I am still not sure how to use the information? I did more of a guardrails approach and still do. Spouse likes doing the spreadsheets, so that is ok. So far, we are still able to save each month, so I take that as a good sign that we are living within our means? Chris
We always lived well within our means. I fretted over any significant spending. One key to me when, applicable, is to set all spending on base pay. We never used extra income on ongoing expenses.
When I was a clerk it was OT. In later years it was bonuses, stock options and stock awards. With few exceptions it was all saved and when not, it was spent on one time necessary things.
One big exception was exercising stock options to put an addition on our vacation home. All the exercised stock options and stock awards are still working for us by providing dividends while the shares have doubled in value.
I guess you could call that planning, but I just thought it prudent.
We saved overtime also. Used some to pay for Daughter’s wedding. Learned how to live within or below our means. It was not an automatic thing, even though we were frugal. The frugality kept us from big disasters, though. Chris
Your path has worked, proving its credibility and allowing you and your family peace of mind. Doing that as a single-income earner must have indeed been challenging. I admire that.
Spreadsheets allow me peace of mind. They are my way of recognizing possible outcomes and of analyzing problems without the help of a financial advisor. Just three spreadsheets have so far guided my financial life: a savings plan, a tax-efficient retirement withdrawal/budget plan, and a tax payment tracker. With the exception of the latter, once created, I only rarely revisited them. The important work — the decision making — was done.
While you may not plan using spreadsheets or sophisticated software, you planned, Your plan is simple to execute, so it didn’t require much thought or fancy spreadsheets. Even now you are planning, I say this because you made the statements such as ‘we bought cars for cash, I assume you did not want to pay interest which is probably what eats most people’s lunches. You also stated “beginning Social Security at FRA while working, buying cars for cash, retiring at age 67(part of my income replacement strategy),” You planned Dick, just not in a conventional way. Let me give you a sad alternative example; my 72 year old mother, relies only on SS and what we do to help her. She never ever plans and her motto is ‘God will provide.’ Obviously, this is a burden to myself and siblings who have to plug the gaps, and mind you, the gaps a re real.
I think you have a valid point. Your mother sounds like my parents except my parents didn’t need direct help. They shared a small house with my sister’s family. .
I think it’s important to distinguish saving for retirement from generating retirement income. Saving for retirement is brute force over ignorance; you save as much as you reasonably can and then see where you land. Much depends not only on the kindness of the market gods, but also on life events — whether you get hit with bouts of unemployment, whether you get hit with divorce and more. By contrast, generating retirement income involves more finesse. By then, you know what you’re bringing to the retirement party. Mistakes can really bite, because it would be awfully hard to get your old job back. At that point, a solid plan, and maybe a few spreadsheets, could make all the difference.
My reference to planning was more related to living in retirement, what to do, free time, where to live and all that. I should have been more specific. But you are right about generating income, hence previous discussions about income streams.
Agree. Accumulation mode was far simpler.
I agree also. As I look at back it now, it was far easier to accumulate by just saving more than I spent, even having made a number of investment and other financial mistakes.
Now, I am faced with the task of not having it taken away by taxes, IRMAA, cyber-criminals, yada, yada. Much more thought required, and, I think, much easier to screw it up.
I do lots of spreadsheets, but I think the prime value in keeping good data is that it forces you to look at what you are doing and, most importantly, what you have done.
Relying on memory, even a really good memory, is often problematic: memory tends to be altered by what has happened since the event took place.
Could you expand on “most importantly, what you have done.” Just curious how that helps.
Yes, this goes back to to what I said: “memory tends to be altered by what has happened since the event took place. “
From everything I have read, and, from my own experience, I am 100% certain that I (and, if I may be so bold, everyone else) will not remember exactly what they did, and, more importantly, exactly the rationale for having made a certain decision in the past. Everything that has happened to me since the decision was made will necessarily color how I view what really happened in the past.
This is why I keep spreadsheets with numbers entered at the time or near the time I made decisions. In a remarks column at the right, when I make a decision, I try to record what I was thinking at the time. Recorded numbers and thoughts don’t lie (even if I want them to).
Years ago, I started keeping a journal – private, highly-encrypted, of the ongoing struggles in my life. When I go back occasionally and read (from years ago) what was going on and my thoughts about what was happening at the time, I am often surprised to see what I wrote, as it does not exactly match how I remember it.
And yet, since I recorded what was happening and my feelings about it right when it was happening, my “record” of it is certainly 100% accurate in how I felt, since that is what I wrote down at the time.
So, my point is, I try (within the limits of being human) not to make decisions on how I feel, but rather on what the data says; so, for all you star trek nerds, I try to think and act like Spock (or perhaps Warren Buffet, perhaps the closest human to be Spock-like in investing).
But, even knowing this about myself, it is still hard not be swayed by “how I feel”.
—
BTW – off topic – but I believe that writing down what one thinks (and keeping it) is a cheap an effective form of Cognitive Behavioral Therapy. When one one writes down what they are thinking, it is much more likely to result in a coherent narrative that stays on topic, and, as I said, forms a record of the past about oneself, that, try as one might, becomes hard to deny if one is truly open to honest self-reflection.
Being able to brutally honest with myself did not come easy, and sometimes, can be “hard to swallow”, but, I have found out quite a bit about myself that I doubt I ever would have recognized or have been able to accept any other way.
If you are concerned about IRMAA, you have done far better than the great majority of retirees.
“If you are concerned about IRMAA, you have done far better than the great majority of retirees.”
You are correct, and I count myself among the lucky, and in no way because of any great financial smarts I have (or think I have).
And I am grateful that at this time (early 60s, although perhaps mid-60s, but I have not yet been able to admit that to myself) my wife and I enjoy good health. And I realize that that, by definition, that cannot last forever.
Still, when I look at health overall insurance costs when I am 75 (and must start taking RMDs which will trigger IRMAA), it is a bit staggering.
I am 81 and have been taking RMDs for nine years. We give to charity using QCDs, pay taxes on the balance and give some to the kids and reinvest what’s left.
Part B and Medigap premiums are a big ticket.
As it has for me. 😉
Don’t tell any of the multitude of engineers on this site, but yes you can. The secret is simple.
Save a lot, invest in broad based index funds, and time.
As pointed out below, the situation of someone retiring with a fat DB pension is very different from someone needing to finance their retirement themselves. I have a pension, but it is not very generous and will soon be overtaken by my SS payment. With respect to your specific points:
Spreadsheets and budgets: I never used a spreadsheet, and I never wrote a budget of the “three lattes a week” variety. After I left my first husband I did keep an eagle eye on income vs expenses until it was obvious I was living well below my income. Since 1999 I have used Quicken.
High cost investments: Early on, the megacorp provided annual visits with financial planners who sold high cost managed funds. It took me a few years to discover Vanguard and low cost index funds, and that’s what I’ve used ever since. I might rebalance once a year.
Financial planning services: I have a fee-for-service planner run the numbers for me every few years.
Life insurance: I haven’t carried that since I left my first husband. Why are you doing so? I did carry disability insurance on top of that provided by the megacorp as long as I was working.
Taking SS: I took it at 70 to get the largest base for future COLAs, having retired much earlier, at 53.
I don’t think I am in a financial mess, but my expenses now exceed my pension plus SS and will continue to grow. However, I turn 78 this year and am drawing a bit less than 1% so far. Worst case, my Continuing Care Retirement Community promises not to kick me out.
I acknowledged the value of a pension in my post. But as you pointed out, there is more to it.
Honestly, your situation as you describe would make me nervous. Even though I have investments, I would be stressed if our expenses ever exceeded my pension and Social Security.
You decided to and were able to retire at 53. When I was 53 I still had two in college and years left to pay off the new mortgage I took to help pay for college. At that point I had depleted all investments outside the 401K. My best years earning were the last five.
R Quinn, please remember not everyone has a pension, I am that guy. I have a similar situation and easily spend more than my SS. The good news is, I built my IRA’s and my RMD covers all the remaining expenses, and allows me to save also, and pays for my Federal and State taxes.
I am very aware not everyone has a pension or ever did for that matter.
I also am not surprised that SS alone does not cover all expenses. It was never supposed to do that.
But is sounds like you did the right thing, what all Americans must do in one form or another for their future retirement.
If I divide my portfolio by 22 (years to 100), subtract 24% for taxes and divide by 12, the result is slightly larger than my monthly pension payment. The portfolio is 50% in low cost stock funds. Still worried?
Also, having four children and putting them through college was your choice.
Drawing 1% from savings is no cause for worry.
The whole point of the portfolio is to cover the unfortunate lack of a COLA on my pension. The odds of it lasting another 22 years seem pretty good, and I am not at all sure I will live that long, or want to.
For some people, the planning gets done for them. Every time HR sat across the table from the Union, an agreement got pounded out that provided for the employees life beyond the work force.
I had many clients from the building trades. These guys were highly skilled carpenters, plumbers, electricians, etc. They were not financial nerds like some of us but still managed to retire with a pension, Social Security, and a lucrative supplemental pension.
I was the HR guy across the table for many years and tried to do my best to help the workers. I learned that many were quite financially sophisticated – more so than many non-union workers.
one mistake many made was to set their lifestyle based on unlimited overtime and when it was reduced or stopped they were in trouble. One guy I know of lost his 35 foot fishing boat.
I should have chosen my words more carefully; I agree that many had their act together financially.
I also agree about the OT. Toledo is still a big automotive town, the guys and gals in the factory typically earn well over 100K with overtime, and many adjust their lifestyle based on that income.
Financially speaking, I think the chances of having a lousy retirement are greatly increased for those who fail to plan. For the non-planers among us who are thriving in retirement, I’m guessing that a lifetime of living within their means contributed mightily to their success.
No doubt, it’s just that my version of planning was that there would be no changes from working to retirement living, just continue life as it was. We didn’t even think about downsizing until I was retired eight years when it became a necessity.
Clearly income from a pension is a major benefit, but the real advantage for us was not thinking we could do it so our living expenses were significantly less than while working. In fact, nothing changed. Mortgages had already been paid, no car payments, we never carried credit card debt.
Did I worry about inflation? Only to the extent I had built a supplemental income stream from interest and dividends, but after 15 years we have yet to use any of it.
As has been mentioned here, using accumulated assets without a pension is much more difficult. So much so there is no plan that fits every need or personality. I often think what I would have done and it’s scary. I watch a lot of videos on the subject and get more confused because they are all different.
One thing that I take away is don’t cut it too close and leave a large cushion for variables. In other words begin with a big nest egg with the good potential of being more than you need.
I like to think I would have purchased an annuity for basic expenses and had sufficient assets so withdrawals were based on a conservative 3%.
Just my opinion, but your personal narrative demonstrates that very long employment at an employer with a good pension plan reduces the risk of arriving at retirement age without the resources to support one’s lifestyle in retirement. The fact that your circumstances are not generally available to other people today means that they cannot look to follow your model and must adopt other methods and use better financial practices.
stelea99, this is a very valid point. Having worked for the same organization that offered and maintained a robust DB pension plan for over 3 decades makes a big difference in retirement resources. Besides the pension, the 401k plan had an increasing company Match amount that topped out at 116% (7% to my 6%) after 10 years employment. Most people (including our Millennial kids) don’t stay at employers that offer these benefits long enough to reach these levels.
Yes it does-to a point. But there are still the dangers of not saving sufficiently or overthinking it all with too much complexity. A pension provides a steady income with no worries about investment performance or withdrawal strategies for basic income, but the rest still applies.
Also, keep in mind the biggest difference is my personal insistence on full basic income replacement. I would not be where I am retiring earlier with 70% even 80% replacement. The tradeoff, of course, is time spent in retirement.
Why on earth did you need 100% income replacement? You’ve said mortgages were paid off, presumably kids funded through college and savings tucked away, all of which were past expenses that you no longer needed?
If you can’t get your head around why 100% is too much for most and the drive to it can potentially mean giving up years of earlier retirement, then I don’t think you’re really talking the same language as most in the retirement space.
How has inflation affected your 100% replacement? Your pension is now worth a good bit less than when you retired.
It has had an effect, but not to the point of changing our lifestyle. No longer traveling as we had been doing means we have extra money. Not yet to the point of using interest and dividends.
Wow! Nice summary of your “rant” topics in that first sentence! Obviously, your approach works just fine for you while others of us like to have a more numerical understanding of our personal financial system. To each their own!
Amen.