Post-FIRE spending, tracking, and budgeting, oh my!

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About 16 months ago, I left behind my 23-year biotech career and started writing this blog, and later started making videos with my friend Eric at Two Sides of FI. After I began talking more openly about my FIRE journey via these outlets, I quickly learned that a few questions came up very frequently. Some of the most common include:

What are you going to do next?”

Aren’t you bored?”

“How is living on a budget going?”

I’ve spoken to the first two questions in previous posts and videos but haven’t spent much time on the last. Perhaps it’s because it’s a rather mechanical question and I didn’t really think it was terribly interesting to write about. But as it’s come up repeatedly it seemed a good topic for an article.

Looking back: “The old days”

I’ve never been someone who was terribly interested in budgeting at home (unlike at work where it was required). But I have always analyzed our spending. Until the last few years, I tracked expenses in Excel or Google Sheets with the support of Mint.com. It always kept my mind at ease to know what money was coming in and going out. But I certainly didn’t have a detailed monthly budget of $X for groceries, $Y for utilities, etc. where I monitored our spending against each category and actively managed those funds.

Rather, pretty early in my work life, I began a strategy of “paying ourselves first”. In that sense, I first made sure we could meet our fixed and other essential expenses – rent or mortgage, utility bills, groceries, etc. Then, keeping our variable expenses in mind, next made sure we were meeting all our aggressive savings targets – contributions to our 401(k), IRAs, 529, and later on a taxable brokerage account. Over time, we steadily increased the savings goals in alignment with our income. We had a goal to retire early (RE) and that approach worked for us. All money remaining after that was for us to spend how we wished. So we didn’t really tightly control that spending at all. Surely this would have to change once I stopped working, right?

Pre-FIRE planning: “The goal is in sight”

About two years before my last day at work, Lorri and I got more specific about trying to nail down our “FI number” i.e. the assets required to achieve financial independence. We needed to improve the level of detail in projecting our annual expenses going forward. Using all the data we had accumulated over the years, we did just that. We made decisions about what was in or out. And then we started to zero in on the trickier aspects of post-career finances: how much would we like to spend on vacations each year? What will our healthcare costs be? Where will we live? Are there other expenses we haven’t thought much about to date that we now need to plan for? This wasn’t one conversation, but rather a series of them. Over time, we refined that model. But it was still just that: an untested model for our future budget.

I next entered our new budget into software form using You Need a Budget or YNAB (affiliate link – get a free month!), a popular budgeting package. I created a series of budget line items to correspond to all our expenses, and grouped these into high level categories:

Several category names censored here because I’m a nice guy and this is a family program!

For example, within “Entertain Me” you’ll find all the recurring subscriptions: things like Netflix, Hulu, and annual software licenses. Our emergency fund’s name reminds us that there is always money in the Banana Stand (SPOILER: Arrested Development)! Finally, “Coffee is for Closers” (NSFW audio) is where we capture our side hustle and other part time work income and expenses – more on that below. Since YNAB connects to our credit cards and bank accounts (similar to Mint), all our expenses are automatically categorized and “charged to” the correct budget items each month. It’s pretty simple, really.

This framework made it easy to make our expenses visible, and iteratively test and refine our assumptions. That also included the use of “sinking funds” for categories like our vacation savings (under “Quality of Life”), or our computer replacement fund (“Future Sh*tstorms”) to which we allocate money each month. This allows us to “save” for planned / likely expenses without having lumpy withdrawals later on – potentially at times when you wouldn’t want to take distributions, for example. This process went well, and we ended up with nearly 15 months of data prior to me stopping work. This really gave us a lot of confidence that we’d be stepping into early “retirement” with a good system in place.

Post-RE: “Where the rubber meets the road”

As soon as my last paycheck was deposited in the bank, the reality of the situation was upon us: We were drawing down and no longer saving. Our monthly “paycheck” was now an automated transfer from our brokerage Money Market account to our checking account. We’d been testing the budget for nearly fifteen months but was that enough data? With the YNAB system in place, we’d certainly have clear visibility on it.

Early in RE year one, I developed a practice of reconciling our expenses weekly. That took about 10-15 minutes once I got comfortable with the process. I ensured things were categorized correctly (like Mint you basically “train” the software), and paid any bills due that weren’t already on autopay. If we overspent in any categories, I moved money around in the budget and adjusted spending elsewhere if needed. This wasn’t super rigorous, but was rather a useful exercise to retrain our brains about spending and making good choices. Lorri is wholly uninterested in a regular “budget meeting”, and at this stage it’s not really necessary. We just check in with each other if there are decisions to be taken.

Earlier I mentioned that we have a small amount of employment income: Lorri does some tutoring and works one day a week at a brewery. I work one day a week at a winery tasting room. We don’t plan for that optional income in the budget as it’s not assured and our FI number didn’t contemplate it. Rather, we treat that money as a sort of “slush fund” in the budget, and mostly spend it on fun stuff outside our discretionary funding in the main budget – for entertainment, wine, special occasion dinners out, etc. Do we need to use that money because we can’t possibly ever go over our budget? Definitely not. We just view it as being responsible, particularly in these earliest years post-RE where the Sequence of Returns Risk (SRR) is highest (more on that in a future post!).

Beyond the mechanical: “How does it really feel?”

OK so the operational stuff is pretty basic. But how did it truly go? Well, early on I will freely admit I was a little anxious at times. I was scrutinizing expenses more than I needed to, occasionally to the irritation of Lorri. I didn’t mean to come across like I was micromanaging the budget, but I know it felt that way. My motivation was just to ensure I knew what we were spending to confirm that our budget was accounting for all our true needs and desires. Mapping unclear expenses (I’m looking at you, Venmo, PayPal, etc) to categories helped me understand our spending a lot better.

There were times were I worried that our discretionary spending was growing and that our optional “fun jobs” were at risk of becoming mandatory, because we wouldn’t want to curb spending back to purely budgetary levels. I’m keeping an eye on it but I don’t believe it’s a real issue. While we’re both enjoying the extra money we are bringing in, we know it’s not required. Our current withdrawal rate (WR) is below 3% given market performance. So we could certainly elect to increase that amount if we need to, as my target max WR is 3.5% presently. But as I mentioned earlier, it also gives me a lot of comfort knowing that in these first 3-5 years where SRR is highest, we are acting more conservatively.

Have there been any surprises? Not too many, thankfully. Our out-of-pocket healthcare expenses are higher than forecasted in 2021 vs. 2H20. It’s not a huge deal, but I have increased our monthly transfer a little to ensure we can pay these bills without dipping into emergency funds or cutting back in other areas. We’re still well within the guard rails around our withdrawal rate. We’ll soon be shopping for an ACA plan for 2022 as our COBRA runs out. I expect a little lower premium (but a higher deductible) based on last year’s research, so that will also help add some funds for OOP costs and perhaps we’ll lower our WR back down.

Current status + future plans

Largely, I’m feeling good about the budget at the present time. I’m a bit looser now about how I think about our expenses and I find myself asking very few questions of the family at this point. I definitely still think more about spending than I did pre-RE and I know that’s a good thing. Importantly, we have ample “fun money” and other discretionary funds available and that’s working out well. We don’t feel overly constrained like some of the folks in a recent Two Sides of FI video do!

The YouTube channel is also starting to earn a little money at this point given our channel’s growth. If that continues, it could lead us to further reduce our WR due to the additional income – or perhaps we’ll allocate more funds to travel. Both of those sound like pretty good options to me. I’m also definitely feeling more comfortable about increasing WR after a few more years, though this will depend on market conditions.

Will I keep budgeting? Honestly, my current approach is far closer to tracking expenses than it is to budgeting. I suspect that trend will continue and I see it as good benefit for little work. Will I feel as confident in the midst of an inevitable market downturn as I do now? Perhaps not, but the systems we have in place will certainly benefit us during those times. In addition, the asset allocation strategy we have in place is absolutely intended to ensure we can properly weather those storms.

To wrap up: while it’s still early days for us, tracking + budgeting is working well and helps me feel confident. The transition from saving to spending has largely gone pretty well, with only a bit of tension or concern at times along the way. YNAB has been a really great tool to help me organize and make our expenses visible. I’m looking forward to see how I feel a year from now about all this!

8 Replies to “Post-FIRE spending, tracking, and budgeting, oh my!”

  1. Great article. I’ve used YNAB for over ten years and have started recently analyzing it to plan for my next phase. This post gives me more confidence even though it’s not going to be perfect and I can’t plan everything. You’re off to a good start and that encourages me.

    1. Thanks, Todd! So glad you liked it. YNAB really is wonderful, ain’t it? Do you follow Two Sides of FI ad well, it’s under the Watch/Listen link. I think you’d appreciate my tales of year one post-RE. Best wishes to you!

  2. Hi Jason,
    Happy to have found your blog and the 2SF podcast & YouTube. Entertaining and helpful 🙂
    I was wondering how it felt to you mentally to start drawing down in stead of saving, as it is a complete shift in approach.

    I find myself constantly wondering if I made a mistake in my FI calculation and I have to find a job in the years to come because I missed something.

    ND

    1. Hi Nanda,
      Thanks for the feedback! So glad to learn you’re enjoying the content.

      This is a great question. I think largely it has felt ok, but I think that is highly influenced by the strong market performance we have had. My resolve will certainly be tested more during the inevitable protracted downturns!

      Your final point is a common one. And even though I have worked with financial advisors to date, I still question whether the number is sufficient! From talking with others I know the confidence only increases with time.

      Best wishes to you!

  3. Hi Jason! I’ve been FIRE’d for about 8 yrs now along with spouse who joined me a few yrs after I first left. I found another blogger (located in CA) who posted budget categories (essential and discretionary) that I found were very close to our own by percentages. [The blogger no longer posts] I still use these in my annual budget review and adjust them upward each year by 3% but we haven’t come close to hitting these guardrail limits. So far, NW continues to increase, but a significant long-term correction is inevitable. I enjoy the YouTube series w/ Eric.

    1. Hi Maverick! Great to hear from you. It’s great to hear that you’re still tracking and that things are staying within your plan. Makes me optimistic for my own budget! Fully agree about the inevitability of a correction.

      Have you learned any key lessons over the past eight years you’d be willing to share?

      Thanks so much for your support!

  4. Hey Jason, I’d love to say I have a well documented lessons-learned notebook to share, but the truth is, what got us to FIRE continues to keep us FI. Choose the right spouse / don’t divorce, keep more than you spend, start early, and maximize the power of compounding. These are easy points to make yet take work to execute day in and day out. For example, we have a SUV with over 282K miles on it. I perform all the repairs. We’d like to get a new replacement, and I have selected a model already. But there is no way we’d pay the current MSRP markup in todays market. We have the luxury that we can wait for supplies to increase as we have another vehicle that could be used if needed. As you now know, FI gives us more options. The biggest downside to FI lately is the rapid increase in inflation. Our limited fixed pensions are slowly shrinking in real value.

    Now I’ll briefly compare to some of MY other childhood friends. Prior to my marriage, I knew another person, um, very well. She got married and had two kids then divorced within about 10 years. Another friend got married before me and ultimately needed to seek legal representation with financial debt issues. Yet another friend lives in Silicon Valley with a spouse and kids. I know their occupations / lifestyle and yet they still continue to work. I’m convinced that the ability to FIRE is in large part related to psychology; instilled values, learned methods, and personal desire. When you have two people financially connected, the sum can relate to significant power or complete failure of FIRE ability.

    Continued success and Happy Holidays!

    1. Thanks, Maverick. You said an awful lot of value in your comment. Thanks so much for sharing it. Best wishes to you.

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