Author Topic: Post-FIRE YNAB users: how do you account for very infrequent real expenses?  (Read 1200 times)

msheldon

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I'm looking at a fresh start of YNAB to more accurately track my FIRE finances, and ... post-FIRE some of my YNAB usage that made a lot of sense to me during accumulation just doesn't make much sense now. Have you been through this transition? I'm curious: what did you change on your budgeting/financial tracking side of things when you FIREd?

The main point I'm struggling with is those very infrequent but budget-able real expenses. Like my "replace the car when it dies" budget line item. I know my car has 5-10 years left before our family will switch it out, so it's easy to set a bit aside every month for that eventual expense. Some house repairs are irregular long term events too: exterior paint, roof repair. By explicitly budgeting for these while I earned a salary, I got a good sense for what I was really saving vs hidden expenses for maintaining our current lifestyle.

But now ... it doesn't make sense for me to pay myself enough income to cover my daily expenses plus extra to cover these long term budgeting items. I'd just have to move that money for long term items off into another savings account. I think it will be easier to lump-sum "pay" for these all now, and then live on my WR from the rest of my net worth.

How do you budget for these rare expenses? Do you put them in your budget or leave them out? If you put them in your budget, do you pay yourself enough income to cover these items, or do some accounting tricks to track things without money moving around?

Thanks for your insight!

--Michael Sheldon

corbt

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So I'm still working, but I feel like this question is a reasonable one even when you're still employed. I figure in 5 years or so I'll want to replace my car and that'll be a $7k chunk of change at least. I could create a YNAB category and fund it at $110/mo for the next 5 years, but I don't really want to have an extra 7k sitting around in my checking account for years before I need it -- I'd rather send that money to Vanguard and pull it out when I actually need it. Plus, my engine could die tomorrow and not be worth the price of fixing, or alternatively everything could keep running just fine and we could hold on to this vehicle for 10 years. Impossible to predict, thus difficult to accurately budget for.

The conclusion I've come to is that YNAB doesn't really work for large, infrequent and unpredictable expenses. My current solution is to use YNAB for all day-to-day spending and recurring monthly/annual bills, and for the bigger stuff that I run into once in an unpredictable while (a car, moving expenses, hospital copays) pay as they come in. My rough mental annual budget is about ~10k more than what YNAB shows, which is enough to cover a couple of those big expenses in a year if necessary. In 2016 we did in fact move countries, buy a used car, and have a baby, so we did come close to that 10k mental estimate, but most years our unbudgeted spend is much lower. :)

respond2u

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How do you budget for these rare expenses? Do you put them in your budget or leave them out? If you put them in your budget, do you pay yourself enough income to cover these items, or do some accounting tricks to track things without money moving around?

Thanks for your insight!

--Michael Sheldon

Most of our expenses are foreseeable, but because it's sometimes hard to put a date on exactly when, many people seem to try to ignore them. That doesn't work well unless you already have deep enough pockets to weather the onslaught.

AAA has stats on how much your car is costing you per mile, for depreciation and maintenance and operating. You could use that. I sat down with my credit card statements and excel a few years ago to get a handle on things like clothes, utilities, and medical/dental, etc.

For the things that happen less regularly than monthly, I make a list of them annually, and then "spend" a portion of that each month. The money builds up in my savings account until those known unknowns hit home.

I have a monthly budget for spending money on food and fun, and track that. What my bank accounts say about my balance doesn't influence how much I feel I can spend.

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To get a little psuedo-accounting geeky, I generally treat my costs on an accrual basis (including depreciation and amortization) and my income on a cash basis. E.g., I account for my credit card purchases just as soon as I make them, not when I pay them, but my income only when I have it in hand. I set aside car repair/replacement money based on how much I drive, and so on.


« Last Edit: June 19, 2017, 11:19:08 PM by respond2u »

Lake161

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I have a few categories under True Expenses to cover things that are irregular and expensive. I set a goal for each and contribute monthly.

  • New car fund: goal is to have cost of the replacement car saved by 10 years from when we bought the current car. I will adjust the goal as needed based on how the current car is holding up.
  • Home maintenance: we live in a mountain area, so the house takes a beating. I have a category that I try to keep topped up to 1% of home value.
[/li][/list]Medical: I try to keep this category topped up to our out-of-pocket maximum for the year. [/li]
[li]Big purchases: everything else goes in here. This covers replacing phones/laptop, bike replacements, and big vet bills. I try to keep it topped up to $1500. I picked the amount based on a review of past expenses. [/li]
[/list]

We do pay ourselves enough money to cover these. The money just sits in checking until needed. It makes a nice cash reserve in case something catastrophic happens. Otherwise we don't hold cash.