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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: LightTripper on July 12, 2013, 07:26:25 AM

Title: Budgeting for the unknown
Post by: LightTripper on July 12, 2013, 07:26:25 AM
Hi All!

I have been thinking about the possibility of ER for a couple of years, but only just found MMM (and other inspiring blogs like RetiredSyd and Simple Living in Suffolk!) and started to take early retirement "seriously."   So over the last few months I've been doing things like working out my actual spend (to my shame I never had a budget in my life so had literally no clue what I spent: luckily when I added it up it was if anything a bit less than I expected), trying to plan out how far into the future my pot could see me, and trying to get more of my pot invested (historically I've always lazily had too much in cash - now I know I might turn the tap off, the waste of letting inflation eat my money is just too much so I'm slowly getting more of it into the market).

Where I am struggling is just with the potential enormity of what could change looking 10 or 20 years ahead.  For example, we don't have kids at the moment - but are trying.  If we do have kids that will be even more incentive to get myself retired.  I am basically convinced by MMM's argument that having kids needn't cost much, but I'm sure it will cost something.

Similarly at the moment I live in a big city (London) and walk or take the bus everywhere, so don't have a car (we belong to a car club for occasional car/van needs).  But in the future we may well want to move to a smaller town, or even the countryside - in which case I think we would need a car.  But how much will that cost?  And petrol?  If I retire at 40 and live until 90, will we even have cars then and what will they run on?  What else might we have invented, and what will that cost?  How about the basics like water and power, are they going to get really expensive due to climate change/population shifts or whatever else?  Or get cheaper as we continue to invent cool stuff and get more efficient?

"Fixing the pot" by giving up work still feels a really big step in the face of so much uncertainty... I would feel so much better if I could put all this stuff in a spreadsheet :)

Am I alone?  How do you guys deal with the fear factor? 

I've only been an adult for 20 years and frankly only just starting to get the hang of it: so how can I envisage and plan for the next (hopefully) 50+?

Title: Re: Budgeting for the unknown
Post by: MsSindy on July 12, 2013, 10:58:58 AM
You've been an adult for 20 years?  That would make you 38?

First, chill about the future.  None of us can predict where things will be, we can only decide how we will react to change - change is certain.  Most important, invest in yourself.  Be the type of person that is resilient, flexible, and optimistic.  The difference is that you see all that as a "fear factor" and I see it as the exciting world that awaits!

If it makes you nervous to think that far in advance, then don't.  Focus on today, because that is all that you can control.  You don't need to make any decisions about the future.  Focus on your budget and saving/investing today.  Then if you decide to have kids, you'll be in a good position for options, and then challenge your thinking.  Do I have to move to the burbs to raise a kid - what if we didn't, etc.  The difference is, if you prepare now, you'll have options and won't have to fret about the future.
Title: Re: Budgeting for the unknown
Post by: jexy103 on July 13, 2013, 02:30:53 AM
Remember that just because you're retiring doesn't mean you'll never make another dollar. Perhaps your future children will have friends at school whose parents need cheap childcare for a few hours each afternoon. If you offer to watch them, you can earn a few bucks, they have childcare, and your child gets to spend more time with friends; win-win-win.

Also, just because you're retiring doesn't mean you can't go back to work if things don't go as planned. If there's another Global Financial Crisis 20 years from now and you lose all your invested income, you and your spouse will still be ~58-60 and will be able to return to work. You probably won't make what you're making now (adjusting for inflation), but you should be able to cover your expenses.

There's always going to be a fear of the unknown. I'm sure people retiring at 65 are somewhat afraid/anxious of what their retirement years are going to look like. I know when it become my turn to FIRE, I'll be one of the "just one more year so I know I'll be all set" types. And that's not a bad thing. You need to do what's comfortable to you. But remember to ask yourself which is more important: knowing that you're as secure as possible and probably have more than you'll ever need, or having the freedom to spend the prime of your life doing whatever you want to do- including being full-time parents?

Good luck with your decision!
Title: Re: Budgeting for the unknown
Post by: worms on July 13, 2013, 03:21:58 AM
Some of the unknowns can be projected on high/low scenarios as part of the planning.

If it helps, my total car costs in rural UK come to about 500/month including an allowance of 100 for depreciation.  If I wasn't commuting to work that would come down to 370.

Historically, as we have got more energy efficient we have (as a society) tended to simply use the same total amount of energy in other ways - more gadgets, warmer houses.  So I wouldn't bank on any big reductions in spend (although there is a large element of self-control in this).

Industry insiders have commented that we should plan for a doubling of electricity costs in the next ten years in UK...

The biggest component of water costs relate to energy use (mainly electricity) so the assumptions you make on electricity will, more or less, also apply to water.

The biggest hit to my finances has been supporting kids through university, averaging 300 to 500 per month for each one.  That does not include fees as this is still free in Scotland.  I would strongly recommend this to be factored in to any ER plans as this hits at a later stage of life.  If you are content telling the kids that they are on their own financially at age 17, then fine, but that is not me.
Title: Re: Budgeting for the unknown
Post by: LightTripper on July 13, 2013, 03:30:26 AM
Thanks all!  I guess that's the key - nothing is set in stone.  Hard for me though as I am not a person who tends to embrace change - always been in the same job, with the same man, in the same city ... And I love it to bits, except when my job takes over my life.  So I do want change, but also have no idea how to handle it.  I think this is one of those cases where all you can do is make your best forecast, try lots of sensitivities on that, and then just jump.  And I will make myself do it!  But maybe a bit more spreadsheeting first...

Thanks so much for your figures Worms.  That is more than I thought for a car... Maybe I should stay near a town!  Though I grew up in a village and it is a lovely place to be a kid.

Can I ask you, did you retire before your kids got to uni?  If so, did you find your plans had enough wiggle room to accommodate that, or did you have to give up something else for a few years?

Title: Re: Budgeting for the unknown
Post by: worms on July 13, 2013, 04:08:13 AM
Sorry if I mis-led you but I am still working... and spreadsheeting!

I was self-employed, working from home when the kids were wee and that was great.

Rural life has its compensations, and it may be that you would spend more on other things in the urban scenario than you would in a village.  I certainly have a much smaller mortgage than I would have had in town (or if you are a pessimist, a smaller asset!).  Car insurance costs are lower, too but energy costs are higher (no gas, so only oil for heating and also electricity companies only offer good deals to those that can do a dual fuel deal, the b*****ds!).
Title: Re: Budgeting for the unknown
Post by: Joel on July 13, 2013, 09:11:37 AM
Title: Re: Budgeting for the unknown
Post by: LightTripper on July 13, 2013, 03:09:12 PM
Not at all Worms, I was just being nosey!  But it's all useful for adding to the spreadsheet, so good to know your figures!