Author Topic: How do you manage cash flow if you don't use a budget?  (Read 25824 times)

dhlogic

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Re: How do you manage cash flow if you don't use a budget?
« Reply #50 on: March 20, 2015, 09:42:35 PM »
How do you know that the amount you spend on groceries is giving you "maximum satisfaction?" Have you tried spending 1/10th as much? 10x as much?  100x?  I doubt it.  How can you say you know?

Because one can be content when you have "enough".

Another thing I never said that you attribute to me is that you have to stop spending when you reach some arbitrary point when you still have way more money than you need.

Another misconception which you insist on perpetuating is that a budget "forces you to stop."  I never said that; YOU are the one who says it all the time.

Then why have a number to begin with again?

You will never convince me that every single thing you buy is a need.  Never.

One can say you need a certain amount of something to be content. With an understanding of what makes you happy, that need can be quite low.

I don't budget, I have projections based on past numbers.  I feel superior already just by changing the terminology.  Thanks for that!

Sure, I "budget". But I do not do the work that many people think budgeting requires them to do: make categories, assign every dollar a job, take time to setup limits, take time to review/make adjustments to categories at the end of the month, etc all of which is a waste of time.

Taran Wanderer

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Re: How do you manage cash flow if you don't use a budget?
« Reply #51 on: March 21, 2015, 02:32:27 AM »
These posts have been terrific for explaining the mechanics of different approaches, as well as the thinking behind them. Thanks to everyone for taking the time to explain your approach.

I think what would work for me is:

1. To continue to pay myself first;

2. Have a float balance in my checking account;

3. In addition, each pay period (or month) put enough in checking to cover my normal spending for the period;

4. Be absolutely consistent about asking myself if I need an item or if it contributes in any significant way to my goals (I do this most days, but not all days);

5. Top up the checking account balance once a pay period (or month);

6. Keep a $200 float in my wallet to cover cash transactions where only cash can be used, topping it up from time to time.

I appreciate the point that when we are further along in our saving and investments and when our income rises, there is enough, and tight budgeting by line item isn't as necessary. Also because of that, I've moved to handling "emergencies" from current income and from a general collector fund for planned spending on large items. That is how I have been handling annual expenses too.

Following 1-6 will all prevent a lot of scurrying around (some physical, some electronic) and reduce my stress.

To those who have argued the merits of budgets, they have often worked well for me. I am FI (though not early), have a home I love, where I want to live, and am nearing retirement without any significant unrequited travel urges. At this point, though I want a simpler financial system to manage and think about. I don't find tracking and planning nearly as soothing as I used to.

I'm sure there will be more posts, and look forward to reading them.

YES!

pancakes

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Re: How do you manage cash flow if you don't use a budget?
« Reply #52 on: March 21, 2015, 04:43:13 AM »
I've always used a budget, but I agree that it can encourage me to spend more than I need to. I also end up short in some categories, and do too much scrambling to make ends meet.
I don't budget but I do track and I do find that the way that I track does encourage me to spend at times.

I amortise my large expenses (and income) and enter the small stuff manually. I then have a a slider that indicates how we are tracking in terms of savings rate. In a way it is great because we aim for 50% and if we are under it provides a really good motivation to spend less. You could argue that this is a budget but there are no limits placed on any category of expenditure. The flipside is that now we are pretty good at being frugal, when I see us tracking at 55% savings, I'm more likely to go out and buy a bottle of wine, eat out rather than stick to the meal plan, etc.

I haven't worked out if it is a positive or negative. We are still meeting our goals and also meeting a few of our wants/desires. It almost seems like a win/win? Is the idea to spend as little as possible, or is it to optimise our incomes so we meet future financial goals while still indulging in a few luxuries today?

In terms of cash flow, it isn't something that we have to worry about too much at the moment. We'll be looking at buying property in the next 0-3 years so are keeping a reasonable about of cash in savings accounts to act as a deposit and to cover fees and taxes. It sucks getting only 4% on our savings (and then paying tax on that!) but I feel there is more risk of losing money in the share market over such a short periods vs house prices in Australia falling any significant amount.
« Last Edit: March 21, 2015, 04:45:14 AM by pancakes »

deborah

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Re: How do you manage cash flow if you don't use a budget?
« Reply #53 on: March 21, 2015, 05:02:36 AM »
I don't budget - never have. When I worked, I always saved at least 80% of my income, so I never felt that I needed to budget, and as I have more than I need, I don't see the point.

I have a spreadsheet of where I am at. It includes the big bills I get once a year - rates (paid to local government for my PPOR), insurance... or planned big expenses for the year (an expensive holiday?), how much I expect them to be, and the months they are coming out of my funds. This is great, as sometimes bills go missing - but being in the spreadsheet, I can keep on top of everything. If I am going away, I just look at what I expect to be paying for while I am away. It is also interesting, as I am gradually accumulating data about how these big bills change each year.

Many of these bills fall due at the same time each year, so having them in the spreadsheet effectively removes them from the spending, but at the same time ensures that I know what my cash flow is.

Every fortnight I look at my accounts and copy how much they have in them to the spreadsheet. That way I keep track of when I will need to draw down any money (I am FIRE). It means I check on activity in the accounts each fortnight, so if anything fraudulent happened, I would be on top of it, and if I have been extra spendy in a fortnight, I get feedback relatively quickly (I guess this encourages me to spend less). It also ensures I don't have any cash flow problems, although my spreadsheet tracks the year, how much I expect to have in my accounts each fortnight, and whether there is too much or too little. So cash flow is usually worked out once a year. Generally speaking, I expect to spend more than I do.

I guess it would be nice to have an itemised list of where my money went, but I seem to spend less each year anyway.

In summary, I plan each year, and check each fortnight.

Retire-Canada

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Re: How do you manage cash flow if you don't use a budget?
« Reply #54 on: March 21, 2015, 05:58:44 AM »
Where do you live that you need to carry 200 in cash around to pay for things.

I pull out $200 cash for my wallet when I am at an ATM. I don't try to keep it at $200, but every couple months I'll take out more and top it up to around $200. I also add any cash I get from people to this pool.

I use credit cards most of the time, but there are definitely transactions I'd prefer to use cash for.

I've pretty much stopped using my debit card for purchases. I used to use it exclusively, but I prefer the CC + cash route now.

I get travel points on my CC I use to see my parents. Plus I have much better security on my CC than on my debit card. It seems my CC gets compromised about once a year and that costs me nothing to get a new one issued.

I certainly don't need $200 cash, but it's a convenient amount to take-out of an ATM and not a great deal to lose if I ever were to lose my wallet [that's happened once in 45yrs].

-- Vik

choppingwood

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Re: How do you manage cash flow if you don't use a budget?
« Reply #55 on: March 21, 2015, 08:04:27 AM »
I'm more likely to go out and buy a bottle of wine, eat out rather than stick to the meal plan, etc.

I haven't worked out if it is a positive or negative. We are still meeting our goals and also meeting a few of our wants/desires. It almost seems like a win/win? Is the idea to spend as little as possible, or is it to optimise our inco mes so we meet future financial goals while still indulging in a few luxuries today?

That's how I've looked at it most of the time. Now that I am almost in the future, though, I am wondering if that approach means I will be giving up something more substantial -- for example, visits to friends in other places or going to a conference that really interests me or buying some kind of outdoor gear. Though I'd like there to be room in the spending for a bottle of wine or going out for dinner.

choppingwood

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Re: How do you manage cash flow if you don't use a budget?
« Reply #56 on: March 21, 2015, 08:06:39 AM »
These posts have been terrific for explaining the mechanics of different approaches, as well as the thinking behind them. Thanks to everyone for taking the time to explain your approach.

I think what would work for me is:

1. To continue to pay myself first;

2. Have a float balance in my checking account;

3. In addition, each pay period (or month) put enough in checking to cover my normal spending for the period;

4. Be absolutely consistent about asking myself if I need an item or if it contributes in any significant way to my goals (I do this most days, but not all days);

5. Top up the checking account balance once a pay period (or month);

6. Keep a $200 float in my wallet to cover cash transactions where only cash can be used, topping it up from time to time.

I appreciate the point that when we are further along in our saving and investments and when our income rises, there is enough, and tight budgeting by line item isn't as necessary. Also because of that, I've moved to handling "emergencies" from current income and from a general collector fund for planned spending on large items. That is how I have been handling annual expenses too.

Following 1-6 will all prevent a lot of scurrying around (some physical, some electronic) and reduce my stress.

To those who have argued the merits of budgets, they have often worked well for me. I am FI (though not early), have a home I love, where I want to live, and am nearing retirement without any significant unrequited travel urges. At this point, though I want a simpler financial system to manage and think about. I don't find tracking and planning nearly as soothing as I used to.

I'm sure there will be more posts, and look forward to reading them.

YES!

Thanks! There is nothing like unambiguous support.

choppingwood

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Re: How do you manage cash flow if you don't use a budget?
« Reply #57 on: March 21, 2015, 08:13:46 AM »
In summary, I plan each year, and check each fortnight.

This makes a lot of sense to me.

boarder42

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Re: How do you manage cash flow if you don't use a budget?
« Reply #58 on: March 21, 2015, 09:37:40 AM »
Where do you live that you need to carry 200 in cash around to pay for things.

I pull out $200 cash for my wallet when I am at an ATM. I don't try to keep it at $200, but every couple months I'll take out more and top it up to around $200. I also add any cash I get from people to this pool.

I use credit cards most of the time, but there are definitely transactions I'd prefer to use cash for.

I've pretty much stopped using my debit card for purchases. I used to use it exclusively, but I prefer the CC + cash route now.

I get travel points on my CC I use to see my parents. Plus I have much better security on my CC than on my debit card. It seems my CC gets compromised about once a year and that costs me nothing to get a new one issued.

I certainly don't need $200 cash, but it's a convenient amount to take-out of an ATM and not a great deal to lose if I ever were to lose my wallet [that's happened once in 45yrs].

-- Vik

well i guess that would make sense my dad carries around that in cash too.  i think the millenials typically live on plastic almost exclusively.  when my friends need to pay me i use google wallet or paypal.  i try to limit the amount of cash i carry to next to nothing.  there is rarely a place that cash makes sense over a CC with points and very few places today that expect cash. 

Ricky

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Re: How do you manage cash flow if you don't use a budget?
« Reply #59 on: March 21, 2015, 09:53:41 AM »
Budgeting is just personal accounting. All it can ever be is a snapshot into where your money is going. If you already know where it's going and your saving goals are met, why would you bother looking at it in spreadsheet format every month? Especially for most of us here.

Conversely, budgets can be helpful to those just starting to get on track or are spending way more than they make. Once you start "consciously" spending though, there's no reason to track it.

Teacherstache

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Re: How do you manage cash flow if you don't use a budget?
« Reply #60 on: March 21, 2015, 07:11:32 PM »
We don't use a budget.

Our paychecks, minus the amount that goes into 401k/403b come into our checking account, our bills - mortgage, electric, gas, water, credit cards, etc come out of it including "saving bills" like monthly contributions to IRA.  When an annual bill, like car registration, comes, it comes out of there too, although property taxes are paid monthly into escrow with the mortgage, so we don't have that massive bill. If we want to go on vacation or buy a car, the money is there- whatever.  Our generally strategy is "don't spend money on unnecessary shit".    We make more than enough to cover our regular expenses and the various things we want, and don't live paycheck to paycheck, so there is nothing to manage.

Maybe we just keep more in cash than some people?
If the checking account is over $X, money gets moved to a savings account. If that gets over $Y, we put more into our taxable accounts.

This is us exactly, just change "put more into our taxable accounts" into put more towards our mortgage.

pancakes

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Re: How do you manage cash flow if you don't use a budget?
« Reply #61 on: March 21, 2015, 08:43:57 PM »
That's how I've looked at it most of the time. Now that I am almost in the future, though, I am wondering if that approach means I will be giving up something more substantial -- for example, visits to friends in other places or going to a conference that really interests me or buying some kind of outdoor gear. Though I'd like there to be room in the spending for a bottle of wine or going out for dinner.
The sum of the small stuff can be substantial. Both in pleasure and in cost haha.

If I want to make a large purchase I usually do it towards the start of the month which then gives me the rest of the month to adjust and bring my savings rate back to 50%. Large purchases towards the end of the month are harder to recover from, especially if I've already bought a few bottles of wine, eaten out, etc. Once I'm over halfway into the month I'll usually delay any larger discretionary purchases unless I'm tracking particularly well.

Budgeting is just personal accounting. All it can ever be is a snapshot into where your money is going. If you already know where it's going and your saving goals are met, why would you bother looking at it in spreadsheet format every month? Especially for most of us here.
I've been tracking spending on and off for 5 years. I would say that we are pretty good at saving but there is always a huge difference in our savings when we track vs savings when we don't. Everyone will be a bit different though and I'm still pretty early in my journey.

pka222

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Re: How do you manage cash flow if you don't use a budget?
« Reply #62 on: March 22, 2015, 02:23:42 PM »
Instead of budgeting I track every dollar spent.  This allows me to:
1) know what I'll need in retirement
2) Know where my luxurious lifestyle could be trimmed if need be.
For example 1/3 of my annual expenses goes to child care and international travel- the child care is likely to end when I reach FI but  the travel will likely ramp up. 

I'm a red panda

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Re: How do you manage cash flow if you don't use a budget?
« Reply #63 on: March 22, 2015, 07:06:56 PM »
We don't use a budget.

Our paychecks, minus the amount that goes into 401k/403b come into our checking account, our bills - mortgage, electric, gas, water, credit cards, etc come out of it including "saving bills" like monthly contributions to IRA.  When an annual bill, like car registration, comes, it comes out of there too, although property taxes are paid monthly into escrow with the mortgage, so we don't have that massive bill. If we want to go on vacation or buy a car, the money is there- whatever.  Our generally strategy is "don't spend money on unnecessary shit".    We make more than enough to cover our regular expenses and the various things we want, and don't live paycheck to paycheck, so there is nothing to manage.

Maybe we just keep more in cash than some people?
If the checking account is over $X, money gets moved to a savings account. If that gets over $Y, we put more into our taxable accounts.

This is us exactly, just change "put more into our taxable accounts" into put more towards our mortgage.

We pay an extra $500 to our mortgage each month, but after that we put it into investment accounts.  Our interest rate is SO low, I have a hard time thinking I should rush paying it off too much.

choppingwood

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Re: How do you manage cash flow if you don't use a budget?
« Reply #64 on: March 22, 2015, 07:13:12 PM »
Instead of budgeting I track every dollar spent.  This allows me to:
1) know what I'll need in retirement
2) Know where my luxurious lifestyle could be trimmed if need be.
For example 1/3 of my annual expenses goes to child care and international travel- the child care is likely to end when I reach FI but  the travel will likely ramp up.

At the best of times, I've been able to track things for six months. I learn a lot and the learning generally stays with me. (I'll likely never eat a slice of pie or pate de foie gras again, after tracking their calorie content.) I don't continue the tracking, though. I like beginnings and don't do well with never-ending tasks. (I'll paint a house, but detest housework.)

At the moment, I am two months away from the end of a contract that is very high workload, much more administrative than I care for, and where there are tons of things I want to finish; by the end of the contract, I have to consolidate two homes back into one. I need to stay away from detail and tracking.

Perhaps if I were in the South Pacific like you, and not in northern Alberta, I might feel entirely differently about this....;)

boarder42

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Re: How do you manage cash flow if you don't use a budget?
« Reply #65 on: March 23, 2015, 06:32:13 AM »


We pay an extra $500 to our mortgage each month, but after that we put it into investment accounts.  Our interest rate is SO low, I have a hard time thinking I should rush paying it off too much.
[/quote]

why are you putting 500 a month in extra then if your interest rate is that low.  you're just costing your FIRE timeframe.

I'm a red panda

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Re: How do you manage cash flow if you don't use a budget?
« Reply #66 on: March 23, 2015, 07:08:10 AM »


We pay an extra $500 to our mortgage each month, but after that we put it into investment accounts.  Our interest rate is SO low, I have a hard time thinking I should rush paying it off too much.

why are you putting 500 a month in extra then if your interest rate is that low.  you're just costing your FIRE timeframe.
[/quote]

Because I'd like to have no house payment when I stop working; but I'd also rather invest my money than pay the entire mortgage down.  (I mean, we could easily just pay it off entirely right now.  But why do that?)

mak1277

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Re: How do you manage cash flow if you don't use a budget?
« Reply #67 on: March 23, 2015, 07:25:23 AM »


We pay an extra $500 to our mortgage each month, but after that we put it into investment accounts.  Our interest rate is SO low, I have a hard time thinking I should rush paying it off too much.

why are you putting 500 a month in extra then if your interest rate is that low.  you're just costing your FIRE timeframe.

Because I'd like to have no house payment when I stop working; but I'd also rather invest my money than pay the entire mortgage down.  (I mean, we could easily just pay it off entirely right now.  But why do that?)
[/quote]

+1 to this...my FIRE budget is predicated on having no mortgage payment.

arebelspy

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Re: How do you manage cash flow if you don't use a budget?
« Reply #68 on: March 23, 2015, 08:42:19 AM »
+1 to this...my FIRE budget is predicated on having no mortgage payment.

If you invested that money though, you could use it to pay the mortgage payment in FIRE.  Larger stache = more income generated.  Even if it didn't fully cover the payment, you could draw down slightly on that portion of the principal and still come out ahead.  And then you have more liquid assets in case of a problem, rather than trapped equity.
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boarder42

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Re: How do you manage cash flow if you don't use a budget?
« Reply #69 on: March 23, 2015, 08:48:33 AM »
yeah this hybrid approach to paying off a mortgage and investing makes less sense to me than those who pay off their mortgage entirely before investing.  Its like you understand the math but dont want to 100% use it.  I used to think no mortgage was best for FIRE but as long as you're in that 15% bracket still where LTCGs and QDs are tax free with a mortgage you come out far and away ahead by keeping a mortgage.

mak1277

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Re: How do you manage cash flow if you don't use a budget?
« Reply #70 on: March 23, 2015, 08:53:11 AM »
+1 to this...my FIRE budget is predicated on having no mortgage payment.

If you invested that money though, you could use it to pay the mortgage payment in FIRE.  Larger stache = more income generated.  Even if it didn't fully cover the payment, you could draw down slightly on that portion of the principal and still come out ahead.  And then you have more liquid assets in case of a problem, rather than trapped equity.

I'd rather limit cash outflows rather than rely on generating additional income.  Also, my time to FIRE is pretty well set (based on some golden handcuffs at work) if I assume no mortgage payment in retirement.  So paying down a little extra now doesn't change my timeline.  If I keep my payment in retirement I'd add at least 3 years to my working life to cover the difference in monthly outflows.

ETA: I don't routinely pay extra against my mortgage currently...I was "+1'ing" the concept of having no mortgage in FIRE. 
« Last Edit: March 23, 2015, 08:55:53 AM by mak1277 »

boarder42

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Re: How do you manage cash flow if you don't use a budget?
« Reply #71 on: March 23, 2015, 08:56:12 AM »
+1 to this...my FIRE budget is predicated on having no mortgage payment.

If you invested that money though, you could use it to pay the mortgage payment in FIRE.  Larger stache = more income generated.  Even if it didn't fully cover the payment, you could draw down slightly on that portion of the principal and still come out ahead.  And then you have more liquid assets in case of a problem, rather than trapped equity.

I'd rather limit cash outflows rather than rely on generating additional income.  Also, my time to FIRE is pretty well set (based on some golden handcuffs at work) if I assume no mortgage payment in retirement.  So paying down a little extra now doesn't change my timeline.  If I keep my payment in retirement I'd add at least 3 years to my working life to cover the difference in monthly outflows.

there is 0% chance that this is true.  paying down that extra vs taking that same money and investing would actually speed up your time to FIRE By investing it HOW DO YOU PEOPLE NOT SEE THIS.  assuming avg historical market returns that is.

mak1277

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Re: How do you manage cash flow if you don't use a budget?
« Reply #72 on: March 23, 2015, 08:58:01 AM »
+1 to this...my FIRE budget is predicated on having no mortgage payment.

If you invested that money though, you could use it to pay the mortgage payment in FIRE.  Larger stache = more income generated.  Even if it didn't fully cover the payment, you could draw down slightly on that portion of the principal and still come out ahead.  And then you have more liquid assets in case of a problem, rather than trapped equity.

I'd rather limit cash outflows rather than rely on generating additional income.  Also, my time to FIRE is pretty well set (based on some golden handcuffs at work) if I assume no mortgage payment in retirement.  So paying down a little extra now doesn't change my timeline.  If I keep my payment in retirement I'd add at least 3 years to my working life to cover the difference in monthly outflows.

there is 0% chance that this is true.  paying down that extra vs taking that same money and investing would actually speed up your time to FIRE By investing it HOW DO YOU PEOPLE NOT SEE THIS.  assuming avg historical market returns that is.

You posted too fast and missed my edit...I'm talking about eliminating mortgage in FIRE, not paying down extra pre-FIRE.

arebelspy

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Re: How do you manage cash flow if you don't use a budget?
« Reply #73 on: March 23, 2015, 09:13:33 AM »
+1 to this...my FIRE budget is predicated on having no mortgage payment.

If you invested that money though, you could use it to pay the mortgage payment in FIRE.  Larger stache = more income generated.  Even if it didn't fully cover the payment, you could draw down slightly on that portion of the principal and still come out ahead.  And then you have more liquid assets in case of a problem, rather than trapped equity.

I'd rather limit cash outflows rather than rely on generating additional income.  Also, my time to FIRE is pretty well set (based on some golden handcuffs at work) if I assume no mortgage payment in retirement.  So paying down a little extra now doesn't change my timeline.  If I keep my payment in retirement I'd add at least 3 years to my working life to cover the difference in monthly outflows.

ETA: I don't routinely pay extra against my mortgage currently...I was "+1'ing" the concept of having no mortgage in FIRE.

Yeah, that's not true.  If you kept the mortgage in FIRE, and earned a higher interest rate over the life of the mortgage (even if it isn't paid off until 20 years after your FIRE), you'll be able to FIRE earlier.

You don't have to work enough to have the stache cover the whole payment, cause you can draw down on that part.

For example, say your mortgage was 100k.  Your stache is 1.1MM.  Your budget is 40k without a mortgage, 50k with the mortgage.

You can pay off the mortgage, leaving you with 1MM and a 40k budget.  4% rule, cool.

If you don't pay off the mortgage, it appears as if your WR is 50k/1.1MM = 4.5%, whoops.  But it's actually not, cause some of that payment is going to principal.

And that extra 100k in the stache, at 7%, will only generate 7k, not the 10k needed to cover the mortgage.  Boo.  BUT you can withdraw 3k from that 100k principal to cover the difference.  Lather, rinse, repeat.  Each year you may have to withdraw a little of that 100k to cover the difference (but you should be willing to draw down on that principal, because hell, you were willing to draw down on the whole 100k to start with, that's essentially what you're doing, but in smaller chunks at a time).

By doing this, you're leaving the money invested longer in a higher yielding instrument.  Some years it will be down, yes.  But over the long run, if the CAGR of your investments are greater than your mortgage payment, you'll come out ahead.

So you don't have to wait longer to FIRE, you just keep the money you would be paying into the mortgage liquid and earning you even more money.  Which actually lets you FIRE sooner.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

mak1277

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Re: How do you manage cash flow if you don't use a budget?
« Reply #74 on: March 23, 2015, 09:45:00 AM »
+1 to this...my FIRE budget is predicated on having no mortgage payment.

If you invested that money though, you could use it to pay the mortgage payment in FIRE.  Larger stache = more income generated.  Even if it didn't fully cover the payment, you could draw down slightly on that portion of the principal and still come out ahead.  And then you have more liquid assets in case of a problem, rather than trapped equity.

I'd rather limit cash outflows rather than rely on generating additional income.  Also, my time to FIRE is pretty well set (based on some golden handcuffs at work) if I assume no mortgage payment in retirement.  So paying down a little extra now doesn't change my timeline.  If I keep my payment in retirement I'd add at least 3 years to my working life to cover the difference in monthly outflows.

ETA: I don't routinely pay extra against my mortgage currently...I was "+1'ing" the concept of having no mortgage in FIRE.

Yeah, that's not true.  If you kept the mortgage in FIRE, and earned a higher interest rate over the life of the mortgage (even if it isn't paid off until 20 years after your FIRE), you'll be able to FIRE earlier.

You don't have to work enough to have the stache cover the whole payment, cause you can draw down on that part.

For example, say your mortgage was 100k.  Your stache is 1.1MM.  Your budget is 40k without a mortgage, 50k with the mortgage.

You can pay off the mortgage, leaving you with 1MM and a 40k budget.  4% rule, cool.

If you don't pay off the mortgage, it appears as if your WR is 50k/1.1MM = 4.5%, whoops.  But it's actually not, cause some of that payment is going to principal.

And that extra 100k in the stache, at 7%, will only generate 7k, not the 10k needed to cover the mortgage.  Boo.  BUT you can withdraw 3k from that 100k principal to cover the difference.  Lather, rinse, repeat.  Each year you may have to withdraw a little of that 100k to cover the difference (but you should be willing to draw down on that principal, because hell, you were willing to draw down on the whole 100k to start with, that's essentially what you're doing, but in smaller chunks at a time).

By doing this, you're leaving the money invested longer in a higher yielding instrument.  Some years it will be down, yes.  But over the long run, if the CAGR of your investments are greater than your mortgage payment, you'll come out ahead.

So you don't have to wait longer to FIRE, you just keep the money you would be paying into the mortgage liquid and earning you even more money.  Which actually lets you FIRE sooner.

My situation doesn't line up with your example though, because I'm not regularly paying extra on my mortgage.  I'm not choosing to contribute extra to my mortgage that I would otherwise be investing.  I intend to downsize/relocate when I FIRE and buy a new home in cash with the equity in my current home. So in my case, it truly would require an additional 3-4 years of accumulation to cover that difference in my stache.

Could I get another mortgage in FIRE and invest that money, netting myself some gain?  It's possible.  But I'd much (MUCH!!) rather have the security of knowing I don't need to generate gains to cover a mortgage in retirement.

I think there is something to be said for choosing to avoid that expense (at the possible loss of some investment gains).   I am more than happy to give up some upside in return for the security of not having the outflow.  Perfect optimization is not my goal.

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Re: How do you manage cash flow if you don't use a budget?
« Reply #75 on: March 23, 2015, 10:55:48 AM »
My example didn't include regularly paying extra on a mortgage.  Reread it.
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Re: How do you manage cash flow if you don't use a budget?
« Reply #76 on: March 23, 2015, 12:09:01 PM »
there is no world in which the 4% SWR works out and paying off your mortgage is better than investing at today's current Mortgage rates.  plain and simple paying your mortgage off will lead to working longer no matter how you view it if you believe in the 4% SWR and we assume current mortgage rates. 

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Re: How do you manage cash flow if you don't use a budget?
« Reply #77 on: March 23, 2015, 12:28:07 PM »
My example didn't include regularly paying extra on a mortgage.  Reread it.

Your example was talking about having an "extra $100k" in my stache.  Where does that come from?  My mortgage is going to be paid off when I sell my house and relocate, no matter what.

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Re: How do you manage cash flow if you don't use a budget?
« Reply #78 on: March 23, 2015, 12:33:03 PM »

My example didn't include regularly paying extra on a mortgage.  Reread it.

Your example was talking about having an "extra $100k" in my stache.  Where does that come from?  My mortgage is going to be paid off when I sell my house and relocate, no matter what.

It's just money in your stache. It's the money you've saved along the way to FIRE.

You could pay down the mortgage along the way, or you could invest, or you could pay it as a lump sum at the end, or whatever.

But when you downsize, if you got a mortgage versus paying cash, yes, at the end of the 30-year term you'd leave a lot on the table paying cash versus keeping as much invested as possible.  So in your case that money comes from selling your house.
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mak1277

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Re: How do you manage cash flow if you don't use a budget?
« Reply #79 on: March 23, 2015, 12:48:36 PM »

My example didn't include regularly paying extra on a mortgage.  Reread it.

Your example was talking about having an "extra $100k" in my stache.  Where does that come from?  My mortgage is going to be paid off when I sell my house and relocate, no matter what.

It's just money in your stache. It's the money you've saved along the way to FIRE.

You could pay down the mortgage along the way, or you could invest, or you could pay it as a lump sum at the end, or whatever.

But when you downsize, if you got a mortgage versus paying cash, yes, at the end of the 30-year term you'd leave a lot on the table paying cash versus keeping as much invested as possible.  So in your case that money comes from selling your house.

But you could say that same thing about any asset allocation that doesn't exactly match the one you choose for yourself.  Are your assets 100% in equities?  Mine aren't, because I don't have the risk tolerance to do that, even though I know that historical returns would suggest that I'm leaving money on the table by being invested in bonds.  I see this in the same light.  I am choosing to reduce my cash outflows by not having a mortgage, which allows me to have a SWR that I'm more comfortable with.  I would not retire with a 4.5% SWR that you give in your example...because I choose to take on less risk (i.e., the certainty of eliminating a mortgage payment vs. the uncertainty of the market).

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Re: How do you manage cash flow if you don't use a budget?
« Reply #80 on: March 23, 2015, 01:13:55 PM »
I don't even know how to answer the OP.  We have more than enough coming in to cover everything. So we buy what we want, when we want, evaluating each purchase and each dollar as we consider parting with it. 

We have set up automatic deductions for the IRAs, and before we even get the paycheck some money leaves to go play in a retirement fund. 

Right now, we are working on paying down a HELOC (super low rate, but adjustable so we want to be rid of it). Every couple weeks, I look at the account, scoop up what is obviously extra, leaving plenty of slush, and dump it in the HELOC.  When we didn't have the HELOC, I did the same thing except I dumped it in a non-retirement investment.  The way I determine what is obviously extra is that I know, within each point of our pay/spend cycle, what the usual swing is.  So if, for example, I am looking and it is about 5 days after the 1st of the month paycheck, I know that's the very lowest point in our cycle.  So if the balance is $7000, I am going to take about $6000 out.  The remaining $1000 buys me the peace of mind to know that everything will be fine even if a CC pay off (set automatically) is slightly higher than usual, or whatever.  If either of us have really large expenses, I keep track of that so that I can leave more as necessary.    And since I'll be looking again in a couple weeks, I'm not losing much by having that $1000 in padding.  I wouldn't be comfortable not having fast access to that kind of cash anyway, so even if I carefully balanced everything to the penny, it would only be earning me about 2.4%, which is the rough difference between our HELOC rate and our checking interest rate. 

So cash flow isn't really managed, other than knowing what the account "should" look like at various points in the cycle, and then just withdrawing the extra so I can put it to work. 

As for paying off a mortgage early, since the topic has moved on, it's kind of no longer an option for me (mortgage is now through Bank of Parents, and part of the agreement was a standard payment so they wouldn't have to constantly recalculate, though an occasional lump sum would be find).  But when we had a regular mortgage, I did pay a small bit extra.  Our rate was 5.125%, but of course historically I'd do better in the market.  But I considered it a bit of diversification.  Just as I could expect better returns on stocks and bonds, but I still put a bit in bonds, I also put $50/mo toward the mortgage.  It was a very conservative investment, essentially.  And one that I put a very small amount of my "portfolio" into, at $50/mo. 

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Re: How do you manage cash flow if you don't use a budget?
« Reply #81 on: March 23, 2015, 01:20:14 PM »


My example didn't include regularly paying extra on a mortgage.  Reread it.

Your example was talking about having an "extra $100k" in my stache.  Where does that come from?  My mortgage is going to be paid off when I sell my house and relocate, no matter what.

It's just money in your stache. It's the money you've saved along the way to FIRE.

You could pay down the mortgage along the way, or you could invest, or you could pay it as a lump sum at the end, or whatever.

But when you downsize, if you got a mortgage versus paying cash, yes, at the end of the 30-year term you'd leave a lot on the table paying cash versus keeping as much invested as possible.  So in your case that money comes from selling your house.

But you could say that same thing about any asset allocation that doesn't exactly match the one you choose for yourself.  Are your assets 100% in equities?  Mine aren't, because I don't have the risk tolerance to do that, even though I know that historical returns would suggest that I'm leaving money on the table by being invested in bonds.  I see this in the same light.  I am choosing to reduce my cash outflows by not having a mortgage, which allows me to have a SWR that I'm more comfortable with.  I would not retire with a 4.5% SWR that you give in your example...because I choose to take on less risk (i.e., the certainty of eliminating a mortgage payment vs. the uncertainty of the market).

It's not a 4.5% SWR, that's what I was pointing out. It just appears to be. In actuality you're taking on more risk eliminating the mortgage over that 30 years. You are more likely to hit portfolio failure with a smaller stache and paid off house than larger stache and mortgage payment.
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mak1277

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Re: How do you manage cash flow if you don't use a budget?
« Reply #82 on: March 23, 2015, 01:35:49 PM »


My example didn't include regularly paying extra on a mortgage.  Reread it.

Your example was talking about having an "extra $100k" in my stache.  Where does that come from?  My mortgage is going to be paid off when I sell my house and relocate, no matter what.

It's just money in your stache. It's the money you've saved along the way to FIRE.

You could pay down the mortgage along the way, or you could invest, or you could pay it as a lump sum at the end, or whatever.

But when you downsize, if you got a mortgage versus paying cash, yes, at the end of the 30-year term you'd leave a lot on the table paying cash versus keeping as much invested as possible.  So in your case that money comes from selling your house.

But you could say that same thing about any asset allocation that doesn't exactly match the one you choose for yourself.  Are your assets 100% in equities?  Mine aren't, because I don't have the risk tolerance to do that, even though I know that historical returns would suggest that I'm leaving money on the table by being invested in bonds.  I see this in the same light.  I am choosing to reduce my cash outflows by not having a mortgage, which allows me to have a SWR that I'm more comfortable with.  I would not retire with a 4.5% SWR that you give in your example...because I choose to take on less risk (i.e., the certainty of eliminating a mortgage payment vs. the uncertainty of the market).

It's not a 4.5% SWR, that's what I was pointing out. It just appears to be. In actuality you're taking on more risk eliminating the mortgage over that 30 years. You are more likely to hit portfolio failure with a smaller stache and paid off house than larger stache and mortgage payment.

If i use my planned retirement stache and my planned annual expenses on cFIREsim my success rate is 100%

If I add the amount of my mortgage to my stache and increase my expenses by the annual cash outflow for the mortgage my success rate is 96.5% (all other assumptions remaining the same).

boarder42

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Re: How do you manage cash flow if you don't use a budget?
« Reply #83 on: March 23, 2015, 01:37:37 PM »


My example didn't include regularly paying extra on a mortgage.  Reread it.

Your example was talking about having an "extra $100k" in my stache.  Where does that come from?  My mortgage is going to be paid off when I sell my house and relocate, no matter what.

It's just money in your stache. It's the money you've saved along the way to FIRE.

You could pay down the mortgage along the way, or you could invest, or you could pay it as a lump sum at the end, or whatever.

But when you downsize, if you got a mortgage versus paying cash, yes, at the end of the 30-year term you'd leave a lot on the table paying cash versus keeping as much invested as possible.  So in your case that money comes from selling your house.

But you could say that same thing about any asset allocation that doesn't exactly match the one you choose for yourself.  Are your assets 100% in equities?  Mine aren't, because I don't have the risk tolerance to do that, even though I know that historical returns would suggest that I'm leaving money on the table by being invested in bonds.  I see this in the same light.  I am choosing to reduce my cash outflows by not having a mortgage, which allows me to have a SWR that I'm more comfortable with.  I would not retire with a 4.5% SWR that you give in your example...because I choose to take on less risk (i.e., the certainty of eliminating a mortgage payment vs. the uncertainty of the market).

It's not a 4.5% SWR, that's what I was pointing out. It just appears to be. In actuality you're taking on more risk eliminating the mortgage over that 30 years. You are more likely to hit portfolio failure with a smaller stache and paid off house than larger stache and mortgage payment.

i dont understand how this is so complicated for people to understand its like we are debating 2+2=4 ...

argument A yes it always does (investing)
Argument B well yeah i guess it does but i think thats risky so i'm gonna go ahead and consider that it must be 3 sometimes and that i'll come out ahead this way.  (pay off low interest mortgage)

boarder42

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Re: How do you manage cash flow if you don't use a budget?
« Reply #84 on: March 23, 2015, 01:46:35 PM »


My example didn't include regularly paying extra on a mortgage.  Reread it.

Your example was talking about having an "extra $100k" in my stache.  Where does that come from?  My mortgage is going to be paid off when I sell my house and relocate, no matter what.

It's just money in your stache. It's the money you've saved along the way to FIRE.

You could pay down the mortgage along the way, or you could invest, or you could pay it as a lump sum at the end, or whatever.

But when you downsize, if you got a mortgage versus paying cash, yes, at the end of the 30-year term you'd leave a lot on the table paying cash versus keeping as much invested as possible.  So in your case that money comes from selling your house.

But you could say that same thing about any asset allocation that doesn't exactly match the one you choose for yourself.  Are your assets 100% in equities?  Mine aren't, because I don't have the risk tolerance to do that, even though I know that historical returns would suggest that I'm leaving money on the table by being invested in bonds.  I see this in the same light.  I am choosing to reduce my cash outflows by not having a mortgage, which allows me to have a SWR that I'm more comfortable with.  I would not retire with a 4.5% SWR that you give in your example...because I choose to take on less risk (i.e., the certainty of eliminating a mortgage payment vs. the uncertainty of the market).

It's not a 4.5% SWR, that's what I was pointing out. It just appears to be. In actuality you're taking on more risk eliminating the mortgage over that 30 years. You are more likely to hit portfolio failure with a smaller stache and paid off house than larger stache and mortgage payment.

If i use my planned retirement stache and my planned annual expenses on cFIREsim my success rate is 100%

If I add the amount of my mortgage to my stache and increase my expenses by the annual cash outflow for the mortgage my success rate is 96.5% (all other assumptions remaining the same).


you did it wrong

go do 1MIL with 40k and run it 93.04% success rate
then go do 1.2MIL with 40k and add a fixed amount of 11457 to the additional spending line and make it not inflation adjusted.(since your payment wont ever change - this was your mistake)  11457 is the annual mortgage payment on a 200k loan at 4% 93.91% success rate. 

You ARE BEING RISKIER

boarder42

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Re: How do you manage cash flow if you don't use a budget?
« Reply #85 on: March 23, 2015, 02:00:13 PM »
also since all that money from the sale of your house will be in cash it will likely go in a taxable account.  and since mortgage interest is tax deductible. as long as you stay in the 15% bracket and that money you would have used to make a cash payment is invested in LTCG or QD type scenarios you will pay no taxes on what it earns you and you will decrease your tax exposure in retirement.  therefore lowering your projected expenses.

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Re: How do you manage cash flow if you don't use a budget?
« Reply #86 on: March 23, 2015, 02:08:26 PM »



My example didn't include regularly paying extra on a mortgage.  Reread it.

Your example was talking about having an "extra $100k" in my stache.  Where does that come from?  My mortgage is going to be paid off when I sell my house and relocate, no matter what.

It's just money in your stache. It's the money you've saved along the way to FIRE.

You could pay down the mortgage along the way, or you could invest, or you could pay it as a lump sum at the end, or whatever.

But when you downsize, if you got a mortgage versus paying cash, yes, at the end of the 30-year term you'd leave a lot on the table paying cash versus keeping as much invested as possible.  So in your case that money comes from selling your house.

But you could say that same thing about any asset allocation that doesn't exactly match the one you choose for yourself.  Are your assets 100% in equities?  Mine aren't, because I don't have the risk tolerance to do that, even though I know that historical returns would suggest that I'm leaving money on the table by being invested in bonds.  I see this in the same light.  I am choosing to reduce my cash outflows by not having a mortgage, which allows me to have a SWR that I'm more comfortable with.  I would not retire with a 4.5% SWR that you give in your example...because I choose to take on less risk (i.e., the certainty of eliminating a mortgage payment vs. the uncertainty of the market).

It's not a 4.5% SWR, that's what I was pointing out. It just appears to be. In actuality you're taking on more risk eliminating the mortgage over that 30 years. You are more likely to hit portfolio failure with a smaller stache and paid off house than larger stache and mortgage payment.

If i use my planned retirement stache and my planned annual expenses on cFIREsim my success rate is 100%

If I add the amount of my mortgage to my stache and increase my expenses by the annual cash outflow for the mortgage my success rate is 96.5% (all other assumptions remaining the same).


you did it wrong

This. You increase your stache amount and increase your expenses by the mortgage amount. Sounds like you didn't do the former.
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boarder42

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Re: How do you manage cash flow if you don't use a budget?
« Reply #87 on: March 23, 2015, 02:12:08 PM »



My example didn't include regularly paying extra on a mortgage.  Reread it.

Your example was talking about having an "extra $100k" in my stache.  Where does that come from?  My mortgage is going to be paid off when I sell my house and relocate, no matter what.

It's just money in your stache. It's the money you've saved along the way to FIRE.

You could pay down the mortgage along the way, or you could invest, or you could pay it as a lump sum at the end, or whatever.

But when you downsize, if you got a mortgage versus paying cash, yes, at the end of the 30-year term you'd leave a lot on the table paying cash versus keeping as much invested as possible.  So in your case that money comes from selling your house.

But you could say that same thing about any asset allocation that doesn't exactly match the one you choose for yourself.  Are your assets 100% in equities?  Mine aren't, because I don't have the risk tolerance to do that, even though I know that historical returns would suggest that I'm leaving money on the table by being invested in bonds.  I see this in the same light.  I am choosing to reduce my cash outflows by not having a mortgage, which allows me to have a SWR that I'm more comfortable with.  I would not retire with a 4.5% SWR that you give in your example...because I choose to take on less risk (i.e., the certainty of eliminating a mortgage payment vs. the uncertainty of the market).

It's not a 4.5% SWR, that's what I was pointing out. It just appears to be. In actuality you're taking on more risk eliminating the mortgage over that 30 years. You are more likely to hit portfolio failure with a smaller stache and paid off house than larger stache and mortgage payment.

If i use my planned retirement stache and my planned annual expenses on cFIREsim my success rate is 100%

If I add the amount of my mortgage to my stache and increase my expenses by the annual cash outflow for the mortgage my success rate is 96.5% (all other assumptions remaining the same).


you did it wrong

This. You increase your stache amount and increase your expenses by the mortgage amount. Sounds like you didn't do the former.

Arebalspy you dont increase your expenses.  Since expenses at Cfiresim are inflation adjusted(rightfully so)  You create a 30 year spending item that doesnt increase with inflation for the annual cost of the mortgage.

mak1277

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Re: How do you manage cash flow if you don't use a budget?
« Reply #88 on: March 23, 2015, 02:14:23 PM »



My example didn't include regularly paying extra on a mortgage.  Reread it.

Your example was talking about having an "extra $100k" in my stache.  Where does that come from?  My mortgage is going to be paid off when I sell my house and relocate, no matter what.

It's just money in your stache. It's the money you've saved along the way to FIRE.

You could pay down the mortgage along the way, or you could invest, or you could pay it as a lump sum at the end, or whatever.

But when you downsize, if you got a mortgage versus paying cash, yes, at the end of the 30-year term you'd leave a lot on the table paying cash versus keeping as much invested as possible.  So in your case that money comes from selling your house.

But you could say that same thing about any asset allocation that doesn't exactly match the one you choose for yourself.  Are your assets 100% in equities?  Mine aren't, because I don't have the risk tolerance to do that, even though I know that historical returns would suggest that I'm leaving money on the table by being invested in bonds.  I see this in the same light.  I am choosing to reduce my cash outflows by not having a mortgage, which allows me to have a SWR that I'm more comfortable with.  I would not retire with a 4.5% SWR that you give in your example...because I choose to take on less risk (i.e., the certainty of eliminating a mortgage payment vs. the uncertainty of the market).

It's not a 4.5% SWR, that's what I was pointing out. It just appears to be. In actuality you're taking on more risk eliminating the mortgage over that 30 years. You are more likely to hit portfolio failure with a smaller stache and paid off house than larger stache and mortgage payment.

If i use my planned retirement stache and my planned annual expenses on cFIREsim my success rate is 100%

If I add the amount of my mortgage to my stache and increase my expenses by the annual cash outflow for the mortgage my success rate is 96.5% (all other assumptions remaining the same).


you did it wrong

This. You increase your stache amount and increase your expenses by the mortgage amount. Sounds like you didn't do the former.

I did increase the stache amount.  I didn't adjust for inflation, though. 

When I do that, I come up with 100% success rate for both methods, so I guess it doesn't matter what I do (since I know my FIRE date isn't going to change regardless of which method I were to pick).

boarder42

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Re: How do you manage cash flow if you don't use a budget?
« Reply #89 on: March 23, 2015, 02:19:42 PM »
yes but one is inherently better as posted above.  and less risky so it would only make sense to do the one that is actually less risky seeing as you're risk averse.  which is proven to be carrying a 30 year mortgage.

mak1277

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Re: How do you manage cash flow if you don't use a budget?
« Reply #90 on: March 23, 2015, 02:44:57 PM »
yes but one is inherently better as posted above.  and less risky so it would only make sense to do the one that is actually less risky seeing as you're risk averse.  which is proven to be carrying a 30 year mortgage.

I would think sequence-of-returns risk would be much easier to handle if you had a smaller monthly cash outflow though.

arebelspy

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Re: How do you manage cash flow if you don't use a budget?
« Reply #91 on: March 23, 2015, 04:27:13 PM »
yes but one is inherently better as posted above.  and less risky so it would only make sense to do the one that is actually less risky seeing as you're risk averse.  which is proven to be carrying a 30 year mortgage.

I would think sequence-of-returns risk would be much easier to handle if you had a smaller monthly cash outflow though.

If you have enough to ride it out, it won't matter (your SWR is small enough to have 100% success rate).  But in the edge case of below 100%, you can see where having the mortgage leaves you with more chances of success.

And keep in mind that historically what ruined retirement the most was inflation, not market crashes.  So if you keep the mortgage you hedge against that.  In other words, the 1970s inflation (1966 being the worst time to FIRE) wouldn't bother you nearly as much.  The mortgage makes it safer to FIRE. 

I know, it's very unintuitive at first.   :)
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Re: How do you manage cash flow if you don't use a budget?
« Reply #92 on: March 23, 2015, 05:09:59 PM »
This whole discussion about the mortgage assumes you are in the USA (or similar tax climate), and that you have a fixed interest mortgage.

In Australia (and possibly other parts of the world), the mortgage is almost universally variable interest (i.e. above inflation) and the tax implications on a PPOR are quite different. There is no tax subsidy for a PPOR, capital gains are free on a PPOR. Also most home loans are available with an offset account, where you pretend you are paying off your mortgage, but have the money available for whatever you want to do with it. While using your money to have investments rather than paying off your mortgage would appear to give you more flexibility, an offset account does the same thing, and you don't get taxed for any interest it produces, as it is not producing interest.

I understand that most MMM forum people are from the US, but I think it is worth including a non-US perspective so those who are from different juristictions understand that this is not necessarily appropriate for them.

boarder42

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Re: How do you manage cash flow if you don't use a budget?
« Reply #93 on: March 23, 2015, 05:43:54 PM »
yes but one is inherently better as posted above.  and less risky so it would only make sense to do the one that is actually less risky seeing as you're risk averse.  which is proven to be carrying a 30 year mortgage.

I would think sequence-of-returns risk would be much easier to handle if you had a smaller monthly cash outflow though.

You can think whichever way you choose but math gets rid of thought by involving facts and statistics so you can get rid of your preconceived opinion.

Hey I'm opening my eyes as I research more to make the case for this I was on the side of not having a mortgage as short as 2 months ago but the math just works the other way.

arebelspy

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Re: How do you manage cash flow if you don't use a budget?
« Reply #94 on: March 23, 2015, 06:02:29 PM »
This whole discussion about the mortgage assumes you are in the USA (or similar tax climate), and that you have a fixed interest mortgage.

Yes.

Other inputs change the output.
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rmendpara

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Re: How do you manage cash flow if you don't use a budget?
« Reply #95 on: March 23, 2015, 09:02:38 PM »
Whenever someone asks how much readers are spending on a given category, there are responses from people who say they don't use a budget, but use minimal intentional spending.

I've always used a budget, but I agree that it can encourage me to spend more than I need to. I also end up short in some categories, and do too much scrambling to make ends meet.

So my question is if you don't use a budget, how to you manage your cash flow? Do you leave your income in your account through a pay period, or do you pay yourself first when you receive your income? And how do you manage paying annual expenses? I pay my property tax, house insurance and car insurance on an annual basis.

I think budgets are more a behavioral tool than anything else.

When I first started working, I would update my budget probably once a week and check out progress against categories in my Mint account to make sure overall I was doing okay. If I was going over in grocery budget, I should be at least as much under in my restaurant budget... or even lower.

I did this for about 12 months pretty regularly, and over the course of the 2nd year stopped looking at things in such great detail.

Today, a bit over 3 years from that starting point, I just have two budget expense items: 1) rent/util, 2) everything else. I plan for it to average to 2.5k/month, though it very regularly goes significantly under that or higher for various reasons (e.g. a flight to visit parents plus taxi and all that will add $300-400 that's not a "normal" expense).

"So my question is if you don't use a budget, how to you manage your cash flow?"

As a recent example, I just moved into a new apt in the past month and had to buy all new furniture and bunch of odd stuff (food, cleanning supplies, furniture, etc) and had a month with 1.5k on top of normal expenses. Also, I filed taxes and owed around 1.1k as well. By keeping a large checking account, it really doesn't make much of a difference and things are mostly back to normal. My credit card balance is higher than normal right now, but by the next due date things will be back to normal.

For me, my salary doesn't change each month, and my expenses generally don't fluctuate more than 500-1k in a normal month... barring something large like a vacation, tax payment, or other large expense. After having retirement accounts on autopilot, I invest manually into aftertax accounts when I have extra cash, so that's fairly easy to control. I can delay a withdrawal to brokerage if I know I'll need a bit extra cash soon, and simply make a bigger withdrawal a few weeks later if things don't end up being as large. It really only makes a difference of a few weeks at most, and most other things are already automated.

Short answer: keep a big buffer in checking and you really don't worry much since most of your needs will sort themselves out within a month or so. Have a good understanding of how volatile your budget is (both inflows and outflows) and foresight for expenses that are uncommon (e.g. trips, large tax payment, insurance, mortgage, etc).
« Last Edit: March 23, 2015, 09:09:56 PM by rmendpara »

choppingwood

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Re: How do you manage cash flow if you don't use a budget?
« Reply #96 on: March 23, 2015, 10:20:54 PM »
Whenever someone asks how much readers are spending on a given category, there are responses from people who say they don't use a budget, but use minimal intentional spending.

I've always used a budget, but I agree that it can encourage me to spend more than I need to. I also end up short in some categories, and do too much scrambling to make ends meet.

So my question is if you don't use a budget, how to you manage your cash flow? Do you leave your income in your account through a pay period, or do you pay yourself first when you receive your income? And how do you manage paying annual expenses? I pay my property tax, house insurance and car insurance on an annual basis.

I think budgets are more a behavioral tool than anything else.

When I first started working, I would update my budget probably once a week and check out progress against categories in my Mint account to make sure overall I was doing okay. If I was going over in grocery budget, I should be at least as much under in my restaurant budget... or even lower.

I did this for about 12 months pretty regularly, and over the course of the 2nd year stopped looking at things in such great detail.

Today, a bit over 3 years from that starting point, I just have two budget expense items: 1) rent/util, 2) everything else. I plan for it to average to 2.5k/month, though it very regularly goes significantly under that or higher for various reasons (e.g. a flight to visit parents plus taxi and all that will add $300-400 that's not a "normal" expense).

"So my question is if you don't use a budget, how to you manage your cash flow?"

As a recent example, I just moved into a new apt in the past month and had to buy all new furniture and bunch of odd stuff (food, cleanning supplies, furniture, etc) and had a month with 1.5k on top of normal expenses. Also, I filed taxes and owed around 1.1k as well. By keeping a large checking account, it really doesn't make much of a difference and things are mostly back to normal. My credit card balance is higher than normal right now, but by the next due date things will be back to normal.

For me, my salary doesn't change each month, and my expenses generally don't fluctuate more than 500-1k in a normal month... barring something large like a vacation, tax payment, or other large expense. After having retirement accounts on autopilot, I invest manually into aftertax accounts when I have extra cash, so that's fairly easy to control. I can delay a withdrawal to brokerage if I know I'll need a bit extra cash soon, and simply make a bigger withdrawal a few weeks later if things don't end up being as large. It really only makes a difference of a few weeks at most, and most other things are already automated.

Short answer: keep a big buffer in checking and you really don't worry much since most of your needs will sort themselves out within a month or so. Have a good understanding of how volatile your budget is (both inflows and outflows) and foresight for expenses that are uncommon (e.g. trips, large tax payment, insurance, mortgage, etc).

Thanks. I think the buffer will relax things a lot. I got in the habit of managing cash very tightly from some years with very little money and from trying to reach savings and spending goals very aggressively. Now that there is more margin, I'd like to try a different approach.

miss daisy

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Re: How do you manage cash flow if you don't use a budget?
« Reply #97 on: March 23, 2015, 11:01:35 PM »
I think I'm in transition with this one: I didn't realize that for me, a budget was partly a way to manage to cash flow but also permission to NOT think about each purchase.

I started using a budget to manage cash flow MOSTLY to figure out at the start of the month if I could get through the end of the month based on what I typically spend in all the categories.  But post reading a lot of articles and posts here, I realize mindfulness is really the key and if I keep a budget or don't, that doesn't matter as much.

But I will say that I am still using my budget and looking at it and I signed up for Mint.com to track my spending, too.  Maybe when I have more savings and I have really learned how to incorporate mindfulness into my Costco run, the budget will not be as important as it has been.  It is hard to be mindful when you are scared and for many years I was scared there wouldn't be enough.  That's not the greatest way to handle finances but it kept me out of debt.

If you tell people you budget most of them think you are really GOOD with your money... it isn't necessarily true (for me it wasn't) but it did give me enough confidence to start looking at Dave Ramsay.

And Dave Ramsay led me to this site. 

Like a lot of people, I've not always been very mindful about money and I have to learn these concepts and it's painful, to be honest.  Am I doing it?  Yes.  I glad to know what I have to do, so truly grateful, but thanks to this site and all these mindful people with their beautiful lives and FI, I am acutely aware of how much I have given up to consumer culture.

So the answer is: I don't know how to manage cash flow without a budget!  I use Excel and now I use Mint to see if I can spend a little less each month.    ETA: I like the idea of a big buffer.  Mindfulness and massive wads of cash is my new mantra.  SERIOUSLY.  LOVE IT.
« Last Edit: March 23, 2015, 11:04:13 PM by miss daisy »

deborah

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Re: How do you manage cash flow if you don't use a budget?
« Reply #98 on: March 24, 2015, 01:13:49 AM »
Mindfulness and massive wads of cash is my new mantra.
Perfect! Thank you for that post Miss Daisy!

Bjorn

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Re: How do you manage cash flow if you don't use a budget?
« Reply #99 on: March 24, 2015, 02:51:39 AM »
Quote
I think I'm in transition with this one: I didn't realize that for me, a budget was partly a way to manage to cash flow but also permission to NOT think about each purchase.
This is a very good point.

I see it this way though: Through budgeting I am thinking of each purchase beforehand so that my spending is already planned. That way I can do forecasting and know if I have 5 or 10 years left before FI. It keeps me motivated.