The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: choppingwood on March 19, 2015, 09:57:31 PM
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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.
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I get paid monthly.
I set up my credit cards monthly cycle to finish the day before my paycheck. I then transfer to pay off the credit card in full, leave $300 for the month in the checking account (for anywhere that doesn't take credit or if I need cash out if places I'm going require cash) and then put the leftover money into savings/investments.
I'm just generally frugal. I tried budgets but never stuck to them so figured as long as I'm conscious not to waste money, I'll be fine in the long run.
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Essentially it's "pay yourself first." That means deciding that saving is a priority right behind basic needs of food, clothing and shelter. Once you are saving regularly you'll get past merely "making ends meet" and cash flow won't be a concern.
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This is actually a good question.
For me, it has varied over the years (especially depending on what kind of income I had at the time), but the moment, as an ordinary employee, I control my cashflow as follows:
- All income received is immediately (or as soon as practicable) allocated to a productive investment, subject to rule (2).
- With respect to the last paycheck of the month, I refrain from allocating X+Y dollars of it, where X is my rent payment due on the first of the next month, and Y is the amount required to pay any credit card bills due at the start of the month. The X+Y dollars remain in my checking account until taken away by automatic payments to pay the things described.
That's it, since nothing else is paid out of my checking account. My spending on credit cards in the preceding month determines the value of "Y".
I've actually considered varying this strategy though, and using instead the following:
- All income received is immediately (or as soon as practicable) allocated to a productive investment.
- Immediately before a bill is due, sell an amount of investments to cover the bill.
I think this latter strategy might be superior in the long run, but it's also more work. I haven't switched to it yet.
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Two answers.
1) Keep a cash buffer that refills when you get your paycheck. Never worry about cash flow. Many of us keep a few months expenses liquid. See this post: http://forum.mrmoneymustache.com/ask-a-mustachian/your-checking-account-balance/
2) For this answer, I'm gonna post the opposite of the person above me:
It's a "save for yourself last" mentality. And that means you never need to worry about cash flow.
If you budget every dollar you earn to spend, you have nothing left. Cash flow is managed, but delicately, cause you could run out, since you're spending every dollar.
If you pay yourself first (take a big chunk out for savings) and then budget the rest, again, same issue, you delicately manage cash flow.
Those of us that don't have a budget don't need to worry about cash flow, because there's always enough.
Say the wife and I net 5k/mo together, and spend 2k/mo. Money comes in, we spend whatever we want, we flow money out to investments.. more comes in, we spend, etc. We're constantly overflowing with money, not having to worry about a budget because we LBYM.
And then we pay ourselves last. Once we buy whatever we want, we save the rest.
The key is to minimize what you want. But essentially you get your spending to as little as possible, and save the rest. Instead of saving a fixed X up front, you spend as little as you want, and save all the rest, at the end. And then you never have to worry about cash flow. Cash flow concerns are for people who budget.
(And people with irregular incomes, who either have to budget out of necessity, or keep a cash buffer).
If you budget, you worry about cash flow much more than those of us who budget, IMO.
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Budgeting every dollar does NOT mean spending every dollar. How can having a budget cause you to spend more than you need to?
I have had a budget for years now. I never have a worry about cash flow, ever. Why don't I worry about cash flow? Because I know I have enough. There always is.
Another thing I don't worry about is my budget. Why would I? I spend less than I earn (way way less than I earn). Again, just because I decided I could spend $150 on groceries this month does not mean I will run out to the store on the last day of the month to spend whatever is left in that category. If one is foolish enough to think that a budget forces one to spend whatever is budgeted, then there are bigger issues to deal with than how much money one spends.
So when I budget, I am basically figuring out "What is the most I might possibly need to spend in this category? How much in this one?" and so on. I make sure that they all total less than I bring in. And you know what? It works. I don't spend whatever I want, I spend whatever I need, knowing that I do not need much. No worries.
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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?
A combination of what Cathy and arebelspy do:
1) Pay ourselves first with pre-tax (e.g. 401k) payroll deductions. The pre-tax amounts (and payroll W-4s) have been chosen so we either
a) have "enough" coming in post-tax each month to cover expected (annual expenses / 12), or
b) are the maximum allowed
2) Spend what we need to spend. We spend below our means.
3) Invest what is left over
And how do you manage paying annual expenses? I pay my property tax, house insurance and car insurance on an annual basis.
Those are exactly our big annual payments as well. As implied above we try to come out ~$0 for the April IRS bill. We keep an "emergency" fund that gets used for the taxes & insurance, and then we replenish it over the year.
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401K investment comes out of my paycheck pretax, and another 10% goes directly from my employer into my emergency/car replacement/big trip fund. What's left of my paycheck goes into a savings account, along with all other income - rent received, business expense reimbursements, and a couple other small streams. Monthly expenses come out of checking, including a few more investment contributions. On the last day of each month, I move money from savings to checking to bring the checking balance back to my target amount to start the month. With this one transfer a month, I can easily see my spending level.
As for managing the spending, I just buy what I need. My wife is cheap. She does the same. Anything more than $100 or so we talk about first. Anything more than $500 we think about for a long time. If we see a luxury item we want, and we still want it 6 months later, we might actually buy it.
If the savings pots get too big, we move additional money into investments or toward mortgage debt. Mortgage debt is our only debt. It wasn't always this way, but we are fairly established at this point, so there isn't a lot we want. I wasn't always able to keep money from burning a hole in my pocket, so in the past I was more careful about limiting money in my checking account, but I find that tiring now. The new system works pretty well.
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Again, just because I decided I could spend $150 on groceries this month does not mean I will run out to the store on the last day of the month to spend whatever is left in that category.
Why even bother taking the time to come up with the "$150" number in the first place? Why focus on the maximum you could spend? Why not focus on the minimum you could spend?
When purchasing items in a particular category, do people who budget go home after buying the items, file away the receipts, pull them out at the end of the month and then surprise themselves good or bad when comparing it to some arbitrary number they came up with?
Or do they keep a running tally in their head by regularly reminding themselves from a site like mint.com for instance to see how they are doing?
Why compare amounts spent in a particular category only on a monthly basis when you can look at every individual purchase as separate event?
In the $150 example, do people forget until the end of the month that spending $450 on groceries is not in line with their goals? Then what? It’s too late to anything about it anyways.
My ideal "budget" would be to save 100% of my income. In the various budgeting programs where you assign a job to every dollar, I would simply assign 100% to savings and then live my life to keep that percentage high enough to FIRE in a particular time frame after subtracting needs and wants. When I see YNAB mentioned, I truly do not understand how some people view it as life changing. I would find it to be a futile exercise.
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The reason for budgeting is for the sake of forecasting and goal setting. Yes I do budget my spending beforehand, I lowball the numbers to mentally be in "savings mode". On payday I transfer to savings and bills accounts, and leave a small, budgeted sum for spending. Sometimes I end up needing more than I budgeted for because I lowballed the numbers, and simply transfer back a small sum from the savings. On other occations I "succeed" and spend less than budgeted, which is a good reason to adjust the budget and lowball even more the next month. Hence, budgeting (and tracking) is a form of goal setting and a tool to improve your savings rate.
Budgeting is also a nice tool to justify unnecessary expenses that comes up once in a while. If I budget for a night out I can go out with a clean conscience. With no budget I would feel bad for every dollar spent.
I keep a running tally in my head for the different expense categories and check my account weekly to see whether I'm on track.
I could of course wait until the end of the month and transfer whatever is left for savings, but in that scenario I am always having a lot of money available to spend, and that is not a good idea. If I have less, I spend less.
My ideal "budget" would be to save 100% of my income. In the various budgeting programs where you assign a job to every dollar, I would simply assign 100% to savings and then live my life to keep that percentage high enough to FIRE in a particular time frame after subtracting needs and wants
I like the idea of having a mindset like this.
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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.
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I don't use a budget either. After I got married and had kids I couldn't figure out how to make it work. Or I didn't want to commit. If I get to the end of the month and need food/gas, I'll buy them. Though I'm willing to switch to eating ramen the last week of the month to make it work, it's not really a family-friendly plan. 99.99% of my driving is places I need to go. I won't park the car towards the end of the month if I go over my gas budget. Irregularities between months also made it difficult to follow. We bought $250 of meat from a local butcher recently. It obvously jacked up that month's food costs, but it will be used over the next few months. Part of it is the mentality... If I was including that meat in my budget, then I would have to track a small amount added to each month, but somehow kept separate. Too much work.
I get paid once a month, pay investments/savings/retirements/bills the first week of the month as well. Then I make a game out of trying to have the most of the remainder leftover at the end of the month. That money goes into debt/investments/savings and I start fresh the next month. We also use that cushion to cover irregular expenses. Some months I'll have close to zero at the end, some months hundreds of dollars.
Every few months I take a look at how much has been left over and decide if I want to increase the savings at the beginning of the month. All raises go into the debt/savings categories. If we can stick to this method (living on the exact same dollar amount each month), we will be forced to live on a smaller percentage of our pay as years go by due to inflation.
I'm just glad I've found something that works for my wife an I.
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i dont really understand worrying about cash flow i guess. similar to arebalspy. whats there to worry about i know how much money i have if something big happens and i come up short one month b/c say i need a new dishwasher i just back off my taxable savings some. i keep enough liquid capital around that i'm comfy i can have acess to it in emergency.
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I don't budget, but we've set things up such that I have an artificially restricted cash flow. We have an emergency fund and a small sinking fund (1k), but they don't stay in a checking account. Not having money visible reminds me throughout the month to try not to spend money.
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I automatically save X amount every paycheck. X is essentially the most I'm comfortable pulling out of the checking account and it goes right in to a savings account at the same back as my checking which I use as a placeholder. It leaves me enough room to cover variable costs like water, electricity, gas, gas for the car, household expenses, etc.
If, after about a month or so, I still have a little extra in my checking, I move that extra in to that placeholder savings as well. I allocate all of my investments from that savings account and then always leave a minimum balance of $2,000 in it to cover for larger unexpected expenses.
I know this might seem silly to some, but it works for me because if I have too much in my checking, I have a tendency to spend it, sort of like when I have cash in my wallet. This is my method of protecting me from myself =)
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If you have a high savings rate, I don't see how it really matters.
I keep a buffer of cash on hand in checking, and 90% of my non-mortgage related expenses each month go on a credit card. Credit card gets paid out of checking account...done and done. Each month I monitor total cash outflow. If something looks unusually high, I will go back and investigate. By in large, though, I don't really bother myself with a fluctuation of 10-15% each month because I know I have some bills that are quarterly, some that are ad hoc, etc. I honestly don't care what categories the money comes out of as long as the total cash outflow is within my projection.
All that said, I am not trying to whittle my spending to the bone. I buy what I want, when I want it while still maintaining a savings rate I'm more than happy with. Spending a couple hundred bucks extra (or even a couple thousand extra, really) one month is irrelevant at this point.
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I buy what I want, when I want it while still maintaining a savings rate I'm more than happy with. Spending a couple hundred bucks extra (or even a couple thousand extra, really) one month is irrelevant at this point.
This is basically the situation we are in.
We have a good, but not extremely high, income and we've had a high savings rate for long enough- that we have plenty of money. There really isn't much to manage.
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Again, just because I decided I could spend $150 on groceries this month does not mean I will run out to the store on the last day of the month to spend whatever is left in that category.
Why even bother taking the time to come up with the "$150" number in the first place? Why focus on the maximum you could spend? Why not focus on the minimum you could spend?
Because coming up with a number is reality. It certainly is not "focusing on the maximum." It is addressing a limit. Why are there speed limits? Why not focus on how slow you could drive? Why drive at all? Why move from off the couch, or leave the house? Because one HAS to! It is not realistic to think "I am not going to spend anything on food this month."
When purchasing items in a particular category, do people who budget go home after buying the items, file away the receipts, pull them out at the end of the month and then surprise themselves good or bad when comparing it to some arbitrary number they came up with?
I suppose people that have no clue about budgeting would do that. In my example, $150 for groceries isn't "arbitrary." Deciding I could probably spend, on average, $5/day on food is reasonable.
Or do they keep a running tally in their head by regularly reminding themselves from a site like mint.com for instance to see how they are doing?
I suppose some people do that. A lot of people keep track with YNAB, using both the program on their computer at home and using the mobile app on their phones.
Why compare amounts spent in a particular category only on a monthly basis when you can look at every individual purchase as separate event?
In the $150 example, do people forget until the end of the month that spending $450 on groceries is not in line with their goals? Then what? It’s too late to anything about it anyways.
Have you ever set any kind of goal or limit on anything?
These people you mention who are "comparing amounts on a monthly basis" are using a spend tracker like Mint. That is not budgeting. I was talking about using something useful, like YNAB, to budget with, not something like Mint which has nothing to do with budgeting at all.
I don't know about you, but I am not so clueless that if I was spending 3x what I decided was reasonable I would "forget until the end of the month" that I was doing so. In cases like that, I'm not sure YNAB or Mint (or MMM or anything else) would clue that person in.
I really don't understand how or why so many on this forum have this idea that people who use budgets slap random numbers on things and then are completely unable to think about what they are spending on.
My ideal "budget" would be to save 100% of my income. In the various budgeting programs where you assign a job to every dollar, I would simply assign 100% to savings and then live my life to keep that percentage high enough to FIRE in a particular time frame after subtracting needs and wants. When I see YNAB mentioned, I truly do not understand how some people view it as life changing. I would find it to be a futile exercise.
Why even bother coming up with saving 100% of your income? Why not save 150% or 200%? They are all equally unrealistic, unless you are living at home or have some kind of sugar mama or daddy. If you are subtracting for needs and wants, you are NOT simply assigning 100% to savings. How much are your needs and wants? $150 perhaps on groceries? $450?
YNAB or any other budget is not difficult to understand. It is reality. We know we will have to spend some of our money, so we plan for it. We make sure the plan keeps spending under what we bring in. Planning is not a bad thing. It doesn't create worry. It doesn't make things a "game" where you spend and hope. It makes us deal with reality, since we know the likelihood of spending $0 and saving every penny we've earned is about as likely as finding a unicorn that will fart glitter rainbows for us.
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Our situation is a bit different than a W-2 employees. We both earn all of our income from freelancing, which means we don't earn a guaranteed amount each month. For years, we have lived off of last month's earnings, which I recently learned was how YNAB was set up. Note: We don't use YNAB.
We don't operate on a budget, per se. If we earn $7000 in March, we have $7000 to spend in April. If we only earn $4,000 in April, we have $4,000 available for May. I pay out all the "must" bills (mortgage, etc) at the beginning of the month, guestimate how much we need for the extras, then transfer the leftover chunk to a savings vehicle. If there's still some left at the end of the month in the extras category, it gets transferred to savings at the end of the month.
I do track every cent we spend, though. I don't have to, I've just done in since I was in college and it's a hard habit to break. It comes in handy, though. For example, I have a rough average of how much we spend monthly on groceries, so I notice quite quickly when lifestyle creep occurs so I can cut it back. Since I record every evening, I catch creep immediately and can change course long before the end of the month. It also gives me a quick clue of what we need to cut for a month if we have a low-earning month, so we don't have to compromise our savings goals. We'd much rather eat vegetarian and cut the grocery bill in half for a short 30 day period instead of putting less in savings just because we had a "bad" month.
After awhile you get pretty good at knowing how much you really need to live comfortably, especially if you have developed your mindset to be a high saver/low spender.
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Again, just because I decided I could spend $150 on groceries this month does not mean I will run out to the store on the last day of the month to spend whatever is left in that category.
Why even bother taking the time to come up with the "$150" number in the first place? Why focus on the maximum you could spend? Why not focus on the minimum you could spend?
Because coming up with a number is reality. It certainly is not "focusing on the maximum." It is addressing a limit. Why are there speed limits? Why not focus on how slow you could drive? Why drive at all? Why move from off the couch, or leave the house? Because one HAS to! It is not realistic to think "I am not going to spend anything on food this month."
But why do it ahead of time? Spend what you want on food, but make it as optimized as possible.
Afterwards you can look at what you spent.
I check my (past) spending every few months in Mint, out of curiosity's sake, so I can make future approximates for FIRE spending.
But setting a "I spend $300 on groceries, so I should spend that this month" is irrelevant -- if I spend 350, fine. If I spend $200, okay. I'll spend what I want. What does setting a dollar amount of $300 in a budget do for me?
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I buy what I want, when I want it while still maintaining a savings rate I'm more than happy with. Spending a couple hundred bucks extra (or even a couple thousand extra, really) one month is irrelevant at this point.
This is basically the situation we are in.
We have a good, but not extremely high, income and we've had a high savings rate for long enough- that we have plenty of money. There really isn't much to manage.
This is what we do as well. I wrote (and deleted) a response to the OP earlier; the deletion was out of concern that I was seeing things from the other side of a mountain range.
I believe there is a break here between the typical 20ish or so person/couple starting out and those of us who are older and/or well established (arebelspy, for example, is not "old," but seems to fit the latter category). I can see the attractiveness, indeed, the need, for a prospective budget if you are freshly out of school (or just starting into a "sharing checkbook" relationship) and on a more-or-less average payscale; so too, if a major life/financial change just whacked you over the head. However, once you get the hang of your present spending and earning patterns, the process seems to become a bit redundant--although we do track spending and categories quite closely on a retrospective basis via Quicken daily updates, just in case we are backsliding too much. So too, high income DINKS (which we were in the 1980s, and now are again) probably find it easier to not worry about the nickels and dimes, as long as they keep an eye on the Lincolns and Hamiltons.
This is a bit of a recurring theme to me on this site--I delete a lot of my prospective posts after reading "one last time," because my position is so tangential to the question being asked.
Or maybe I am just overthinking things. :-)
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Again, just because I decided I could spend $150 on groceries this month does not mean I will run out to the store on the last day of the month to spend whatever is left in that category.
Why even bother taking the time to come up with the "$150" number in the first place? Why focus on the maximum you could spend? Why not focus on the minimum you could spend?
Because coming up with a number is reality. It certainly is not "focusing on the maximum." It is addressing a limit. Why are there speed limits? Why not focus on how slow you could drive? Why drive at all? Why move from off the couch, or leave the house? Because one HAS to! It is not realistic to think "I am not going to spend anything on food this month."
But why do it ahead of time? Spend what you want on food, but make it as optimized as possible.
Afterwards you can look at what you spent.
I check my (past) spending every few months in Mint, out of curiosity's sake, so I can make future approximates for FIRE spending.
But setting a "I spend $300 on groceries, so I should spend that this month" is irrelevant -- if I spend 350, fine. If I spend $200, okay. I'll spend what I want. What does setting a dollar amount of $300 in a budget do for me?
I have never set a budget amount and then thought "I should spend that much this month." Never ever. A budget amount is not a target where you see how close you can get to it. Like I said, it is more like a limit. Is it possible to go over a limit? I suppose; have you ever driven faster than you're supposed to?
Why do it ahead of time? Because that's what you have to do when you plan. Yeah, you can spend what you want, but to optimize you should try to get closer to spending what you need. When you set a budget amount, you are choosing a realistic number somewhere in-between need and want.
What is wrong with planning/budgeting? Do you not make plans for your retirement? "I will invest in what I want. No limits! Then I will look back and (*fingers crossed*) hope that I maximized it in a few months when I check out of curiosity."
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I spend just about the same amount every month without a budget, so my investment accounts and credit cards are auto-debited from my checking account. When there is excess cash or not enough for whatever reason (bonus paid, vacation, etc.), I transfer money around.
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If you have a high savings rate, I don't see how it really matters.
I keep a buffer of cash on hand in checking, and 90% of my non-mortgage related expenses each month go on a credit card. Credit card gets paid out of checking account...done and done. Each month I monitor total cash outflow. If something looks unusually high, I will go back and investigate.
This is basically what we do. We max out 403b's first. I set credit cards to autopay in full each month.
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I believe there is a break here between the typical 20ish or so person/couple starting out and those of us who are older and/or well established (arebelspy, for example, is not "old," but seems to fit the latter category). I can see the attractiveness, indeed, the need, for a prospective budget if you are freshly out of school (or just starting into a "sharing checkbook" relationship) and on a more-or-less average payscale;
I'm 33, so I guess compared to MMM, I should be retired :)
For the record though, I've NEVER had a budget. Not even when I was 23, just out of college, with an income of 30k. I just didn't buy stuff I didn't need.
I mean, I had a general idea that my income would be less than my expenses, but I've never sat down and added it up. I have no idea what my monthly spending is. I determine my savings rate at the end of the year by adding up how much money we contributed to 403b, roth IRA, taxable accounts, and the savings account vs. gross salary. So the way I would determine the annual spending would be the opposite of that- I don't really keep track of what it is spent on.
When I lost my job, I was careful to cut expenses further, but I still didn't categorize and budget.
Being able to function like this, though, to me, is FI. I'm not at the point where I never have to work again. But I could go quite awhile without a job if I needed to. And I don't have to worry about my money. It all takes care of itself.
As for people who do use a budget- I have no problem with that either. I'm just not interested in it.
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So my question is if you don't use a budget, how to you manage your cash flow?
I invoice my client(s) at the end of the month and get paid within 2-3 days. I deposit the cheque(s) into my business bank account. I calculate taxes I need to pay later and move the rest to my personal accounts.
In my personal accounts I pay off my credit card [I put 98% of purchases through my CC], pay any bills [utilities, cell phone, etc...] I also keep aside a float to deal with my automatic mortgage payments.
I keep $200 cash in my wallet and replenish at the start of the month when it gets low, but normally that's only once every 2-3 months. If people owe me money and I get cash I keep it in my wallet unless it's over $200.
Everything else gets dumped into ETFs.
If I have a spendy month I invest less. If I have some big unplanned expenses I use my $30K LOC to absorb them and pay the LOC back with any spare $$ before I invest. I rarely have to do this, but it's a nice source of low cost liquidity.
My monthly COL stays pretty much the same unless there is a big trip or a capital purchase. I find the time spent budgeting and tracking costs is a waste of my life so I don't do it.
If I was not able to meet my saving/spending goals I would probably see things differently.
-- Vik
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I don't use a "budget" in the sense that I don't allocate a hard limit on each category of expenses. My 401(k) gets deducted from the paycheck (cheque, if you are Canadian/Brit :P) automatically. I get paid twice a month and my investing goal is to completely invest one of the two paychecks (typically the one that shows up mid-month) and live on the other. For many months in a year we wind up with more left on the second paycheck (the one that shows up towards the end of each month) also, and that goes into investments as well, resulting in 60-70% of take home pay going to investing. The Roth accounts get maxed out first, followed by the taxed investment accounts. In that sense, you could theoretically argue that it's a budget because a certain % goes to saving/investing and the rest gets spent. If we are down to semantics, yes, that's a budget, but a low maintenance one.
Oh and I am one of those who keeps under $1000 (usually $500-$600) in my checking account at any given time as well. Most expenses gets put on the high-rewards credit card which gets paid in full each month with the second pay check. I rarely even look at the balance on my card, it just so happens to be less than or equal to the second paycheck.
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Again, just because I decided I could spend $150 on groceries this month does not mean I will run out to the store on the last day of the month to spend whatever is left in that category.
Why even bother taking the time to come up with the "$150" number in the first place? Why focus on the maximum you could spend? Why not focus on the minimum you could spend?
Because coming up with a number is reality. It certainly is not "focusing on the maximum." It is addressing a limit. Why are there speed limits? Why not focus on how slow you could drive? Why drive at all? Why move from off the couch, or leave the house? Because one HAS to! It is not realistic to think "I am not going to spend anything on food this month."
But why do it ahead of time? Spend what you want on food, but make it as optimized as possible.
Afterwards you can look at what you spent.
I check my (past) spending every few months in Mint, out of curiosity's sake, so I can make future approximates for FIRE spending.
But setting a "I spend $300 on groceries, so I should spend that this month" is irrelevant -- if I spend 350, fine. If I spend $200, okay. I'll spend what I want. What does setting a dollar amount of $300 in a budget do for me?
I have never set a budget amount and then thought "I should spend that much this month." Never ever. A budget amount is not a target where you see how close you can get to it. Like I said, it is more like a limit. Is it possible to go over a limit? I suppose; have you ever driven faster than you're supposed to?
Why do it ahead of time? Because that's what you have to do when you plan. Yeah, you can spend what you want, but to optimize you should try to get closer to spending what you need. When you set a budget amount, you are choosing a realistic number somewhere in-between need and want.
Why would I ever limit myself on purpose? That just seems odd. Of course I have to obey laws (re: speed limit), but there's no law on how much I can spend on groceries. So I spend the amount that gives me maximum satisfaction.
Saying I have to stop spending when I reach a certain arbitrary point when I still have way more money than I'll need is crazy. If it's worth it to me, I'll get it. What does some made up limit have to do with anything?
I bolded the sentence above where we diverge. Want and need should be the same level. Then you never need to worry about spending - you spend all you want, you want all you have, everything is perfect.
What is wrong with planning/budgeting? Do you not make plans for your retirement?
I do project outwards based on past numbers, but I don't change present numbers.
"I will invest in what I want. No limits! Then I will look back and (*fingers crossed*) hope that I maximized it in a few months when I check out of curiosity."
That's exactly what I do, minus the fingers crossed. I invest everything left over after spending whatever I want. Then I know for sure it's maximized. And yeah, I check net worth every month, out of curiosity, to see what it's worth. But I don't ever set a limit on what I invest. That would be ridiculous. You really limit what you invest?!
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We never ever budget; about $15000 comes in each month after taxes and $2500 in 401k contributions. About $5K goes to living expenses...for awhile, the other $8K-$10K went to the mortgage until it was paid off and now the difference goes straight to the 'stache. Like clockwork, each and every month. I use personal capital so I understand general trends, but I'm definitely not drilling down into each and every spent dollar. I do, however, scrutinize every potential purchase and prefer to focus my efforts on the front end rather than doing than doing a post-mortem every month.
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Why would I ever limit myself on purpose? That just seems odd. Of course I have to obey laws (re: speed limit), but there's no law on how much I can spend on groceries. So I spend the amount that gives me maximum satisfaction.
Saying I have to stop spending when I reach a certain arbitrary point when I still have way more money than I'll need is crazy. If it's worth it to me, I'll get it. What does some made up limit have to do with anything?
I bolded the sentence above where we diverge. Want and need should be the same level. Then you never need to worry about spending - you spend all you want, you want all you have, everything is perfect.
This is kind of my thought on a budget. I don't set limits, because I don't want limits. Because what happens if I reach them? What if I want more? If I want more, I'm going to get more, and then I "busted my budget" and all that happens is I feel guilty.
If I don't have a budget I can spend whatever the hell I want without feeling guilty about something that was arbitrary to begin with. Who cares if my groceries are $100 or $300 or even $500 this month? If that's what I wanted, that is what I wanted. Luckily for me, I don't WANT a $30k car. And while I WANT a trip to Antartica, at least not more than I want to retire comfortably, so I don't buy it- even though the money is technically there.
I'm CERTAINLY not going to budget what I'm going to invest. That should be without a doubt limit free, and as endless as I can make it.
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No budget here. I've tried tracking in categories and realized it was pointless. If I know what I spend on groceries, or not, I'll still buy more groceries when I'm hungry. Same with everything else; I'm going to buy stuff regardless of an arbitrary budget amount.
To make it work I keep around $1000 in my account. For the last few weeks I've only had $480 as a buffer, it'll come back in time. Annual expenses will knock it down, random extra money builds it up. If there's too much cash I toss it at savings.
I think what works depends more on personality than method.
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Best thing I ever did when I started to get serious about FI is I set up my direct deposit to deposit 65% into one account and 35% into another account. I do my best to only use the 35% account to live on including all bills and all luxuries. If I ever have to dip into the other account, I know I've done something wrong. Fortunately that is rare.
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i just pay everything off monthly.
we make more than enough to cover expenses, so a 'budget' would only be there to tell me i am paying everything that i already know i am paying.
beyond that i have been sending extra $ in as payments on the student loans (paid mine off last month, wifes will be gone in less than a year).
we have nearly everything on autopilot anyways.
HSA, DCFSA, 401k, 457, soon to add back in the 403b.
utilities, monthly bills, etc... all just happens.
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Again, just because I decided I could spend $150 on groceries this month does not mean I will run out to the store on the last day of the month to spend whatever is left in that category.
Why even bother taking the time to come up with the "$150" number in the first place? Why focus on the maximum you could spend? Why not focus on the minimum you could spend?
Because coming up with a number is reality. It certainly is not "focusing on the maximum." It is addressing a limit. Why are there speed limits? Why not focus on how slow you could drive? Why drive at all? Why move from off the couch, or leave the house? Because one HAS to! It is not realistic to think "I am not going to spend anything on food this month."
But why do it ahead of time? Spend what you want on food, but make it as optimized as possible.
Afterwards you can look at what you spent.
I check my (past) spending every few months in Mint, out of curiosity's sake, so I can make future approximates for FIRE spending.
But setting a "I spend $300 on groceries, so I should spend that this month" is irrelevant -- if I spend 350, fine. If I spend $200, okay. I'll spend what I want. What does setting a dollar amount of $300 in a budget do for me?
I have never set a budget amount and then thought "I should spend that much this month." Never ever. A budget amount is not a target where you see how close you can get to it. Like I said, it is more like a limit. Is it possible to go over a limit? I suppose; have you ever driven faster than you're supposed to?
Why do it ahead of time? Because that's what you have to do when you plan. Yeah, you can spend what you want, but to optimize you should try to get closer to spending what you need. When you set a budget amount, you are choosing a realistic number somewhere in-between need and want.
Why would I ever limit myself on purpose? That just seems odd. Of course I have to obey laws (re: speed limit), but there's no law on how much I can spend on groceries. So I spend the amount that gives me maximum satisfaction.
Saying I have to stop spending when I reach a certain arbitrary point when I still have way more money than I'll need is crazy. If it's worth it to me, I'll get it. What does some made up limit have to do with anything?
I bolded the sentence above where we diverge. Want and need should be the same level. Then you never need to worry about spending - you spend all you want, you want all you have, everything is perfect.
I don't think it's odd, and for some people, I think limiting oneself to a maximum for even something like groceries makes a lot of sense. Especially because groceries are the kind of thing that can quickly add up before you know it. Here's an example of why one would limit themselves on purpose: If you couldn't afford not to. I know a lot of people who live paycheck to paycheck and unless they want to take on debt to eat, they keep to a very strict food budget to ensure they can pay for the other requirements of living. Why would that be odd?
Some people also need a little more structure to stay disciplined.
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I put all my spending on credit cards. When I get paid, I pay them off in full and put the rest of the money into investments.
I can't pay rent by credit card, so I leave enough money in my checking account to cover that.
We don't budget per se, but do prefer to keep our monthly groceries under $230 and yearly travel under $8000.
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I don't think it's odd, and for some people, I think limiting oneself to a maximum for even something like groceries makes a lot of sense. Especially because groceries are the kind of thing that can quickly add up before you know it. Here's an example of why one would limit themselves on purpose: If you couldn't afford not to. I know a lot of people who live paycheck to paycheck and unless they want to take on debt to eat, they keep to a very strict food budget to ensure they can pay for the other requirements of living. Why would that be odd?
Some people also need a little more structure to stay disciplined.
I totally agree. I think budgets are great for beginners.
Advanced Mustachians, though, I think move past needing them.
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We have one "regular" day job and rental income. The day job income is divided out upon payout. It gives us our base for living expenses which most are charged on a Cash back card and paid off monthly. All other monies start their lives in Savings, with the goal of keeping them in savings. When Property Tax time comes up we pull from savings, and its no biggie we always have extra there. Our current investment vehicle are rental properties, which are purchased once a year and are a big dip in savings which is all planned out.
We used a budget when we decided to crack down on our FI efforts, but over the years we have relaxed our spending and use Mint tracking for historical purposes. We do sometimes forget when we last went to dinner and will use Mint to determine if we should go out one more time that month, or wait until the first of the next month.
I am happy with our natural savings rate. We are high wage earners living well below our means. I still love to watch our NW in Mint and do a total savings rate each month.
Sometimes I will bug DH to go buy some clothes or shoes, he never does and Mint shows him with a big clothing surplus... He still never buys anything:)
We don't think of budgeting / Mint as a ball and chain, it is a fun tool and tracker. Love to watch those $$$ working for us!
These days we have 0 consumer debt, and lots of mortgages... so there isn't a sense of a funding drive to get that debt paid off. We have 30 year mortgages and will not likely pay any down early.
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I don't think it's odd, and for some people, I think limiting oneself to a maximum for even something like groceries makes a lot of sense. Especially because groceries are the kind of thing that can quickly add up before you know it. Here's an example of why one would limit themselves on purpose: If you couldn't afford not to. I know a lot of people who live paycheck to paycheck and unless they want to take on debt to eat, they keep to a very strict food budget to ensure they can pay for the other requirements of living. Why would that be odd?
Some people also need a little more structure to stay disciplined.
I totally agree. I think budgets are great for beginners.
Advanced Mustachians, though, I think move past needing them.
Perhaps. Though, a true Mustachian would never buy wants, only needs, right? Can one really be Mustchian if they're buying a $500 bottle of wine?
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I don't think it's odd, and for some people, I think limiting oneself to a maximum for even something like groceries makes a lot of sense. Especially because groceries are the kind of thing that can quickly add up before you know it. Here's an example of why one would limit themselves on purpose: If you couldn't afford not to. I know a lot of people who live paycheck to paycheck and unless they want to take on debt to eat, they keep to a very strict food budget to ensure they can pay for the other requirements of living. Why would that be odd?
Some people also need a little more structure to stay disciplined.
I totally agree. I think budgets are great for beginners.
Advanced Mustachians, though, I think move past needing them.
Perhaps. Though, a true Mustachian would never buy wants, only needs, right? Can one really be Mustchian if they're buying a $500 bottle of wine?
The ideal (you can all it a "true Mustachian" -- whatever that means), IMO, is one who doesn't need to distinguish between needs and wants; all spending is aligned with their values. So the answer to the last question is of course they can.
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I don't think it's odd, and for some people, I think limiting oneself to a maximum for even something like groceries makes a lot of sense. Especially because groceries are the kind of thing that can quickly add up before you know it. Here's an example of why one would limit themselves on purpose: If you couldn't afford not to. I know a lot of people who live paycheck to paycheck and unless they want to take on debt to eat, they keep to a very strict food budget to ensure they can pay for the other requirements of living. Why would that be odd?
Some people also need a little more structure to stay disciplined.
I totally agree. I think budgets are great for beginners.
Advanced Mustachians, though, I think move past needing them.
Perhaps. Though, a true Mustachian would never buy wants, only needs, right? Can one really be Mustchian if they're buying a $500 bottle of wine?
I would say the biggest distinction that would make someone "mustachian" is to be aware of what you are spending and why.
I have a weekend car that would make most people here cringe. But...cars are my passion/hobby. I refuse to give it up, and I know what it costs. Why won't I give it up? Because I'd rather work a bit longer and have fun than retire and miss what I love.
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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.
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Where do you live that you need to carry 200 in cash around to pay for things.
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I also pay myself last. Property taxes get transferred to a savings account every month to pay at the end of the year. In my mind this helps us invest more because instead of saying we will invest exactly $4000 per month from checking, the rule is that we have to invest at least that much. Whatever is left after the credit card and mortgage are paid gets invested. We are usually over our target. Every so often we are slightly under our target, and then we just wait another pay period for that month investment. It has worked great so far and helped invest more than our target every year.
Good luck with your new plan!
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Especially because groceries are the kind of thing that can quickly add up before you know it.
I guess this is part of the point I was trying to make with my previous post. When buying things, when do people check they are exceeding their budget? At the end of the month when they can't do anything about it? Or when they are putting each individual item in their cart and maintaining a mental tally of how much they've spent so far.
I'd say that the latter is the only strategy that could be effective. Thus if one is looking at each purchase and keeping a running total, they know pretty damn well where they stand at any given moment. I mean how many things do people really buy? If you are buying so much you can't keep track of it all, I think you are doing it wrong.
As of today I have 28 transactions for the month of March across all my accounts. It takes about 5 seconds to see how much I've spent on groceries this month, $114.11, which was in the second week of March. I'm going to go to the store again before March is over. I know how much I've spent and know I'll roughly spend the same amount next time. When I'm there I might think about putting a $10 case of beer in my cart, and question if spending this $10 is worth it to me. And then I'll remember I don't really like beer that much anyways and won't buy it, freeing that $10 to be invested instead.
I don't need some limit written down someplace or in an app to remind me in my situation that spending $250ish a month in groceries is what I should be doing and spending $500 is not in line with my goals, unless if I decide the extra $250 that month is worth postponing FIRE for.
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Its all the same thing. You who say you are not "on a budget" are definitely on a budget of your own design. Mentally you determine which things are important and you spend the money on that. If that "spending" happens to be on a rental home (arebelspy) and the things that go with it, you have just allocated a portion of your budget to your income producing activities. You don't spend money you don't have (rule number one) and you buy only the shit you need (shit = food, electricity, etc). That's budgeting. Whether YNAB or Mint is used doesn't matter. It's awareness of what you are spending that's the key to all this. You have a budget regardless of how you quantify it and track it. If it is not in your head OR on paper, then you probably overspend and owe a lot of money and need a series of facepunches til you understand it. I don't see a distinction between "budgeters" and "non-budgeters" except that the non-budgeters are lieing to themselves. You are very aware, but you don't spend time thinking about categories, you are, perhaps, one half-step more evolved than the "budgeters" in that the philosophy drives the behavior which drives the spending (or lack thereof). Shit, I think this batch of beer i made is causing me to get weirdly philosophical and spiritual. I am switching to an IPA (if my budget will allow it).
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I use an expenditure tracking app. I enter all my bills on the first day of the month (forward dated into the dates where the bills will come out of my bank account). Then I track each item as I pay for it. This way I constantly know where I am at and have a goal of $3k month if I have a major bill (Jan, March, June) or a holiday booked (usually in Feb) and $2.5k in a normal month. I do not assign amounts to categories. More of one thing forces me to adjust and buy less of another. As all the "needs" (and ongoing commitments like gym) are already entered all remaining money is either "wants" or stuff like groceries where I have a lot of control on what I spend (too much going out, more rice and beans!) or things I could potentially delay (new work shoes). So it doesn't make sense for me to budget these as precise categories, but rather to make choices about what will give me the greatest level of utility on the fly. I usually try and buy the boring but potentially delay able stuff (like new work shoes) at the start of the month, so they don't get delayed indefinitely.
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I don't think it's odd, and for some people, I think limiting oneself to a maximum for even something like groceries makes a lot of sense. Especially because groceries are the kind of thing that can quickly add up before you know it. Here's an example of why one would limit themselves on purpose: If you couldn't afford not to. I know a lot of people who live paycheck to paycheck and unless they want to take on debt to eat, they keep to a very strict food budget to ensure they can pay for the other requirements of living. Why would that be odd?
Some people also need a little more structure to stay disciplined.
I totally agree. I think budgets are great for beginners.
Advanced Mustachians, though, I think move past needing them.
Perhaps. Though, a true Mustachian would never buy wants, only needs, right? Can one really be Mustchian if they're buying a $500 bottle of wine?
The ideal (you can all it a "true Mustachian" -- whatever that means), IMO, is one who doesn't need to distinguish between needs and wants; all spending is aligned with their values. So the answer to the last question is of course they can.
That is bullshit (the bolded part). Ideally whatever anyone values isn't a want at all but a need? As far as food goes, to get the nutrition one needs it doesn't really take all that much. But if someone decided they value chocolate cake, it is now a need because they want it.
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Where do you live that you need to carry 200 in cash around to pay for things.
I don't use credit cards, which limits my options to debit cards and cash. Generally, this works really well for me; however there are situations that is doesn't cover. Some services don't use debit cards; some don't like cash. I buy directly from farmers, and sometimes that uses a $100. I stock up on produce at farmers' markets. I buy some quality items at garage sales. Towing a car to the next town over costs $180.00. I have locked my keys out my car in town, while at a Walmart where the ATM was down. We've had major disasters over the last four years in my province, including a forest fire that wiped out most of a town 1 1/2 hours from my place and major flooding that wiped out hundreds of homes in the south. Although the Red Cross gets you cash once you get to safety, you need money until they show up.
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Why would I ever limit myself on purpose? That just seems odd. Of course I have to obey laws (re: speed limit), but there's no law on how much I can spend on groceries. So I spend the amount that gives me maximum satisfaction.
Saying I have to stop spending when I reach a certain arbitrary point when I still have way more money than I'll need is crazy. If it's worth it to me, I'll get it. What does some made up limit have to do with anything?
I bolded the sentence above where we diverge. Want and need should be the same level. Then you never need to worry about spending - you spend all you want, you want all you have, everything is perfect.
What is wrong with planning/budgeting? Do you not make plans for your retirement?
I do project outwards based on past numbers, but I don't change present numbers.
"I will invest in what I want. No limits! Then I will look back and (*fingers crossed*) hope that I maximized it in a few months when I check out of curiosity."
That's exactly what I do, minus the fingers crossed. I invest everything left over after spending whatever I want. Then I know for sure it's maximized. And yeah, I check net worth every month, out of curiosity, to see what it's worth. But I don't ever set a limit on what I invest. That would be ridiculous. You really limit what you invest?!
Oh my. Okay, why limit yourself on purpose? Because that is how you optimize. I suppose you could try limiting yourself accidentally and see if that works for you.
Of course there is no law limiting what you can spend on groceries. I never implied that there was. 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?
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. We get it. You are an FI millionaire. Congratulations! But deciding what is a reasonable amount to spend on groceries in a month is far from arbitrary. And like Prepube says, even though you don't call it a "budget" you know damn well that you spend what you deem to be reasonable.
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.
" Want and need should be the same level. Then you never need to worry about spending - you spend all you want, you want all you have, everything is perfect." You will never convince me that every single thing you buy is a need. Never. Not even Pete makes that claim. I don't worry about spending; I don't worry about anything. Worrying is a pointless task. Maybe in Utopia people spend all they want because wants and needs are equal, and nobody has anything that they don't need or want. Everything is not perfect, even in Vegas.
I don't budget, I have projections based on past numbers. I feel superior already just by changing the terminology. Thanks for that!
I never said anything about setting a limit on the amount you invest. I was referring to what you invest IN. Because I wouldn't imagine that you would invest in just anything. Why not? Because there are certain investments that make more sense than others. Even if someone has more money than they need, expense ratios are important (or should be). Your implication that I limit what I invest is ridiculous. I never said that and you know it.
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Whoah there Will, calm down. We're all friends here. Do whatever makes you happy. :)
I won't bother to address your points, we'll just agree to disagree.. agreeably. :)
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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.
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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!
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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.
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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.
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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
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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.
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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.
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In summary, I plan each year, and check each fortnight.
This makes a lot of sense to me.
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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.
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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.
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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.
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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.
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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.
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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.
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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....;)
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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.
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why are you putting 500 a month in extra then if your interest rate is that low. you're just costing your FIRE timeframe.
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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.
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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?)
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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?)
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+1 to this...my FIRE budget is predicated on having no mortgage payment.
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+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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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.
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+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.
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+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.
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+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.
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+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.
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+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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My example didn't include regularly paying extra on a mortgage. Reread it.
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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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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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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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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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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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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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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).
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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)
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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
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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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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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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.
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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).
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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.
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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.
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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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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.
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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.
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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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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).
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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.
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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.
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Mindfulness and massive wads of cash is my new mantra.
Perfect! Thank you for that post Miss Daisy!
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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.
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I guess I should ask since I don't really get it: What's the benefit of "managing cash flow", and what does it involve? Assuming the person in question is Mustachian and only spends a fraction of their income.
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I guess I should ask since I don't really get it: What's the benefit of "managing cash flow", and what does it involve? Assuming the person in question is Mustachian and only spends a fraction of their income.
To me, it just means figuring out what cash is available to be moved to investments.
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I don't have a budget; at various points I've tracked how much I spend for a while to see where the money is going, and sometimes put it in categories so I can say how I spent money over the last year, but I've never laid out a budget I was supposed to stick to.
I manage cash flow by keeping a $5K float in my checking account; this will cover the mortgage payment, credit card payment (paid in full every month), and any checks I write that month unless things get really crazy. My paycheck gets deposited into that account every week.
At the end of every month, I look at my account statement in the mail (yes, I get it in the mail; it's a good reminder for me to look at it and it lets me keep a paper record easily). I read the whole thing, making sure checks have cleared and I don't have anything on there I don't recognize. Then I make sure that the balance at the end of the month is higher than it was at the beginning of the month.
When the checking account gets up to $8K or so, I move the extra into my savings. When there's a big project or something crazy happens, I move money the other way ($12K septic system, or paying for a not-very-mustacian wedding).
When it's time to buy something, I do my best to stop and think about it carefully before purchasing, and for larger purchases make sure to shop around for a good price. But I'm not going to limit myself to a set budget, or buy a lower quality item because there's isn't money in the budget this month.
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I guess I should ask since I don't really get it: What's the benefit of "managing cash flow", and what does it involve? Assuming the person in question is Mustachian and only spends a fraction of their income.
To me, it just means figuring out what cash is available to be moved to investments.
Agreed. And my personal answer is: everything that isn't spent. I.e. check bank account, move over any excess above buffer. More is rolling in than going out, so check every once in awhile and move excesses over buffer to investments. Nothing to "manage" per say. :)
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I guess I should ask since I don't really get it: What's the benefit of "managing cash flow", and what does it involve? Assuming the person in question is Mustachian and only spends a fraction of their income.
To me, it just means figuring out what cash is available to be moved to investments.
Agreed. And my personal answer is: everything that isn't spent. I.e. check bank account, move over any excess above buffer. More is rolling in than going out, so check every once in awhile and move excesses over buffer to investments. Nothing to "manage" per say. :)
Exactly, it's the "managing" part that confuses me. I get paid, pay off the credit card, dump the rest into investments. I'm not sure what there is to manage exactly.
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I guess I should ask since I don't really get it: What's the benefit of "managing cash flow", and what does it involve? Assuming the person in question is Mustachian and only spends a fraction of their income.
To me, it just means figuring out what cash is available to be moved to investments.
Agreed. And my personal answer is: everything that isn't spent. I.e. check bank account, move over any excess above buffer. More is rolling in than going out, so check every once in awhile and move excesses over buffer to investments. Nothing to "manage" per say. :)
Exactly, it's the "managing" part that confuses me. I get paid, pay off the credit card, dump the rest into investments. I'm not sure what there is to manage exactly.
My system is about the same, but the "managing" comes in when I know, depending on what point in the pay/spend cycle we are, how much is really available to me moved over. Really, it takes less than 15 minutes a month, so it certainly isn't all that intense, but there is some minimal amount of strategy involved, I guess. If I have a $5000 balance in the 17th, that means something very different than if I have $5000 on the 4th. Now that I've figured all that out, it takes nearly zero brain power, but I suppose it could still be loosely defined as "managing". I've never called it that before, but if the OP or others apply that term, I don't think it's inaccurate.
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I guess I should ask since I don't really get it: What's the benefit of "managing cash flow", and what does it involve? Assuming the person in question is Mustachian and only spends a fraction of their income.
The issue really been about managing the uninvested part of the cash coming in and going out, so that there is enough at the end of the pay period to pay for the miscellaneous expenses that are part of life. I don't use credit cards for my expenses. I use cash, so the amount for this is finite in a given period.
So, for example, in the pay period where I was going on a trip, the house insurance bill turned out to have gone up 40% and when I went to pay the registration of my vehicle, a speeding ticket needed to be paid in order for them to release the registration. (I'm not defending the expense; it just is a real expense.) Neither of these is an emergency expense, so I wasn't going to dig into that reserve to cover it.
My investment for the pay period is the first thing that happens, so the rest has to happen from what is left. In a budget, you might have x for gas and y for food/household supplies and z for utilities. That pay period I had set aside money to cover insurance plus a 5% increase and money for the car registration, but had planned to pay the speeding ticket the following pay period. A buffer in my chequing account would be an easy way to deal with this, so I would not be figuring out what category to adjust in my budget to make ends meet. And in other situations, being more consistent about mindful spending would mean that I hadn't used up the cash when I realize I still need garbage bags the day before new money comes in.
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Exactly, it's the "managing" part that confuses me. I get paid, pay off the credit card, dump the rest into investments. I'm not sure what there is to manage exactly.
I have a really hard time managing inflow and outflow with my income, because it's so variable. I freelance, so on some months I might make $0, on others (rare!) I can make $10,000. I can't really say "I'll deposit X amount into my investment accounts this month!" because I may need that money to live off of in the following month.
So my solution is that I just try to keep a fairly big buffer of cash. I also use YNAB, though I don't see this as 'budgeting' necessarily. I.e. I don't set limits on what to spend every month. I just use it to see where my money is going, and to make sure I have enough of a buffer before I send money off into investments.
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Since, in the short run, the most productive place to put my pay is my checking account (2.75% yield):
On an excel sheet representing my checking account, I have 6 columns:
Emergency Fund, Dental Fund, Slush Fund, Subtotal, Checking, Total (Subtotal + Checking = actual checking balance).
Each payday I add an amount to emergency, dental, and Slush. As bills are paid, they come out of checking, or if they are
irregular (like vacation), they come out of "slush". Obviously, pay the dentist out of "dental".
Emergency + Dental + Slush = Subtotal (these are virtual accounts)
Subtotal + "Checking" (unallocated) = Total Balance When "checking" is negative, I have overspent. In some cases I have to remove from "slush" and place in "checking".
Emergency Fund gets invested when it's large enough (Jan 1 into an IRA).
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Because most of my big bills are in one part of the year, cash flow at that time is an issue.
I thought of changing the timing of the bills, but that doesn't really work. We have a system where license renewal is on your birthday, so that cannot be changed - nor can other government payments (rates can be one payment or spread throughout the year, but you pay 5% more so one payment is it). Health Insurance goes up each year on 1st April, so paying it in March means you always pay 6% or so less.
So optimisation of the cost of big bills automatically gave me a cash flow problem!