Rude awakening: lifestyle creep

[Zamboni]

I just finally made myself face a harsh reality, and I'm wondering: what should be done?

The short version of this is that my expenses are increasing at nearly the same rate of growth as my projected income from the stash. Help!

For those who are interested, here is the long version:
Since 2012, I've been graphing gross monthly pay, take home pay, actual expenditures, and theoretical monthly income from investments (calculated as 4% withdrawal rate from investments and retirement account stash.) Up until this morning, the only one of those I had excel draw a line through was the last one . . . showing a pleasant positive slope in my potential income for when the day comes that I live off of my investments.

Then, this morning I decided to have a line drawn for my actual expenditures . . . ACK! The slope is also positive and unfortunately nearly as large as that of my investments! If this keeps up, then those two lines will never cross. I'm so depressed right now.

This forces me to reflect on how I am spending that extra money. 2012 was probably the peak of my optimization frenzy in many ways, and since then perhaps I have just let things slide? Here are some categories (broken down as the increase/decrease in the monthly average amount spent from 2012 to 2016 on a per month basis):

Housing expenses have gone up somewhat. Mortgage payment is the same, but both property taxes and insurance have increase. I did up my home insurance deductible to $2500 a couple of years ago to try to offset this somewhat since the increases were downright criminal. Also, I've had to make some outlays for major maintenance projects (new roof, resurfacing 25 year old rotten deck boards, some bathroom repairs and water heater and air conditioning, etc.) Please bear in mind that I'm not doing any remodeling; just keeping things repaired and in reasonable condition. I get that those are part of owning a home, but it's painful. I've paid for these things as I've gone along and the amounts do add up.
Taxes/Insurance: Up $27 per month
Home repairs/maintenance: Up $248 per month
Household goods, furniture: Flat

Food expenses have gone up quite a bit. Part of this is laziness (eating out more, buying convenience foods) and part of it is that my children are just physically eating a lot more now. Monthly breakdown of this:
Groceries: Up $35
Eating out: Up $60
School lunches: Up $21

Utilities are one area I haven't been as stupid:
Gas/electricity/water/sewer/trash: Down $36
Phone: Down $53
Internet: Down $5

Clothing: Up $55 per month (for three people)
How do I even spend $55 per month on this?! . . . alas, that is just the increase; I spend more than $55 per month on clothing and shoes for me and the kids.

Transportation expenses have also actually gone down overall . . . a silver lining.
Gasoline: Down $144
Vehicle Maintenance: Up $20
Car Insurance: Up $7
Parking at work (don't get me started): Up $21
Licenses, Registration, Vehicle Taxes: Up $10

Health and maintenance:
Exercise, sports: Up $162
Medical insurance: Up $3
Medical/dental out of pocket: Up $46
Medicine/prescriptions: Up $13
Soap/Toothpaste/kleenex/sundries: Up $7
Haircuts/beauty: flat

Other Luxuries:
Travel: Up $360
Pets: Down $82 (deceased pets not replaced, now just have fish)
Entertainment: Flat
Personal Gifts: Up $48
Charitable Giving: Flat
Education: Flat
Life Insurance: Flat

Okay I can see some big categories for re-optimizing there. This has been a good exercise to open my eyes. Thank you for any comments, advice, or commiseration you can offer.

[slowsynapse]

The finance guy in me thinks you need to have the baseline spending side by side with the new level so you can analyze the changes in spending by both dollar and percentage.  From there, you can look at the bigger ticket items and decide if the reason for change is controllable.  For instance is travel up $360 because you didn't travel at all in the previous year or is it up from an already good sized number.  I am not judging the travel expense, it was just used for example purposes due to it being the largest increase on your list.

[Zamboni]

Thanks, slowsynapse, that is a good idea and I will spend some time doing that to see the percentage increases.

These numbers are comparing 2012 monthly expenses to 2016 monthly expenses.

[former player]

1.  It looks as though your 2012 budget may have underestimated the on-going maintenance costs on your house.  I do think there is a tendency for the retirement budgets posted on the forum to fail to make adequate provision for capital replacement and maintenance costs (car replacement, house maintenance, major equipment replacements, etc.).

2.  I suspect that the increases in food, clothing, sports and travel may be down to having kids that are now four years older.  Presumably these costs could be reined in by the kids getting part-time jobs during their last years at school and gradually removed altogether as they leave home.

[Zamboni]

Yes, I was totally clueless about how much it costs to maintain an older house of this size. That is one thing that has been a good lesson for me. I'm really glad I learned it before jumping in full steam on rental properties, although just reading about it had made me be more cautious about buying fixer uppers as rentals. When my children leave the nest, I am going to downsize radically. I do agree that a lot of the retirement budgets I've seen underestimate (or completely ignore) this part of life. Probably part of why so many homes of the elderly get completely dilapidated.

Part of the creep is kids getting older; definitely the sports spending is that. But, part of it is optional unnecessary spending that I've been lazy about. In 2012 I was really strict about it (partly because my income was lower). Going back to more considered spending in those areas seems prudent.

[RobFIRE]

Well, as you've said, you have some items of discretionary spending that have gone up. It's up to you to determine whether that spending is really valuable to you and your family, or whether it could readily be reduced.

I know we're generally in a time of low inflation, but certain costs/prices are ticking up, hopefully your earnings have as well, so you may want to allow some % increase as due to general inflation.

Then items like maintenance costs. I think that some costs aren't easy to model/compare as monthly costs. Some household maintenance items are one-off costs that occur every x years, some being more predictable (lifetime of carpets perhaps), others rather less so (how long fridge lasts). Others like having a gardener/paying for seasonal drain clearing etc. are recurring known costs. So if this year you have covered some "once every 20 year" costs, and it happened you didn't in 2012, it's not really that costs have gone up since 2012, just that maintenance costs aren't evenly distributed. I would use the information you have to calculate your overall average maintenance cost rather than costs in any specific time period. Though I agree with you generally that people are inclined to look at things like buying a property to rent it out, and only considering the visible costs like purchase fees, insurance and tax, but not really allowing for ad-hoc or unpredictable maintenance/repair costs, so overall making these ventures look more profitable than they probably will be over the longer term (you can of course get lucky and rent a place for a handful of years and find minimal repairs needed, over the long term that won't happen).

[backyardfeast]

^ +1.

Your increases look like a mixed bag.  Some general inflation, some new expenses that reflect a different phase of life (older children), and perhaps some lifestyle creep.  But also some increased optimization.

It would be helpful to actually do a balance/total at the end of your list (or perhaps sorted by these categories) to see how much of the increases are offset by inflation.  IOW, how much of the increase in your COL of living is offset by your optimization?  Do your decreased costs offset the increased needs of your kids?  Or the increases in your services that are outside your control? 

Then you can take a clearer look at how much your actual cost of life has increased, and whether that in fact reflects a more realistic budget or lifestyle creep to be reigned.  Then you can decide what you want to do about it: increase your assumed FIRE budget to reflect a more realistic picture, or look for new ways to cut your expenses to compensate.

But I think you are demonstrating two important points: 1) WOW it's so useful to have tracked your expenses carefully for several years!! and 2) We DO have to factor in inflation and check our budget assumptions regularly.  Thank you for making me think!

[2527]

You have some really good data to analyze. 

Not sure how old your kids are, but as a parent of a 16 and 13-year old, I can confirm that kids get more expensive as they get older.

Here's one question that comes to my mind:  Do you have a bigger house than you need?  Almost all Americans do.  Would moving to a different house free up some money in a long-term systemic way?

I think we could add up the replacement value of all the consumer goods we own, and assume a long term replacement budget of a certain percentage.  Clothes last about 5 years, so 20%, cars about 15 years, so 7%, appliances, maybe 10%, houses, maybe 3%, etc.  Nothing lasts forever.

[Zamboni]

Some household maintenance items are one-off costs that occur every x years, some being more predictable (lifetime of carpets perhaps), others rather less so (how long fridge lasts). Others like having a gardener/paying for seasonal drain clearing etc. are recurring known costs. So if this year you have covered some "once every 20 year" costs, and it happened you didn't in 2012, it's not really that costs have gone up since 2012, just that maintenance costs aren't evenly distributed. I would use the information you have to calculate your overall average maintenance cost rather than costs in any specific time period.

This is definitely how I need to think of this . . . unfortunately before buying the home I underestimated overall average maintenance costs. Before this home I lived in a much newer home, townhouse, or apartment. All of those had way lower average maintenance costs. By keeping the home well maintained, I'm hoping to be able to sell when the time comes without taking a big hit on deferred maintenance.

It would be helpful to actually do a balance/total at the end of your list (or perhaps sorted by these categories) to see how much of the increases are offset by inflation.  IOW, how much of the increase in your COL of living is offset by your optimization?  Do your decreased costs offset the increased needs of your kids?  Or the increases in your services that are outside your control? 

Then you can take a clearer look at how much your actual cost of life has increased, and whether that in fact reflects a more realistic budget or lifestyle creep to be reigned.  Then you can decide what you want to do about it: increase your assumed FIRE budget to reflect a more realistic picture, or look for new ways to cut your expenses to compensate.

But I think you are demonstrating two important points: 1) WOW it's so useful to have tracked your expenses carefully for several years!! and 2) We DO have to factor in inflation and check our budget assumptions regularly.  Thank you for making me think!

This is a good idea, and I will do it the next time I sit down with these numbers.

It is helpful just to realize that I can't control everything. For example, doctor visit co-pays have gone up a lot, and I can't control that. Sure I could change jobs and hope for better health insurance, or I could try to visit the doctor less (who tries to be sick or hurt?), but that's pretty much all I could do.

This exercise has refocused my efforts on the things I can control.

Here's one question that comes to my mind:  Do you have a bigger house than you need?  Almost all Americans do.  Would moving to a different house free up some money in a long-term systemic way?

I think we could add up the replacement value of all the consumer goods we own, and assume a long term replacement budget of a certain percentage.  Clothes last about 5 years, so 20%, cars about 15 years, so 7%, appliances, maybe 10%, houses, maybe 3%, etc.  Nothing lasts forever.

Yes, way bigger house than we need. I bought at exactly the right time (at least that's what most people would call it, bottom of the market here, lucky me) but that meant I could buy a much bigger house for the exact same price as a tiny house and I was too stupid to just get a tiny house anyway. So now I've made a mental decision to stay here at least 5 more years until the kids are grown and off to their own adventures.

I have tried to make replacement budgets and earmark money for gifts and travel in separate accounts (the virtual version of the envelope system) and I am just really bad at executing that idea. It's a good idea, but one that I personally have found difficult to maintain momentum doing. Instead, I am happy just stockpiling one giant undesignated pile of money. I also have a somewhat irregular income stream which has its own set of challenges.

[MrsPete]

2.  I suspect that the increases in food, clothing, sports and travel may be down to having kids that are now four years older.  Presumably these costs could be reined in by the kids getting part-time jobs during their last years at school and gradually removed altogether as they leave home.

I was thinking the same thing:  Dressing preschoolers in 100% second-hand clothing is easy.  They outgrow it so quickly that it doesn't show real wear.  However, as kids age and grow more slowly, they wear their clothes out -- so it's harder to find things used.  It becomes more pricey as they become teens and wear adult-sized clothing.  You can combat this by allowing a small, reasonable-for-a-student wardrobes for them, but you will spend more than you spent when they were small. 

I'm not a big fan of having the kids work for their necessities during their teen years.  We told our kids that their job was to go to school and work at earning scholarships.  They were heavily involved in extra-curriculars, worked only in the summers, and -- yeah -- it paid off in terms of college costs. 

Also, sometimes you hit snags in your life that require more expensive clothing.  For example, a couple years ago I developed some foot problems, and I ended up discarding MOST of my shoes -- this was a medical need, and I feel fortunate that it could be corrected with different shoes.  Now I have custom orthopedic inserts and/or wear specific name brands of sandals that work for my condition.  Over the last couple years, I have spent a ridiculous amount of money on shoes -- but now I again have a moderate collection of shoes -- things that work with pants, things that work with dresses, flip-flops for the beach -- and I won't have to replace EVERYTHING again.

It is helpful just to realize that I can't control everything. For example, doctor visit co-pays have gone up a lot, and I can't control that. Sure I could change jobs and hope for better health insurance, or I could try to visit the doctor less (who tries to be sick or hurt?), but that's pretty much all I could do.

Right -- everything isn't under your control.  This is a good example; I don't think anyone's going to suggest that you have your kids tough out Strep Throat instead of going to the doctor.  So control what you can and don't fuss over what's beyond your control. 

Yes, way bigger house than we need. I bought at exactly the right time (at least that's what most people would call it, bottom of the market here, lucky me) but that meant I could buy a much bigger house for the exact same price as a tiny house and I was too stupid to just get a tiny house anyway. So now I've made a mental decision to stay here at least 5 more years until the kids are grown and off to their own adventures.

That's a good plan.  You're spending more than you'd like for now ... but you have a future plan. 

[Zamboni]

For example, a couple years ago I developed some foot problems, and I ended up discarding MOST of my shoes -- this was a medical need, and I feel fortunate that it could be corrected with different shoes.  Now I have custom orthopedic inserts and/or wear specific name brands of sandals that work for my condition.  Over the last couple years, I have spent a ridiculous amount of money on shoes -- but now I again have a moderate collection of shoes -- things that work with pants, things that work with dresses, flip-flops for the beach -- and I won't have to replace EVERYTHING again.

Oy, you have my sympathy! I'm right there with you, unfortunately. Chronic foot pain combines with bone spurs to mean I can barely walk in many pairs of of perfectly normal shoes. I might even have to quit my favorite sport over it :-( Now that you mention it, a substantial amount of the shoes/clothing purchase has been for my shoes. I also had to get new orthotics late last year ($400 not covered by insurance that I put down as medical.)

[MrsPete]

Oy, you have my sympathy! I'm right there with you, unfortunately. Chronic foot pain combines with bone spurs to mean I can barely walk in many pairs of of perfectly normal shoes. I might even have to quit my favorite sport over it :-( Now that you mention it, a substantial amount of the shoes/clothing purchase has been for my shoes. I also had to get new orthotics late last year ($400 not covered by insurance that I put down as medical.)

Plantar fasciitis and heel spurs for me.  Sadly, a huge number of people have first-hand knowledge of such things! 

But, yeah, you understand -- thanks:  If your clothing budget has increased because of something like this, you shouldn't beat yourself up -- you should buy what works for you.  Last school year I hadn't yet accepted this, and some days I'd literally hobble home and spend hours on the sofa, rising only to cook dinner with pain in my feet and legs.  I actually feel quite blessed that I can "solve my problems" simply by buying more expensive shoes with very specific support. 

To take a different tact, because I have been frugal all my adult life and have financial resources at my disposal, the need to replace MOST ALL my shoes was an annoyance, but it wasn't a crisis.  This is a very good reason to choose frugality. 

[fishnfool]

I bought a pair of $40 Asics gel tennis shoes.....plantar faciitis went away.

OP, eating out is a budget killer for sure. Also paying off your home before fire is a plus if you can. Most other costs are what they are unless it's something you can do without like cable TV or expensive cell service.

[MrsPete]

I bought a pair of $40 Asics gel tennis shoes.....plantar faciitis went away.

P.F. is like that:  When you're in the early stages, you'll do one thing and the problem will go away.  You'll think, "That was it?  People complain about this?  I got rid of it!"  I got rid of it at least a dozen times over the courses of a decade -- my husband's still in that "pops up occasionally" stage, and maybe he (and you) will stay in that stage for the rest of your lives.  But now I've had it for about 18 months straight, and it is exponentially worse. 

[fishnfool]

I suffered through it for close to 18 months as well. I tried numerous remedies,  everything from compression socks, nightly massage, shoe inserts etc. I think that stretching along with the gel shoes really made the difference. It may come back but for now I feel great and can even jump rope for 20 to 30 minutes without it bothering me.

Good luck!

[Richardp10]

You don't mention what % of your income you are managing to save?

Travel increase seems large compared to other increases, however without knowing that against how much you are saving or earning it's not possible to say how much that will affect your RE timeline.

[PencilThinStash]

Awesome that you have that data on your spending! I've been meaning to do the "track every penny" thing for a while now - My budget is pretty solid, but I know I shuffle money around from time to time and it's not perfect. Now I'm curious to see a graph...

Oh, and since the topic came up: Screw plantar fasciitis and shin splints. I miss long runs!

[cloudsail]

On the bright side, the kid spending isn't forever. I'm not sure when your projected retirement is, but eventually the kids will grow up and become self sufficient. Not sure if you plan to pay for college though, as that will also make a dent.