Financial Intermittent Fasting

I wrote a response to a blog post over on Crispy Docs site regarding disability insurance. Going out on disability is the equivalent of retiring. If you’re disabled your addition of human capital to your situation ceases. What you have is what you got.

In my working life I never budgeted. I had a vague idea of my expenses but my money mostly went into investing. I wasn’t frugal in the least but I was always parsimonious in my dealings. If I wanted a new car I bought a new car and I figured out the best deal at the time from available options.

When I retired I had no real clue about how to budget. At the point of retirement you move from accumulation to spend down. Numbers plucked from thin air are plucked from thin air and may or may not have a basis in the reality of your need. In my case I had 2 kids in college and a trip to Europe planned and I knew I would need a new air conditioner within a year. I also wanted to start retirement with a new car, so before I pulled the trigger I made sure all of those expenses were accounted for. All of that came off like clock work. I still have 1 kid in college but its completely funded and doesn’t affect my monthly expense. I also am Roth converting and needed to cover that seperately.

What I needed was a number to plan around that had some basis in reality. I could easily afford 10K/mo. If you believe FireCalc I could afford more like 14K/mo. I don’t put much stock in FireCalc but it gave me a place to start. So I chose 10K/mo and pulled the trigger. It’s like prunes is 6 enough? Is 12 too many? 10K turned out to be a good bet for a budget ceiling. To track my expenses I created a Mint account. My Mint account tracks my main credit card and my bank account. Bills get paid out of the bank some direct deposit and the credit card gets paid off each month out of the bank account. Mint allows a data export of a CVS file which I download and import to a spread sheet. The data therefore is down to “purchase specific” data. I effectively can track every cent. My wife pays her credit cards in the same way but I don’t track her purchases just her payments. I don’t care what she buys I just need some idea of how much over the course of a year.

The CVS file shows debits and credits so I take the list and anything that’s a debit is a positive. Everything that is a credit I set negative by hand. There are always some credits but debits overwhelm. I then Autosum the list and that’s how much I spend in a month. I can track partial months, and I can track averages. I can see what months are expensive months, typically when insurance or taxes come due. Once the system was devised it was all I needed. Over the course of 2 years my monthly settled down to 8500/mo on the average, with some months peaking as high as 12K no big deal. Some months are 6500 so I use the excess saved in the 6500 months to pay for the 12K months. I now know where my money goes 100% I track things like quarterly tax payments separately. My taxes are a function of my Roth conversions and can be quite variable but it’s always handy to know what’s been paid when it comes to calculating what will need to be paid.

In the first instance people retire on their number and have some notion they will tighten their belts if it hits the fan but unless you actually tighten your belt you don’t know how that feels. This system allows you to easily test what tighten your belt feels like. You simply cut back till it starts to hurt and live like that for a while. I ran that experiment with my wife’s permission. After a while we had a clear idea of subsistence spending as well. Subsistence for my lifestyle is about 7000/mo. That pays my obligations. I am thus far always below the 10K ceiling I imposed on myself so we have room to grow as necessary. Knowledge is power and this is real knowledge. It is from this real knowledge I’ve been able to project the future and build in the proper safety come rain or come shine.

8 Replies to “Financial Intermittent Fasting”

  1. I definitely plan on testing a year of living as if I was retired and see if I can find a nice baseline monthly expenditure rate.

    Like you I don’t budget now in the accumulation phase and I really hope that I can continue like that in the decumulation phase. That would mean I have more than enough and don’t have to sweat the details.

    1. If you don’t develop this kind of approach, you’re kind of blowing smoke up your own ass. Not saying this is the only way just how I did it and I can break out what needs breaking out, where as the Mint ledger doesn’t quite get the job done.

  2. Hi Gasem & XRV!

    I think I have budgeted for all of 3 months of my entire life. Budgeting probably sucks. Thank goodness for Mint!

    I think your approach is solid with trying to live lean for a bit. But by now, I think you know you are such a “make ‘er happen” type of person that I don’t think a budget would be necessary.

    1. If I didn’t have a budget I couldn’t sleep at night. I don’t care that the money goes only the rate at which it goes (1st derivative) and that the second derivative (rate of the rate) doesn’t change sign. It’s an explanation that probably only has meaning to me

  3. This is a brilliant strategy, akin to a financial stress test at the level of the individual household.

    It was wise to obtain your wife’s endorsement (and fortunate to have a wife who willingly grants it) in advance.

    I think you’ve just created a new gold standard by which retirement plans ought to be tested.

    Fondly,

    CD

    1. Not sure about gold standards but it allows me to sleep at night. You have to ask yourself if the 4×25 bogglehead plan works why does everybody need a side gig? The answer is people don’t really believe it works. The beginning of believing is a sure knowledge of what your life actually costs you. You often see people say if it goes bad I’ll just cut out the fat. What the hell does that mean? The stress test is an actual way to understand what that means. By knowing your cost basis of living and the leeway involved you know how to actually plan and if you have enough money don’t need to waste your time on side gigs

  4. Hey, I think I will try this.
    I’m only guessing about how much I spend.
    Fortunately, we have a lot more income than expenses so we can be a bit sloppy. But if I ever quit paid-work for good I will need a clearer number.
    Thanks for sharing.

  5. In the old days it was hard to do. In the new days I spend 5 minutes twice a month collecting data and analyzing the patterns and I know exactly what I spend

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