What's Your Baseline Annual Budget?

[Retired To Win]

Separating Wants from Needs is Crucial to Budgeting

You cannot have a standard budget say for a single person, a family of 2 or a family of 4. Ultimately expenditure is more or less in line with income. So depending on your income levels, your expenditure too would be different, all other things remaining equal. There are a host of other factors too, whether you live in the city or the county, whether the kids are attending private school, whether you wear only the branded stuff or only the top-of-the-line stuff, whether you love to go on vacations. So you will not find expenditure patterns of any two individuals the same.

Sorry, danielhermann, but that's just the big mistake most people make. (Actually, there are 2 big mistakes embedded in what you are saying.)

Continuing to boost expenditures so that they stay in line with increasing income has a name: lifestyle inflation. It's not inevitable, and it's not even life enhancing. (That luxury car isn't getting you to your destination faster, safer or more comfortably enough to justify the hugely higher cost.)

Mixing together wants and needs in one single budget will chain a person to a job for a lot longer, precisely because there is no clear dividing line between needs (say, replacing your starting-to-look-yucky jeans) and your wants (replacing those jeans with a $150 pair of some fancy-schmanzy brand.)

(I wrote recently about this in my blog. The post is titled "My Financial Independence Key: Separating Wants from Needs".)

And, finally (here's a third questionable assumption) where one lives, what school one sends the kids to, where one goes on vacation, etc, etc... none of these things are set in stone. They are all within one's control to change if so motivated.

[feh]

Sorry, danielhermann, but that's just the big mistake most people make. (Actually, there are 2 big mistakes embedded in what you are saying.)

Continuing to boost expenditures so that they stay in line with increasing income has a name: lifestyle inflation. It's not inevitable, and it's not even life enhancing. (That luxury car isn't getting you to your destination faster, safer or more comfortably enough to justify the hugely higher cost.)

Mixing together wants and needs in one single budget will chain a person to a job for a lot longer, precisely because there is no clear dividing line between needs (say, replacing your starting-to-look-yucky jeans) and your wants (replacing those jeans with a $150 pair of some fancy-schmanzy brand.)

(I wrote recently about this in my blog. The post is titled "My Financial Independence Key: Separating Wants from Needs".)

And, finally (here's a third questionable assumption) where one lives, what school one sends the kids to, where one goes on vacation, etc, etc... none of these things are set in stone. They are all within one's control to change if so motivated.

I agree completely. Our household income has increased drastically over the last 20 years, but our lifestyle has not. As a result, we'll be retiring early, because we saved that increased income.

[BuckyBadger]

The "lifestyle inflation" thing is a tricky one. There's nothing wrong with a little bit of lifestyle inflation, but it has to be kept in check.

I don't live like I used to when we were both grad students and made less than $100k between us. Our lifestyle has DEFINITELY inflated. But we reached a balance between enjoying life right now, and preparing for an early retirement.

Could we sacrifice more and squeeze out retirement 5 years earlier? Probably. But we would rather spend a little more money now and have memorable experiences and a few nice things. Health problems or accidents could quickly shorten a life, so it's no good to deny yourself everything. We're already on track to retire between 50 and 55.

All this assume you're reasonable, of course. I'm just saying that if you are living below your means and putting away enough for your personal retirement and non-retirement goals, it's okay if your lifestyle increases some as you make more money - it just has to increase LESS than your income is increasing, and you need to do something productive with the difference.

Housing is where a lot of people get into trouble, I think, because that is a hard one to get out of in any reasonable amount of time. We chose to spend less than 2x our annual income on our house. Out monthly payment, including taxes and a small over payment (because I like to round up to make math easier) is less than 20% of what we net each month - that's net after all our contributions, so it's actually less than 10% of our gross.

Not having to strain to make a mortgage payment is huge.

[bennkar]

What's a baseline for one person has no relation to another for various reasons. That said... if you don't include the following: savings (cash, 457 plan, IRA, stock purchases), mortgage (Actually I don't have a mortgage any more), medical insurance (through my employer), and child support (long story) my bare-bones budget would be about ...

$5,000

Now in my case I live alone, so I can be as thrifty as I want, and my food & utilities can be very low. And you can figure I spend maybe $5,000 per year on vacations, enjoying life with my girlfriend, and just things I want to get from time to time. And add another $2,500 on property taxes . It may seem crazy, but last year I saved (savings, 457, IRA, brokerage) over 2/3 of my after tax earnings. It isn't for everyone, but it works for me.

[corn18]

ince logging on to these fora I have reduced my baseline budget a lot. Still somewhat emberassingly high, but making progress.

BUDGET Budget
AUTO FUEL 600
AUTO SERVICE 125
CLOTHES 500
DOGS / CATS 125
LU ALLOWANCE 100
KIDS ACTIVITIES 250
SCHOOL 100
FOOD 1,200
DINING 600
GIFTS 75
HEALTH / BEAUTY 250
HOUSE 500
DRY CLEANING 100
ENTERTAINMENT 100
MEDICAL 200
MISC 1,200
MORTGAGE 2,935.09
LIFE INSURANCE 172.00
CELL PHONE 254.00
CABLE 152.16
ELECTRIC / GAS 319.18
WATER 115.24
INTERNET 60.00
LAWN 70.00
AUTO INS 318.84

TOTAL $10,421 / month $125,052 / year

Just 2 months ago, it was $2,000 / mo more than that. Sold the horse, horse trailer and cut a lot of stupid costs to get to this point.

I also have 4 car payments totaling $1,800 / mo. Those will be paid off in March with my bonus.

I also have an additional annual irregular spend of $26k for kids activities (camps, flight lessons), gifts, vacation, pet health care, car registration, car maintenance, pest control, local taxes, etc...

Tom

[LivingAlmostLarge]

Tom good job on making changes. you can regret the past but can't change it. So you might as well move forward and make changes now rather than regretting more later.