I don't trust my own estimate of expenses

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McDougal
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I don't trust my own estimate of expenses

Post by McDougal » Tue Jun 19, 2018 3:57 pm

Hi, I have been looking for a reliable, close-to-accurate way to estimate expenses for retirement planning purposes. I have seen a few "calculators" and other tables and spreadsheets, which of course give me widely different results. I know the best way is to look back at what you actually spend, and go from there, but I have to admit I am a beaten man by this task. It is only wife and I, but we have let our lives get way too complicated regarding spending. And knowing that I don't have a handle on it makes me fear that we are spending more than we have to.

A quick example - The Vanguard Retirement expenses worksheet is pretty comprehensive, but for a line item like 'groceries' we shop at 3 primary sources, plus some online stuff. And the list goes on.

Has anyone used what they feel is a good source/book/calculator for this? I am happy to spend the time if I can count on a valid outcome. You would think with technology today, and the low usage of cash vs. plastic, this should be a snap!

barnaclebob
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Re: I don't trust my own estimate of expenses

Post by barnaclebob » Tue Jun 19, 2018 4:01 pm

If you think your spending is out of control or too complicated then you need to start tracking everything, picking it apart, and categorizing.

Its much better to find your total actual spending and then bring it down than to try to do a bottoms up estimate. How is your spending complicated? In the most simple sense you can calculate your average spending from Spending+Savings = Income

cadreamer2015
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Re: I don't trust my own estimate of expenses

Post by cadreamer2015 » Tue Jun 19, 2018 4:06 pm

We use mostly plastic for things like groceries, so it is a relatively simple matter to look at the end-of-year summary reports that I get both from Chase and Citibank. They will break the charges out by category and you can import the file into Excel or another spreadsheet program.
De gustibus non est disputandum

magicrat
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Re: I don't trust my own estimate of expenses

Post by magicrat » Tue Jun 19, 2018 4:08 pm

The only way to do this is to track your spending. Account for all of your income every month. Make the categories detailed enough to be actionable, but not so detailed as to be overwhelming. I have 30 categories. Do this for each month starting from January of this year, and keep doing it. Once you have this year built out, try to do a year or two of history.

Once you have an accurate view of expenses today, you can look for areas to cut. You can also build bridges to retirement spending using basic assumptions (e.g., remove expenses related to work, add in for extra travel, etc).

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mhc
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Re: I don't trust my own estimate of expenses

Post by mhc » Tue Jun 19, 2018 4:13 pm

I use a spreadsheet to track my spending. I have a tab for each year. Each tab has a column for each month and one column for the year. There is a row for each major category (electricity, car insurance, cell phone, credit card, medical, cable, ...). I don't bother to categorize the credit card. I can easily see how much we spend each month and each year. This spread sheet is used to track spending and make sure every bill is paid. At the end of each month I reconcile it with the checking account. I spend about 15 minutes a month maintaining it. It is really simple.

If you only want to track your spend, something like this would work. I do not track income. I do not track saving/investing.

neilpilot
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Re: I don't trust my own estimate of expenses

Post by neilpilot » Tue Jun 19, 2018 4:30 pm

Why track spending monthly, if what you really want is the big picture?

viewtopic.php?f=2&t=251862&start=50#p3980191

Dottie57
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Re: I don't trust my own estimate of expenses

Post by Dottie57 » Tue Jun 19, 2018 4:52 pm

For me EVERYTHING is paid through my one checking account. I just pulled 24 months of statements from the bank and summed the debits. Gave a pretty good picture.

RetireBy55
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Re: I don't trust my own estimate of expenses

Post by RetireBy55 » Tue Jun 19, 2018 4:59 pm

McDougal wrote:
Tue Jun 19, 2018 3:57 pm
It is only wife and I, but we have let our lives get way too complicated regarding spending. And knowing that I don't have a handle on it makes me fear that we are spending more than we have to.

A quick example - The Vanguard Retirement expenses worksheet is pretty comprehensive, but for a line item like 'groceries' we shop at 3 primary sources, plus some online stuff. And the list goes on.

Has anyone used what they feel is a good source/book/calculator for this? I am happy to spend the time if I can count on a valid outcome. You would think with technology today, and the low usage of cash vs. plastic, this should be a snap!
We also have pretty complex spending and far more than a "3-fund" Portfolio to track.

The ONLY way to get a handle on this is to track it. Use an app like Quicken (buggy as it is), a spreadsheet, abacus or whatever you're comfortable with. But track every penny. It's really not that hard.

I use Quicken and much as I personally loathe the app and the lack of quality it's also the best way I found to keep track of everything. You can have as many credit card, banking, cash, etc accounts as you want. Doesn't matter how many stores you shop at - enter the Visa, Mastercard, etc expense in that register, and enter the name of the store as the payee. Then either "split" the transaction if needed (eg: you buy Groceries plus flowers for the Misses plus some household goods at your last trip to Kroger) or enter the single category (groceries).

It does take some work to get the initial categories and accounts setup, but once you're there it's simply the best IMHO way to actually KNOW what you are spending (and making) there is. If we hadn't done that, the closest we could have gotten was that we "think" our spending is "about" $X - give or take $10-20K/yr, which ain't good enough for me. Now we actually know what we really do spend, and what we make - not just payroll, but all dividends, interest, etc.

I can't imagine retiring without accurate data on both income and spending. Not sure how people get comfortable doing so without that.

The Wizard
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Re: I don't trust my own estimate of expenses

Post by The Wizard » Tue Jun 19, 2018 5:01 pm

barnaclebob wrote:
Tue Jun 19, 2018 4:01 pm

...Its much better to find your total actual spending and then bring it down than to try to do a bottoms up estimate. How is your spending complicated? In the most simple sense you can calculate your average spending from Spending+Savings = Income
What he's saying is, use the Top Down method: Spending = Income - Savings.

You can do it both ways and then solve the mystery on why they are so far apart...
Attempted new signature...

FactualFran
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Re: I don't trust my own estimate of expenses

Post by FactualFran » Tue Jun 19, 2018 5:16 pm

The degree of detail to use is a personal choice. Prior to retiring, I calculated a rough estimate once of year that was: wages/salary line from tax return minus income taxes paid minus net new investment made from wages/salary line. That estimate has turned out to be a good enough estimate of what my average living expenses have been in retirement.

22twain
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Re: I don't trust my own estimate of expenses

Post by 22twain » Tue Jun 19, 2018 5:17 pm

Dottie57 wrote:
Tue Jun 19, 2018 4:52 pm
For me EVERYTHING is paid through my one checking account. I just pulled 24 months of statements from the bank and summed the debits. Gave a pretty good picture.
You can also get the total expenses for a given period (e.g. a year) quickly by calculating:

Initial balance
plus deposits (paychecks etc.)
minus payments that aren't expenses (e.g. transfers to savings or brokerage)
minus final balance
My investing princiPLEs do not include absolutely preserving princiPAL.

delamer
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Re: I don't trust my own estimate of expenses

Post by delamer » Tue Jun 19, 2018 5:23 pm

The Wizard wrote:
Tue Jun 19, 2018 5:01 pm
barnaclebob wrote:
Tue Jun 19, 2018 4:01 pm

...Its much better to find your total actual spending and then bring it down than to try to do a bottoms up estimate. How is your spending complicated? In the most simple sense you can calculate your average spending from Spending+Savings = Income
What he's saying is, use the Top Down method: Spending = Income - Savings.

You can do it both ways and then solve the mystery on why they are so far apart...
You can refine this to:

Spending=Gross Income minus Payroll Taxes minus Savings [401(k), IRA, taxable, other] minus Income Taxes

Now if you are carrying credit card debt, then this is less useful because that means you are spending more than your available net income.

And when you are estimating retirement expenses, you’d need to add back income taxes and account for irregular expenses.

As others have said, you can use credit card records (and your checking account) to track expenses since you don’t spend a lot of cash. It is easy to download transactions to a spreadsheet or Quicken.

JoeRetire
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Re: I don't trust my own estimate of expenses

Post by JoeRetire » Tue Jun 19, 2018 5:32 pm

McDougal wrote:
Tue Jun 19, 2018 3:57 pm
Has anyone used what they feel is a good source/book/calculator for this? I am happy to spend the time if I can count on a valid outcome. You would think with technology today, and the low usage of cash vs. plastic, this should be a snap!
If you shop using credit cards and debit cards, most of their websites can automagically assign charges to categories for you - food, restaurants, clothing, etc. It's not 100% accurate, but might be a good start.

I use a spreadsheet to estimate expenses. I update it annually by reviewing the prior year's expenses. I pay my bills weekly, using my bank's website, and I have a system for recording the payments on index cards and for saving the invoices. That makes the annual update pretty simple.

My spreadsheet has current expenses and estimated in-retirement expenses side by side. Pretty simple.
Last edited by JoeRetire on Tue Jun 19, 2018 5:35 pm, edited 2 times in total.

JoinToday
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Re: I don't trust my own estimate of expenses

Post by JoinToday » Tue Jun 19, 2018 5:34 pm

Dottie57 wrote:
Tue Jun 19, 2018 4:52 pm
For me EVERYTHING is paid through my one checking account. I just pulled 24 months of statements from the bank and summed the debits. Gave a pretty good picture.
Dottie57 is showing the right/easiest/most accurate way to do it.

This is what I do:
a. download the year's transactions from my checking acct
b. sort from largest to smallest
c. Delete debits from checking account to Vanguard, and larger expenses that don't count (child's school tuition for example, which are gone in retirement)
d. Sum up the remaining debits.

It doesn't get any better than this.
I wish I had learned about index funds 25 years ago

barnaclebob
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Re: I don't trust my own estimate of expenses

Post by barnaclebob » Tue Jun 19, 2018 5:42 pm

JoinToday wrote:
Tue Jun 19, 2018 5:34 pm
Dottie57 wrote:
Tue Jun 19, 2018 4:52 pm
For me EVERYTHING is paid through my one checking account. I just pulled 24 months of statements from the bank and summed the debits. Gave a pretty good picture.
Dottie57 is showing the right/easiest/most accurate way to do it.

This is what I do:
a. download the year's transactions from my checking acct
b. sort from largest to smallest
c. Delete debits from checking account to Vanguard, and larger expenses that don't count (child's school tuition for example, which are gone in retirement)
d. Sum up the remaining debits.

It doesn't get any better than this.
Yep, pretty easy to separate paychecks and contributions to vanguard this way. Anything left has to be spending in one form or another.

MikeG62
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Re: I don't trust my own estimate of expenses

Post by MikeG62 » Tue Jun 19, 2018 6:34 pm

McDougal wrote:
Tue Jun 19, 2018 3:57 pm
Hi, I have been looking for a reliable, close-to-accurate way to estimate expenses for retirement planning purposes. I have seen a few "calculators" and other tables and spreadsheets, which of course give me widely different results. I know the best way is to look back at what you actually spend, and go from there, but I have to admit I am a beaten man by this task. It is only wife and I, but we have let our lives get way too complicated regarding spending. And knowing that I don't have a handle on it makes me fear that we are spending more than we have to.

A quick example - The Vanguard Retirement expenses worksheet is pretty comprehensive, but for a line item like 'groceries' we shop at 3 primary sources, plus some online stuff. And the list goes on.

Has anyone used what they feel is a good source/book/calculator for this? I am happy to spend the time if I can count on a valid outcome. You would think with technology today, and the low usage of cash vs. plastic, this should be a snap!
OP, I agree with the others who have said you need to track and categorize all spending. This has to be a "bottoms up" analysis.

One way to simplify this is to put all expenses on one (or a few credit cards) - I mean everything. Then once the month is over you can either import the transaction detail into excel or manually input the individual line items (if that is easy enough). Honestly, the closer you get to the details the happier you will eventually be.
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WestUniversity
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Re: I don't trust my own estimate of expenses

Post by WestUniversity » Tue Jun 19, 2018 7:25 pm

McDougal wrote:
Tue Jun 19, 2018 3:57 pm
Hi, I have been looking for a reliable, close-to-accurate way to estimate expenses for retirement planning purposes. I have seen a few "calculators" and other tables and spreadsheets, which of course give me widely different results. I know the best way is to look back at what you actually spend, and go from there, but I have to admit I am a beaten man by this task. It is only wife and I, but we have let our lives get way too complicated regarding spending. And knowing that I don't have a handle on it makes me fear that we are spending more than we have to.

A quick example - The Vanguard Retirement expenses worksheet is pretty comprehensive, but for a line item like 'groceries' we shop at 3 primary sources, plus some online stuff. And the list goes on.

Has anyone used what they feel is a good source/book/calculator for this? I am happy to spend the time if I can count on a valid outcome. You would think with technology today, and the low usage of cash vs. plastic, this should be a snap!
Not to ask the obvious question but have you tested the total of your calculated detail against the average total outflow from your bank account?

dknightd
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Re: I don't trust my own estimate of expenses

Post by dknightd » Tue Jun 19, 2018 7:38 pm

One easy method is to just look at your take home income. Add or subtract as needed. This should provide a decent ball park number.

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MP123
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Re: I don't trust my own estimate of expenses

Post by MP123 » Tue Jun 19, 2018 7:48 pm

As mentioned above Quicken does this very well.

After some initial setup you'll know exactly how much you spend on what to the cent. You can download from most banks and credit cards too so no need to rekey everything.

This may open your eyes a bit too - I spend HOW much on that?

Guestimates might be sort of close but there's nothing like the real hard numbers.

McDougal
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Re: I don't trust my own estimate of expenses

Post by McDougal » Tue Jun 19, 2018 8:07 pm

Thanks to everyone for the responses. Very good stuff. We do not have any CC debt, no debt except the mortgage. My main frustration is that we actually spend a ton of money on things like Amazon and at Costco. That can be anything from groceries to clothes to home furnishings to gifts to ...whatever. I know I need to be a better steward of tracking these things monthly and it is not impossible, so thanks again for the words of wisdom. Now if I can only convince DW that it is OK for me to stop working even if the mortgage has a couple years left! :D That is her biggest worry. (me 62, her 58) Maybe I am overcrunching the numbers a bit. I do have a handle on how much in total we are spending, it is on what specifically we are spending is elusive.

I think the data is there and within reach, I just need to be thorough about it.

Thanks again to all who took the timer to chimer in. Very helpful.

McDougal
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Re: I don't trust my own estimate of expenses

Post by McDougal » Tue Jun 19, 2018 8:10 pm

neilpilot wrote:
Tue Jun 19, 2018 4:30 pm
Why track spending monthly, if what you really want is the big picture?

viewtopic.php?f=2&t=251862&start=50#p3980191
neilpilot, how did I not see this thread? Thank you!

RetireBy55
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Re: I don't trust my own estimate of expenses

Post by RetireBy55 » Wed Jun 20, 2018 8:21 am

McDougal wrote:
Tue Jun 19, 2018 8:07 pm
My main frustration is that we actually spend a ton of money on things like Amazon and at Costco. That can be anything from groceries to clothes to home furnishings to gifts to ...whatever. I know I need to be a better steward of tracking these things monthly and it is not impossible, so thanks again for the words of wisdom.
We do the same (buy a lot of things at Costco and Amazon). It's very easy in Quicken to "split" a transaction - so, if you go to Costco and buy things that would map to X different categories, just do a "split transaction" and break out the cost for each category. For us, that's typically groceries, household goods (eg: paper products), sometimes libations (which we track separate from grocery as I tend to spend too much on wine and it was..a bit surprising..to see how much). Super easy and I do it all the time for the same reason.

Costco, Amazon and to a lesser extent Kroger are the transactions I have to split manually. No big deal. Others (restaurants, gas, etc) are obvious and since they map to a single cost category do not need to be split.

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Pajamas
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Re: I don't trust my own estimate of expenses

Post by Pajamas » Wed Jun 20, 2018 8:31 am

I spend very little cash and have only a few charges through my checking account so I simply review the annual credit card statements and then checking statements and then add cash withdrawals.

I don't think it is necessary to be too granular when estimating annual expenses for retirement planning so you could also just do a cash flow statement without looking at categories. What were your starting account balances, how much income did you have, and what were your ending account balances? That would allow you to calculate your total spending for the period.

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tadamsmar
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Re: I don't trust my own estimate of expenses

Post by tadamsmar » Wed Jun 20, 2018 9:06 am

My main tool was a DIY spreadsheet of monthly expenses. Current monthly bills are easy to determine. You need to gather some info to estimate things like groceries and eating out. Heating and cooling cost have to be estimated on a years worth of data. Harder things are house maintenance and car cost since they don't necessarily have a monthly or even yearly pattern. You might need to replace a roof or HVAC system during retirement.

Don't forget about federal and state income taxes. The monthly bills don't reflect those, and your current total tax expenses tend to not be good estimates for retirement. You have to estimate your retirement account draw-down and figure the tax on that.

When I projected forward, I always used real dollars for everything. Current expenses and social security income estimates are (more or less) already in real dollars. But, many estimates of stock and bond growth rates that you find include inflation. You have to remove inflation from nominal growth rates.

I also use some online budget tools. I found that the main thing they helped with was to sometimes identify categories that I overlooked and act as a check on my own estimates if you do all projections in real dollars.

It's good to have a estimate of your typical or comfortable spending and also an estimate of you minimum acceptable spending rate. For instance, you can reduce your eating out. This gives you an idea of how flexible you are about reducing your expenses if there is a market turn-down early in retirement, this might be important depending on your overall retirement strategy.

ryman554
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Re: I don't trust my own estimate of expenses

Post by ryman554 » Wed Jun 20, 2018 9:34 am

JoinToday wrote:
Tue Jun 19, 2018 5:34 pm
Dottie57 wrote:
Tue Jun 19, 2018 4:52 pm
For me EVERYTHING is paid through my one checking account. I just pulled 24 months of statements from the bank and summed the debits. Gave a pretty good picture.
Dottie57 is showing the right/easiest/most accurate way to do it.

This is what I do:
a. download the year's transactions from my checking acct
b. sort from largest to smallest
c. Delete debits from checking account to Vanguard, and larger expenses that don't count (child's school tuition for example, which are gone in retirement)
d. Sum up the remaining debits.

It doesn't get any better than this.
I think it gets a little bit better, but not by much. I don't *ignore* the large one-offs, because while those don't affect retirement, they do affect my ability to save. So I have two columns -- one for expenses I expect to see going forward, one for those that I do not. The latter column includes income taxes and savings, the former includes the mortgage and property tax.

Like you, I look to see that my bank account balance change per year is ~$0. I've hit it pretty good over the past 3-4 years.

Why two columns? If I lose my job, I need to know what I need to have going forward. when I lose my job, all of these one-offs can be cut, including paying income (but not property) taxes. Retirement looks a lot like losing a job, so I can use column 1 (modulo mortgage) to estimate retirement expenses, too, and can get a feel from column #2 for what I'd really like to have (but not need to have).

Target a 3.5% WR on needs, and 4% WR on needs+wants... tells me I can't retire until about 70!

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Artful Dodger
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Re: I don't trust my own estimate of expenses

Post by Artful Dodger » Wed Jun 20, 2018 2:21 pm

cadreamer2015 wrote:
Tue Jun 19, 2018 4:06 pm
We use mostly plastic for things like groceries, so it is a relatively simple matter to look at the end-of-year summary reports that I get both from Chase and Citibank. They will break the charges out by category and you can import the file into Excel or another spreadsheet program.
This is what I do. I usually don't wait til the end of the year, as I may want to get a picture of how things are going midyear. I'll just put together a worksheet with our credit cards each on a separate tab, joint checking and wife's checking on two tabs. Any more, we don't write that many checks, so I just download directly from the bank accounts via a csv file, then past to the excel workbook, then fill in the separate checks. I'll categorize - household, entertainment, eating out, vacation, utilities, phone, cable, groceries, etc. Same for the credit cards. I can specify the download by dates, say 1/1 thru 6/30. Then sort by payee name. That way I get all the major - many time purchases lumped together. We use three or four grocery chains - Trader Joes, Whole Foods, Schucks (local), Dierbergs (local), and Target. That way we get all of our groceries easily sorted together. We'll get a certain portion of household goods from Target, so I'll just assign 40% to household and 60% to household. At some point, I'll combine to one sheet to get grand totals. Then wait three months, get another batch, then end of year.

I can download all the credit cards and bank accounts, sort, and assign categories in about 4-6 hours (3 months of expenses). At end of year, you'll have all your major recurring expenses, plus all the one, two, three times a year larger expenses (home, car insurance), larger maintenance items. I can look at the dates for vacation expenses, and assign them to a particular trip (Mexico - February, Chicago - April, Seattle - June, etc).

I can then break down to regular necessary expenses (mortgage, insurance, grocery, household, autos, maintenance), regular optional expense (eating out, entertainment, family gifts, etc.), and larger expenses (home improvement / large repair) and optional travel / vacation.

That way I have a big picture of what our spending entails.

onourway
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Re: I don't trust my own estimate of expenses

Post by onourway » Wed Jun 20, 2018 2:30 pm

This is one of those things that feels harder than it is in practice. Gather all credit card/checking statements from the past 3-6 months. Go through them line by line and enter every transaction into a spreadsheet and categorize that transaction. Realistically, once you get going this will take you a few hours of time. The hardest part is getting started.

Once I did this initially (after years of resisting) I found I was hooked, and now monitor everything with the software You Need A Budget. It completely removes any uncertainty from our financial life because we know exactly how we spend money, we know what is coming up due in the future, and everything is planned for. If this level of detail isn't for you, the big-picture methods described here are fine as well, but I do think you will learn a *lot* by manually going through a few months of statements. The piece of mind you will have after you develop an understanding of your spending habits is more than worth the time and effort.

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Artful Dodger
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Re: I don't trust my own estimate of expenses

Post by Artful Dodger » Wed Jun 20, 2018 2:32 pm

McDougal wrote:
Tue Jun 19, 2018 8:07 pm
Thanks to everyone for the responses. Very good stuff. We do not have any CC debt, no debt except the mortgage. My main frustration is that we actually spend a ton of money on things like Amazon and at Costco. That can be anything from groceries to clothes to home furnishings to gifts to ...whatever. I know I need to be a better steward of tracking these things monthly and it is not impossible, so thanks again for the words of wisdom. Now if I can only convince DW that it is OK for me to stop working even if the mortgage has a couple years left! :D That is her biggest worry. (me 62, her 58) Maybe I am overcrunching the numbers a bit. I do have a handle on how much in total we are spending, it is on what specifically we are spending is elusive.

I think the data is there and within reach, I just need to be thorough about it.

Thanks again to all who took the timer to chimer in. Very helpful.
We don't have a Costco, but as I mentioned in my earlier reply, we'll buy a mix at Target, so i just apply a percentage to split between groceries and household supplies. We do get a lot from Amazon, and I go to our Amazon page to identify each item. 70% usually go to my wife's glass - pottery hobby, the balance to her or my personal expense (books, CDs). So, on my spreadsheet, each Amazon expense is assigned a category - wife - hobby, w - personal, me - personal). Probably, a little harder for us are expenses at Lowe's or Home Depot. Are they optional gardening / hobby expense, or necessary home repair / improvement expense. I usually think back to the purchases as best as I can, and just assign a percent, then leave it at that.

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Sasquatch
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Re: I don't trust my own estimate of expenses

Post by Sasquatch » Wed Jun 20, 2018 8:35 pm

I like Quicken for Mac. We have a budget set up. Every week or so download transactions to Quicken and categorize them. Look at budget and view progress to plan and that’s it.

McDougal
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Re: I don't trust my own estimate of expenses

Post by McDougal » Fri Jun 22, 2018 3:40 pm

We don't have a Costco, but as I mentioned in my earlier reply, we'll buy a mix at Target, so i just apply a percentage to split between groceries and household supplies. We do get a lot from Amazon, and I go to our Amazon page to identify each item. 70% usually go to my wife's glass - pottery hobby, the balance to her or my personal expense (books, CDs). So, on my spreadsheet, each Amazon expense is assigned a category - wife - hobby, w - personal, me - personal). Probably, a little harder for us are expenses at Lowe's or Home Depot. Are they optional gardening / hobby expense, or necessary home repair / improvement expense. I usually think back to the purchases as best as I can, and just assign a percent, then leave it at that.


I just discovered that you can download your usage on Amazon, your order history. It even provides categories of spend, very useful, it is at https://www.amazon.com/gp/help/customer ... =200131240
To create an Order History Report:
Go to Order History Reports in Your Account.
Select the report type from drop-down menu, then fill in the start date, end date, and report name.
Click Request Report.
When the report is complete, you'll receive an e-mail notification. To retrieve the report, visit Order History Reports and click Download.

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