Help me budget for 2025

[trek34]

We have been operating without a budget forever and I am now trying to outline our 2025 expenses inorder to understand our FI number. I really need your input.

- What line items have I missed?
- What line item seems off (other than miscellaneous)?
- Other suggestions are welcome


I got very helpful comments, so I edited out the specific numbers from this post.

[TRC]

At your income level, and the level of spending in other categories (especially vacationing), your dining out number seems very low.

You should check out You Need a Budget (YNAB).

[jebmke]

At your income level, and the level of spending in other categories (especially vacationing), your dining out number seems very low.

You should check out You Need a Budget (YNAB).

The one time I tracked expenses briefly I lumped all vacation spending, including restaurant meals into "vacation/travel" since it was linked to the decision to travel, not a choice between eating at home and eating out.

[trek34]

At your income level, and the level of spending in other categories (especially vacationing), your dining out number seems very low.

You should check out You Need a Budget (YNAB).

We hardly go out for dinners but we do go out for lunch on Saturdays during the six months of good weather, so I figured 20×$100 would do. Meals we will have while we are traveling are included in the Vacation expenses.

Thank you for suggesting YNAB. I tried it a while back and it was not intuitive. I will need to spend some time on it again.

[Wannaretireearly]

This could be my post. Very similar income and spending for us.
I’ll give you one budget buster: home/garden renovations.
Here’s another which may not be in your list: doordash.
And a third category to think about: random purchases online, just cos or presents to yourself or family. Could be in the ‘healthcare’ bucket.

[jebmke]

almost impossible to say "you missed xyz" when "Miscellaneous" is 17% of your total spend.

[trek34]

This could be my post. Very similar income and spending for us.
I’ll give you one budget buster: home/garden renovations.
Here’s another which may not be in your list: doordash.
And a third category to think about: random purchases online, just cos or presents to yourself or family. Could be in the ‘healthcare’ bucket.

Major home renovations would likely come from savings but we don't plan to do renovations soon. Emergencies such as HVAC, AC, refrigerator failures etc would come from the 7.5k in line item 7 (and from miscellaneous if needed).

No doordash for us.

We learned over time that we seem to have one or two major (> $500) random expense per month, so we set a miscellaneous category to account for that. (I truly admire people who can account for all expenses up front.)

[trek34]

almost impossible to say "you missed xyz" when "Miscellaneous" is 17% of your total spend.

I can add it as a line item if you can suggest a few EXPECTED expenses.

[jebmke]

Major home renovations would likely come from savings

You are mixing up where the money goes and where the money comes from. In my world, every dollar that flies out the door, never to return again is an expense. So "capital items" like home renovations, new cars, a new well (2023 highlight for us) are expenses -- as are income taxes, by the way.

Children's education expense is a big one for parents.

[trek34]

Major home renovations would likely come from savings

You are mixing up where the money goes and where the money comes from. In my world, every dollar that flies out the door, never to return again is an expense. So "capital items" like home renovations, new cars, a new well (2023 highlight for us) are expenses -- as are income taxes, by the way.

Children's education expense is a big one for parents.

We don't EXPECT renovations or car purchase soon but we also know that we will need to replace our 2021 car, 2020 roof, 2001 windows etc. at some point in the future. There is no way I can have a line item for all such kind of future expenses today, other than putting money in the savings in lieu of it. I will be very happy to hear suggestions on how to account for it.

[HooCares]

What are you trying to accomplish? I make a budget to control my spending. Are you looking to cut back expenses? You save 50% of your take home pay already.

If you are trying to cut back, slash “miscellaneous” from $30k to $3k.

If you are trying to determine your FI # just add up all your expenses for the last 3 years, cut out things that won’t be there in retirement like mortgage and childcare, and add things in like health insurance premiums.

[Wannaretireearly]

BofA provides a simple dashboard and spending stats which are irrefutable. If you have everything flowing in/out of one checking account, check your spending amount. It will provide a good/real data point to compare with your bottoms up exercise.

Note: every time I do this, it’s a sobering moment of reality! SMH

[trek34]

What are you trying to accomplish? I make a budget to control my spending. Are you looking to cut back expenses? You save 50% of your take home pay already.

If you are trying to cut back, slash “miscellaneous” from $30k to $3k.

If you are trying to determine your FI # just add up all your expenses for the last 3 years, cut out things that won’t be there in retirement like mortgage and childcare, and add things in like health insurance premiums.

I am trying to determine how much we are spending on main line items. The miscellaneous is a catch-all line item for unexpected expenses. In the process, I am also trying to determine our FI number.

While I am not trying to look into our expenses in a microscope, I would like us to reduce our expenses without impacting our lifestyle.

Additionally, I am listing the line items here to get some comments if there are any that are on the high/low side for a suburban family in a MCOL area.

As an example, we recently started using home cleaning services every other week and it was a life changing. This is money well spent. Relatedly, we recently changed our phone and Internet services and we were able to cut cost by half without much difference in the services we get.

Overall, I am trying to see if anything looks out of the ordinary (too much or too little) or if I am missing a line item.

I hope I was able to answer your questions.

[Billionaire]

What exactly is Costco, Kroger, and Amazon at $20,000?

[trek34]

What exactly is Costco, Kroger, and Amazon at $20,000?

Groceries, household supplies, and everything else we buy from those three stores. For 2024, our credit cards show 6k for Amazon, 12k for Costco and (guessing) 2k for Kroger/Trader Joe's.

[jebmke]

You are mixing up where the money goes and where the money comes from. In my world, every dollar that flies out the door, never to return again is an expense. So "capital items" like home renovations, new cars, a new well (2023 highlight for us) are expenses -- as are income taxes, by the way.

Children's education expense is a big one for parents.

We don't EXPECT renovations or car purchase soon but we also know that we will need to replace our 2021 car, 2020 roof, 2001 windows etc. at some point in the future. There is no way I can have a line item for all such kind of future expenses today, other than putting money in the savings in lieu of it. I will be very happy to hear suggestions on how to account for it.

put a line item in for one odd-ball capital expense every year. Almost every year, something crops up. One year it was replacing the driveway, one year we had to renovate the pool, last year it was a new well. Next year I will replace my car. One year I spent $10K on new optics for birding.

[trek34]

We don't EXPECT renovations or car purchase soon but we also know that we will need to replace our 2021 car, 2020 roof, 2001 windows etc. at some point in the future. There is no way I can have a line item for all such kind of future expenses today, other than putting money in the savings in lieu of it. I will be very happy to hear suggestions on how to account for it.

put a line item in for one odd-ball capital expense every year. Almost every year, something crops up. One year it was replacing the driveway, one year we had to renovate the pool, last year it was a new well. Next year I will replace my car. One year I spent $10K on new optics for birding.

Miscellaneous kind of does that. But, if the unexpected expense is on the high side (e.g. roof, cars, etc), we will fund it from our savings.

[Hubub]

Have you considered college savings or is that already included in the kids line item?

[trek34]

Have you considered college savings or is that already included in the kids line item?

It is lumped with the savings at the very top. In a sense, that amount includes everything we don't expect to spend in 2025.

[delamer]

Health insurance premiums — even if you don’t pay part of the premium now, you probably will when you stop working.

Life insurance premiums (if needed).

Sinking fund for major, periodic expenses like roof replacement or new vehicle.

[trek34]

Health insurance premiums — even if you don’t pay part of the premium now, you probably will when you stop working.

Life insurance premiums (if needed).

Sinking fund for major, periodic expenses like roof replacement or new vehicle.

Great point on the health insurance. They are included in the taxes for now.

Totally forgot about the life insurance premiums $1,262. Thank you for reminding me of that.

We will probably use a combination of savings and miscellaneous in lieu of the sinking funds.

[MBB_Boy]

I think you've done pretty well. Test drive it for a few months and then adjust. Don't expect to get it all out of the gate and you will be fine.

The most foolproof way to do this is to have digital tracking of all your spending. Easy if all at one place, less easy but doable if you use an aggregator. If you don't want to use a full third party to collect everything (like Personal Capital), consider linking external accounts at your bank or brokerage. The actual budgeting experience will be garbage, but if all you want to do is download them to excel and categorize them yourself every month / quarter, it doesn't matter that much

[snowday2022]

Your savings level is high. To me, the line items matter little as long as you’re happy with the savings rate. All that matters is the total expenses. So I don’t bother breaking things down as you do unless you’ve decided you need to trim expenses. Is that the goal? Or is the goal simply to understand your annual expenses as stated?

[jebmke]

put a line item in for one odd-ball capital expense every year. Almost every year, something crops up. One year it was replacing the driveway, one year we had to renovate the pool, last year it was a new well. Next year I will replace my car. One year I spent $10K on new optics for birding.

Miscellaneous kind of does that. But, if the unexpected expense is on the high side (e.g. roof, cars, etc), we will fund it from our savings.

When I first retired, for the first 10 years, 100% of our expenses was "funded from our savings." So I guess my expenses were zero. Cheap date.

[eigenperson]

You are mixing up where the money goes and where the money comes from. In my world, every dollar that flies out the door, never to return again is an expense. So "capital items" like home renovations, new cars, a new well (2023 highlight for us) are expenses -- as are income taxes, by the way.

Children's education expense is a big one for parents.

We don't EXPECT renovations or car purchase soon but we also know that we will need to replace our 2021 car, 2020 roof, 2001 windows etc. at some point in the future. There is no way I can have a line item for all such kind of future expenses today, other than putting money in the savings in lieu of it. I will be very happy to hear suggestions on how to account for it.

You said you wanted to understand your FI number. Presumably, your idea of FI involves being able to buy a new car, roof, and windows at some point. If so, those things need to be in your budget.

The mechanics are not that important. If you plan to buy a new $30K car every 10 years, just put $3000/year in the budget. Yes, I know the car might cost more than $30K in 10 years. It doesn't matter. Every single line item in your budget will have to be periodically adjusted for inflation (or deflation), and this is no exception. Unless you are putting the $3K per year in literal cash under the couch, or in a terrible savings account with 0.01% interest, it'll probably keep up with inflation over a 10-year period, more or less. Hopefully more.

And yes, obviously that money does not get actually spent in most years, which is fine. You wanted this budget to be a planning tool, and that is how you plan. If you don't account for the infrequent large expenses, your offers only the illusion of a plan, not the real thing. You will know it, too. You won't feel financially independent -- let alone ready to retire -- when you hit your so-called "FI" number, because you will know, in the back of your mind, that it doesn't actually cover a significant category of expenses. It seems like a shame to go through this exercise for a number that you won't actually use.

[CaptainT]

Your numbers are too round to be believable. Did you actually save/invest 175k last year? Did you really pay 100k in taxes?
Yes I suggest ynab as you don't actually have a handle on what you are spending on what.
Clothing seems low
Grocery mixed with Amazon any random seems confusing
Transportation seems to be low assuming 2 cars and also not building in money for new car
House repair seems to be missing
Holiday expenses seems to be missing
Basically you don't know what you spend and what you spend it on 6 months to 1 year of ynab will teach you that

[jebmke]

Basically you don't know what you spend and what you spend it on 6 months to 1 year of ynab will teach you that

Right; track actuals and beat miscellaneous into submission. IMO "MISC" should be 5% or less.

Before I retired, I got my employer ($5B multi-national) to quit doing budgets and plans using G/L level detail and reduced them to something like 18-20 key expense categories. Every G/L account had to be mapped to one of those key expenses; no "miscellaneous" allowed. Over a 2-3 year period there was a lot of remapping and redefinition of key accounts until they settled into how they wanted to manage the operations.

[RiskAnalyst]

No disability insurance at $450K income? Unless you’ve already cancelled it due to being FI.

[trek34]

No disability insurance at $450K income? Unless you’ve already cancelled it due to being FI.

We discussed this at length and asked insurance companies for a quote but eventually decided against it for a number of reasons, including income diversification (dual income), relatively large portfolio (50% of FI), very stable jobs with employer paid disability insurance ($60k/year), and high long term disability insurance premiums. This was something we really thought hard and still don't know if we did the right thing.

[jebmke]

No disability insurance at $450K income? Unless you’ve already cancelled it due to being FI.

We discussed this at length and asked insurance companies for a quote but eventually decided against it for a number of reasons, including income diversification (dual income), relatively large portfolio (50% of FI), very stable jobs with employer paid disability insurance ($60k/year), and high long term disability insurance premiums. This was something we really thought hard and still don't know if we did the right thing.

I had some employer based insurance and for a while carried additional and at the point where I didn't need it I dropped personal layer as well as all personal layer of life. Of course, once you aren't working, you can't become disabled so it isn't available then anyway.

Of course, one can become physically disabled, require home care etc which could drive costs up. Hard to plan specifically for those other than not cutting it too close on accumulation and having flexibility to reduce other expenses to shift to home care or other costs that crop up.

[RiskAnalyst]

No disability insurance at $450K income? Unless you’ve already cancelled it due to being FI.

We discussed this at length and asked insurance companies for a quote but eventually decided against it for a number of reasons, including income diversification (dual income), relatively large portfolio (50% of FI), very stable jobs with employer paid disability insurance ($60k/year), and high long term disability insurance premiums. This was something we really thought hard and still don't know if we did the right thing.

That sounds diligent and reasonable. My bias is coming from my perspective as sole earner just starting out in a high-earning technical career.

[sailaway]

Have you considered college savings or is that already included in the kids line item?

It is lumped with the savings at the very top. In a sense, that amount includes everything we don't expect to spend in 2025.

How else will you be spending in retirement if not from savings?

You account for things like replacing cars and remodeling the house by establishing sinking funds. How much do you tend to spend on a new car? How long do you keep your cars? A/B is how much you allocate for car replacements every year in your budgeting.

I will be the first to admit we don't really do this. We just tracked our total spending for several years without categorizing it. Since our car is 15 years old those years did not include a car replacement, but they did include some big projects, so we expect it to average out over time. But if you are going to go through the exercise of calling it a budget and trying to compare to others, why wouldn't you follow through with the very common budgeting technique to achieve a semblance of accuracy?