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Thanks, good point. Many of those costs are foreseeable. For example we might not know exactly what kind of dental work we need, but it's pretty likely we'll have some kind of dental surprise within 10 years.
Diary to constrain spending
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It depends on how much flexibility one has in their portfolio draw (or if still working, earning power). If it is tight, then having a robust emergency fund set aside is a good idea. However, it does not reduce the need to then replenish that emergency fund so one must still set aside $X/month to replenish (top up) that fund within a reasonably short period of time (<12 months) before the next surprise comes along.
Another thing you could do is don't account for OAS, for example. Base your retirement goal on your spending being covered from your nest egg and CPP alone. Then OAS is a "bonus" that you can just save up and spend as needed on those surprise items. I know it's mental accounting but I like mental accounting. 
Along the lines of AR's reply, we make use of flexibility in our spend.
I think there's always a laundry list of non-regular spend items from repairs, to maintenence, to new projects. We have a rough idea how much we plan to spend on non-regular spends in different categories and then just juggle it into our annual spend target, savings, and discretionary spending to keep actual annual spends relatively stable.
For example, I factor in $1.5k or so on housing one off spending annually. That may go to replacing an appliance, replacing carpet, painting, and/or whatever. If we're under budget in other categories, I may do some additional work/spend on housing from the backlog list or vice versa. If I need more spend on housing, I might also spend less on discretionary (travel) or save/invest a bit less. Or I might just put something off to the following year. It's a juggling act. That kind of keeps the spending somewhat stable and proviides a rough annual spend guidance, though we're also ok with fluctuations.
For retirement, we will also have a reasonably sized bucket for discretionary/travel spend which will provide a lot of flexibility for one off spends.
I think there's always a laundry list of non-regular spend items from repairs, to maintenence, to new projects. We have a rough idea how much we plan to spend on non-regular spends in different categories and then just juggle it into our annual spend target, savings, and discretionary spending to keep actual annual spends relatively stable.
For example, I factor in $1.5k or so on housing one off spending annually. That may go to replacing an appliance, replacing carpet, painting, and/or whatever. If we're under budget in other categories, I may do some additional work/spend on housing from the backlog list or vice versa. If I need more spend on housing, I might also spend less on discretionary (travel) or save/invest a bit less. Or I might just put something off to the following year. It's a juggling act. That kind of keeps the spending somewhat stable and proviides a rough annual spend guidance, though we're also ok with fluctuations.
For retirement, we will also have a reasonably sized bucket for discretionary/travel spend which will provide a lot of flexibility for one off spends.
My naïve approach goes like this:
1. I establish a baseline of expenses per year which is my usual spend without any surprises
2. I go back over previous years and guesstimate an average of "surprise" or extra expenses per year
3. I add the two and this is my target spend per year that I must sustain
Of course real expenses might go above and beyond of 3. and this would be a bad year but hopefully over time it will average out. I suppose if one is still capable of working and if it's a really hefty expense you might want to consider working more that year to compensate for this and reduce the burden on the portfolio.
1. I establish a baseline of expenses per year which is my usual spend without any surprises
2. I go back over previous years and guesstimate an average of "surprise" or extra expenses per year
3. I add the two and this is my target spend per year that I must sustain
Of course real expenses might go above and beyond of 3. and this would be a bad year but hopefully over time it will average out. I suppose if one is still capable of working and if it's a really hefty expense you might want to consider working more that year to compensate for this and reduce the burden on the portfolio.
I'd like to add, in real life what I did is this:
Post-retirement, I use VPW to determine my allowed spending. I only draw 80% of what VPW says I can draw, saving the other 20% for taxes. (In reality, I pay basically no taxes, so that 20% just pumps up the portfolio.) Every year, I pull 1 year's spending out of my portfolio and into a HISA. Every month, I take 1/12 of that from the HISA into our joint chequing account for spending. At the end of the month, whatever is left over gets divided between 6 accounts:
1. my fun money
2. his fun money
3. car savings
4. vacation savings
5. furniture savings (but this would also include things like appliances, a new shed, etc)
6. emergency fund
Only once so far has there been actually an overspending situation where we withdrew from the emergency fund. We had a water heater fail and it cost 3k to fix, so we spent from the chequing and then replenished it back to baseline from the emergency fund.
- did not account for CPP/OAS in planning
- did not account for inheritances in planning (I'm reasonably confident they will come, but who knows when, hopefully later than sooner)
- retired once I had 25x planned expenses saved up
Post-retirement, I use VPW to determine my allowed spending. I only draw 80% of what VPW says I can draw, saving the other 20% for taxes. (In reality, I pay basically no taxes, so that 20% just pumps up the portfolio.) Every year, I pull 1 year's spending out of my portfolio and into a HISA. Every month, I take 1/12 of that from the HISA into our joint chequing account for spending. At the end of the month, whatever is left over gets divided between 6 accounts:
1. my fun money
2. his fun money
3. car savings
4. vacation savings
5. furniture savings (but this would also include things like appliances, a new shed, etc)
6. emergency fund
Only once so far has there been actually an overspending situation where we withdrew from the emergency fund. We had a water heater fail and it cost 3k to fix, so we spent from the chequing and then replenished it back to baseline from the emergency fund.
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Thanks for all the replies, everyone. These seem like good techniques.
I forgot that variable spending techniques allow flexibility. Right, one does not have to strictly do the constant $ SWR thing.... and that adds flexibility when in retirement mode.
Good to see you're keeping at it James.
My (family) spending for 2021 has hit $45,000 YTD, first half of this year. Trending much higher than the desired $70,000/yr budget that I "planned" for. But I also forgot to account for Daycare expense, which will be around $10,000 this year.
I still don't and probably never will "partition" money into various funds. "Fun money" "savings" etc. Money is fungible, as they say, something I've ingrained in myself since young...I guess most other people don't have this feature/bug in them and like to partition and budget things.
Every single time I spend money on something is an internal automatic holistic review of my entire financial life... what does it cost? is it a want or a need? am I being cheap or frivolous? what's my net worth? what's my income? how hard do I work for my income?... is it worth it?
Generally I feel I've loosened the strings on buying in the last 2 years... but at the same time there's been major life changes with wedding, children and house. So it's hard to know exactly what the "right amount" of acceptable spending vs. savings are anymore. I generally feel that the last 2 years were exception periods, and perhaps the constant buying of things that we didn't buy before will subside, soon. Though it could be that I am being a naive parent? nervous laughter
My (family) spending for 2021 has hit $45,000 YTD, first half of this year. Trending much higher than the desired $70,000/yr budget that I "planned" for. But I also forgot to account for Daycare expense, which will be around $10,000 this year.
I still don't and probably never will "partition" money into various funds. "Fun money" "savings" etc. Money is fungible, as they say, something I've ingrained in myself since young...I guess most other people don't have this feature/bug in them and like to partition and budget things.
Every single time I spend money on something is an internal automatic holistic review of my entire financial life... what does it cost? is it a want or a need? am I being cheap or frivolous? what's my net worth? what's my income? how hard do I work for my income?... is it worth it?
Generally I feel I've loosened the strings on buying in the last 2 years... but at the same time there's been major life changes with wedding, children and house. So it's hard to know exactly what the "right amount" of acceptable spending vs. savings are anymore. I generally feel that the last 2 years were exception periods, and perhaps the constant buying of things that we didn't buy before will subside, soon. Though it could be that I am being a naive parent? nervous laughter
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Good point, money is fungible. It's hard to partition it. I track my spending by category, but I don't limit any of this.
Yeah lifestyle changes everything. I think I may get a house at some point, and life will obviously get more expensive once I do that. I'm also open to perhaps getting married or even having kids one day.
I need to remind myself to not take this budgeting stuff too seriously. Life can change, and suddenly you have entirely different expenses. I think that's OK. The main reason I am tracking this stuff is so that I can keep an eye on it, because I think it's helpful to monitor and know where you are spending money.
But if I have kids, obviously I will be spending more, and that's not a bad thing.
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I finally sat down and calculated monthly totals for all of 2021. The result is good news... I ended up right on my annual spending target! I'm still spending about 38K a year, the same as 2017. That's now about 5 years at the same spending level.
Spending update
2021 total spending: $38,200 (target is 38K)
2020 total spending: $38,510
Reviewing the yearly totals, I can see that I'm spending more on food, partly due to more takeout but also likely because Vancouver is more expensive than where I used to live. I'm spending much less on travel than I did before the pandemic. I'm also spending money on health insurance and various health costs that used to be employment benefits. So I actually did have those costs in the past, but there was an "accounting trick" where the employer paid me extra for them, so they were hidden from my annual spending figure.
All of this can change as the pandemic subsides, and I'll adapt as required. It's very likely I will have to increase this 38K budget, but then gain, I've been saying that for several years now.
It's not like I'm just sitting at home doing nothing, by the way. I had several domestic trips in 2021, also stayed at some hotels, visited various friends, did road trips, etc. The pandemic has changed my spending patterns but it seems it has just shifted around some of that spending, not eliminated it.
Spending update
2021 total spending: $38,200 (target is 38K)
2020 total spending: $38,510
Reviewing the yearly totals, I can see that I'm spending more on food, partly due to more takeout but also likely because Vancouver is more expensive than where I used to live. I'm spending much less on travel than I did before the pandemic. I'm also spending money on health insurance and various health costs that used to be employment benefits. So I actually did have those costs in the past, but there was an "accounting trick" where the employer paid me extra for them, so they were hidden from my annual spending figure.
All of this can change as the pandemic subsides, and I'll adapt as required. It's very likely I will have to increase this 38K budget, but then gain, I've been saying that for several years now.
It's not like I'm just sitting at home doing nothing, by the way. I had several domestic trips in 2021, also stayed at some hotels, visited various friends, did road trips, etc. The pandemic has changed my spending patterns but it seems it has just shifted around some of that spending, not eliminated it.
Yeah, I kind of find one just adjusts to the situation at hand.
Good job with your reduced spending, though I am a bit curious on why you are holding yourself back on the spending? By holding your spending flat for the last 5 years, it meant you have essentially been making bigger sacrifices for 4 years due to inflation. Also coming from a HCOL place, I personally know that 38k wouldn't go very far for me.
I am not familiar with your financial situation/goals, but from what I understand based on your first post is you make a decent amount with lower spending habits, which would suggest you have decent amount saved. Unless you are aiming for really early retirement or a big financial, I think you might be overdoing it and are missing out on some the things that could enrich your life.
I am not familiar with your financial situation/goals, but from what I understand based on your first post is you make a decent amount with lower spending habits, which would suggest you have decent amount saved. Unless you are aiming for really early retirement or a big financial, I think you might be overdoing it and are missing out on some the things that could enrich your life.
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You're using terms like "holding yourself back" and "sacrifices", but I don't think I'm sacrificing anything. In the year before the pandemic, I had travelled to Australia and Hawaii. For years I also wanted to live by the beach (notice my user name) and I finally did that as well. Now I live near the beach.
It just seems that the things I want and enjoy right now don't cost very much. Maybe that will change at some point. From what I see among my friends and coworkers, these seem to be their expensive habits. But I don't crave these things:
- a large suburban house or condo unit
- new or fancy car
- home furnishings and home renovations
- going out to bars and restaurants (not my thing)
Based on this website. It seems like ~40k/year in Vancouver is kind of the bare min living without much traveling or luxuries in their life. This is how much money you need to make to live alone in Vancouver | Urbanized
I too have lived a somewhat low key lifestyle where I was "holding myself back" and found once I started to say yes to even more things than I have in the past, I've been immersed into new wonderful experiences and others not so great. But regardless, many new good stories can now be told.
I also have some acquaintances that have saved quite a bit by a certain age who resisted spending until they got to their "good spot" and before they started to do the things they want. They felt they have missed out on so many experiences that would have been much better when they were younger, or the passion they thought they had for a hobby is no longer there. As a result, they are kind of living with regret and said they would do things differently if they could go back.
For everyone, even if someone has never saved a day in their life, the government will provide a person approx ~18k through CPP, OAS, GIS once you are 65+ (this will be more in the future since the government is enhancing the CPP). So to maintain your current lifestyle, you only really need to make up the other ~20k/year in retirement, which I suspect you may have already obtained.
I too have lived a somewhat low key lifestyle where I was "holding myself back" and found once I started to say yes to even more things than I have in the past, I've been immersed into new wonderful experiences and others not so great. But regardless, many new good stories can now be told.
I also have some acquaintances that have saved quite a bit by a certain age who resisted spending until they got to their "good spot" and before they started to do the things they want. They felt they have missed out on so many experiences that would have been much better when they were younger, or the passion they thought they had for a hobby is no longer there. As a result, they are kind of living with regret and said they would do things differently if they could go back.
For everyone, even if someone has never saved a day in their life, the government will provide a person approx ~18k through CPP, OAS, GIS once you are 65+ (this will be more in the future since the government is enhancing the CPP). So to maintain your current lifestyle, you only really need to make up the other ~20k/year in retirement, which I suspect you may have already obtained.
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My apartment costs 20% less than what's in the article and many of my other costs are lower as well. I think what happened in my case is that, while many people would spend lots of money on restaurants/bars/partying, I spend that money on travel instead. So a lot of my entertainment money is normally spent on world travel.
Because of the pandemic, I'm currently not travelling as much. There's no question that my spending will increase once I start travelling more. It won't be too hard to spend more than 40K a year. So I agree with you, my current spending level is artificially low, it's really because I don't want to travel internationally right now.
So I will "reset" my annual budget to a higher level at some point and that will catch up for many years of inflation I suppose. It just hasn't happened yet.
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I just looked at BC's stats for the CPI, and inflation in the province is about 5%, similar to the Canadian average.
If this keeps up (and it probably will), my rent will probably increase by something like 5% next year, as BC sets the maximum allowable rent increase according to the CPI.
Because rent is a huge part of my expenses, that will definitely push up my annual spending. In addition, the building landlord is fighting the tenants (a tenancy board dispute) to get an additional 3% rent increase approved, above the provincial maximum. Combined, this could mean an 8% increase in my rent next year.
If this keeps up (and it probably will), my rent will probably increase by something like 5% next year, as BC sets the maximum allowable rent increase according to the CPI.
Because rent is a huge part of my expenses, that will definitely push up my annual spending. In addition, the building landlord is fighting the tenants (a tenancy board dispute) to get an additional 3% rent increase approved, above the provincial maximum. Combined, this could mean an 8% increase in my rent next year.
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Could you elaborate? If the province has legislated a maximum how van th landlord impose an increase higher than that?
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Provincial law has a provision to allow this, but it must go through a rather complicated process and Tenancy Board dispute. The landlord is attempting it at my building and has initiated a formal dispute against all tenants. So yes there is a method to do it, but I'm currently fighting it.
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