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This is how we do it: Estimating our FIRE budget

We thought we would throw out how we estimate our future expenses. Well, we base them on our current spending but make some adjustments for costs in the future. For example we won’t be paying for daycare in a couple of years, so while we spend about $24,000 on that now we don’t include it in our FIRE calculation. Another big difference between our current budget future budget is that we plan on paying off the mortgage before we retire. We also plan on relocating to another state with our version of ideal topography and climate. That will make a huge difference in the property taxes that we pay, since now we live in Texas which has no state income tax, but high property taxes, which amount to about $15,000/year. Not ideal for a FIRE situation. Ideally, we’d like to live in a state that has lower property taxes, since with minimal income we won’t have to worry much about income taxes.

Monthly estimates - 2015 vs FIRE

Monthly estimates – 2015 vs FIRE

Below are the details, I’ll use our expenses in 2015 to demonstrate our before-and-after.

Mortgage – currently $1910. Expected – $287.5. This includes tax and insurance. I’ve estimated this based on a house in Virginia the costs $250,000.

House utilities – $260. This is based on exactly what we spend now. While our FIRE house will be smaller, utilities in Texas seem pretty cheap compared to the national average.

Future Health insurance – $353. This is a “silver plan” in Virginia based on our expected income. Online calculators are great for research!

Future Dental – $87.5. These are my estimated out-of-pocket expenses. We may have to get insurance later if the kids need orthodontics, and need more as we age. But I think this is a good start.

Groceries – currently $638.17. Expected – $575. Here, I use a 10% reduction. I think this is reasonable simply because won’t have to buy so many convenience items, and we will have more time to cook at home from scratch – something we both love to do. Ideally, I think our FIRE costs for groceries could get closer to, or maybe below $500.

Internet/Cable – Currently $129. Expected -$50.  We have Direct TV now. I am not a fan of TV. We don’t watch enough to justify this, but Mr. SSC loves his football.

Cell Phone – Currently $83. Expected $83.  No changes planned. When the kids get older they can pay for their add-on lines themselves. I didn’t have a cell growing up, they don’t need one.

Car insurance – $125. Same as it is now.  We have 12 years until the kids start driving. Again, they can pay for it themselves. That’s how we grew up.

House/Yard upkeep – Current and Expected $356.  I’m hoping this is less, much less.  This covers repairs and upkeep.  Since we will have more time, I think we can do better, but we had a disastrous June this year. And eventually appliances will break, and this needs to be accounted for.

Car related expenses – currently $701. Expected $267. Currently we have a 0% loan for Mrs. SSC’s car. We haven’t paid it off since its free money. Anyways we won’t have car loans in the future, or our daily 50 mile commutes on each car, or tolls. This also covers repairs.

Kids clothes – currently $23. Expected $30. Okay, this may not apply in the teenage years, but I’ll have some time to bargain shop while they’re still young. In my detailed budget I do add $200 per kid during their teenage years to cover added expenses like clothes and food and activities.

Gifts and entertainment – current and expected $85. I don’t see how gifts will get less expensive than the future.

Haircuts – $20. I expect this could go up in the future since baby girl doesn’t have much yet. But, despite Mr. SSC’s reservations, I’m hoping to gain the skills to cut our children’s hair. I think I can cut his also, but he doesn’t trust me. He also seems hesitant to trim my hair. So maybe this cost will go up?

Shopping – current and expected $169. This is a catchall category, I’m optimistic I can make it go down 10% in the future when I’ve more time to shop for deals, and find creative ways to not buy things.. and I don’t mean a five finger discount.

Cash – current and expected $40.

Gym – currently $87. Expected $167. I expect that we will join a rec center with swimming and tennis. This is just a ballpark guess until we know what facilities are in our new town.

Allowance – currently $1000. Expected $800. Yes, it’s a lot of money. It covers everything for us – clothes, hobbies, entertainment, drinks out, date night…

College – currently $800. Expected $0. We won’t FIRE until we saved our goal for the kids.

Travel – current and expected $278. We want to travel more, but I think I’ll look into travel hacking and credit card rewards to help fund this in the future.

Daycare – current $1945. Expected $0.

Maids – current $257. Expected $0. Yeah, no self-respecting early-retirement family can justify paying for maids when they’re not working. Right now it’s one of those time versus money decisions we made. I prefer hanging out with my kids more than mopping the floors.

Security system – current $35. Expected $0. I’m not moving anywhere I need a security system.

Dogs – current $236. Expected $236. No matter what MMM says, we love dogs, I don’t care if they cost more. They are worth it for us.

Future state and federal taxes – $100. I don’t account for these in the current budget since they come out of the paycheck. But we’ll have to make sure to cover this cost in the future.

Total – current $9177. Expected $4369. Yeah that’s a big difference.

I take into account a 5% ‘slush’ and multiply by 12 months, and that gives us $55,049 for our FIRE estimate.

There are some things I’m probably leaving out, like the cost of running a blog. Or, just stuff that happens… But, you can’t predict life. I think the biggest thing about trying to predict the future budget for a lifestyle completely unlike your currently living situation is knowing that your family can be flexible. Our allowances are flexible and we realize that in rough years those will be the first to be cut. Someday, the kids might want an allowance, and I’ll give it to them but they will have to work for it. In all likelihood, both of us will have a part-time gig here and there, doing stuff that’s fun or allows us to learn a new skill. Plus, I’ve always wanted to teach, I will give that a try for a few years at some point. So, while the differences in our current and future expenditures look huge, I think they are reasonable and justifiable.

How do your FIRE costs compare to your current costs? Any advice for us?

25 thoughts on “This is how we do it: Estimating our FIRE budget

  1. Steve

    Your allowance is $1,000/month? Phew. :)

    I suspect that you can probably cut that down significantly (even more than the $200 that you’re estimating) for additional savings if you need – or, pay for the things that you aren’t expecting (like blog fees) from that pot of money.

    I think you’re exactly right that flexibility is key. In years that aren’t so financially great in the stock market, living more frugally is always an excellent choice. My wife and I are planning to give ourselves about $200 a month allowance, and that’ll probably get cut when necessary depending on how the market is doing. The nice thing about having such a large pot of discretionary money is you also have a lot of room to cut back when needed.

    Do you have an estimated time frame for when you might look into making this happen? I’m looking forward to watching as you move closer and closer to epic FIRE! :)

    1. Mrs SSC Post author

      Yeah – allowances are large. Mr SSC likes to feel like he can take dollar bills and throw them around and yell “Make it RAIN!” Just kidding – but he feels better with a large allowance – but I do agree, I would be fine lowering it to $300 or so…. I invest half of mine anyways :)

  2. Fervent Finance

    Holy moly you guys are detailed! I’m pretty far out from FI ~10 years or so. Therefore I just took my current expenses and increased them 2% a year for inflation. In reality many of them will go down, and many will go up once I reach FI. So I just called it a wash. In the meantime I’m just padding the F.U. money fund and will re-evaluate as time goes on. Flexibility is 100% key and I’m sure your actual expenses will be lower than you project :)

    1. Mrs SSC Post author

      I agree – some of what we have will go up or down – you just can’t predict your future needs. For the most part, we just try to focus on a lifestyle level where we are comfortable. So that is why we track, to make sure we don’t have to severely adjust our expectations once we cut the cord. Plus, we are hopefully only a couple years out – so I am in the mode of tracking to really establish our baseline.

  3. amber tree

    Great detailed calculation of the FIRE cost of living.
    I just assumed that all costs will stay the same ignoring inflation as I also ignore inflation in salary or raises, this keeping my contributions as they are today. A method like any other method I guess.

    In the planning, I added some big expenses for travel abroad an guesstimated university costs for the kids. These impact our net worth, rather than saving and setting it aside already today. Maybe the setting aside is a better approach…

    1. Mrs SSC Post author

      I ignore inflation also. I find it easier to work in ‘today’s dollar’ it is the most relate-able to me. We invest for college now in their own college accounts, if we are rolling in the dough when they get to that age, we may chip in more for college. But, we feel that if we can save a good chunk early on and let it grow, then we’ve done our duty and the rest is up to them!

      I do like the idea of taking a few big vacations down the road — we account for them by thinking that there will be at some point in time some market highs – that’s when we take the extra money out and go on a world tour. If the market is low – we camp in a state park :)

      1. amber tree

        camping … A thing I discussed yesterday with a nephew… I will start off with camping with the girls in the garden the next summer and then take it from there to a camping ground somewhere in Belgium and then… lets see where we end up

  4. Mrs. Budgets @MrandMrsBudgets

    I think what you mentioned about flexibility is key. I know it is impossible to predict the future, but planning sure does help and being flexible will surely set you guys up for success. We plan on moving too when we reach FIRE. We live in CA so pretty much if we moved anywhere else it would be better.

    1. Mrs SSC Post author

      Our kids are 2 and 4. Our property taxes are about 3.5%. This year they are $10,500, and tend to go up $1000/yr because they are very aggressive on raising property values to the max allowed by law since the Houston housing market is fairly hot… we fight it every year and have one of the lower tax bills on block. So slight exaggeration but in a few years when we fire they will be around $15k.

  5. Hannah

    It’s really interesting to me to see how different our current budget is v. what we expect to spend when I’m no longer working. The biggest categories of change are childcare, charitable giving, and home spending (we hope to be done with our remodel), but those categories are more than half our spending now. Actually, closer to 2/3 this year. We won’t drop all of them down to zero, but we will drop them by a lot.

    1. Mrs SSC Post author

      That is great yours will drop by so much! Childcare is such a big expense of ours now – I don’t like to think of how much we’ve spent over the last 4 years. But they are worth it :)

  6. Stockbeard

    I’ve been trying to compute those details with my wife, but it sounds like she’s worried that “thinking about it” will lock us into specific decisions for the future. She wants to send our kids to “Ivy league” kind of schools, while I think it doesn’t matter. As long as we don’t write it down in a spreadsheet, this is open for debate, and I think she prefers that :(

    1. Mrs SSC Post author

      I don’t always show Mr. SSC my spreadsheets…. he sees numbers and his eyes glaze over :) I went to an almost Ivy equivalent in the Southeast for college – and I think I would’ve rather gone to a state school. Both of us believe that an education is mostly what you make of it. Granted there is networking to be done at super fancy schools… but nothing hard work and determination can’t overcome.

  7. Our Next Life

    Nice to see you, Mrs SSC! And I’m definitely going to borrow your idea and turn my future budget projections into a bar graph like yours!

    We assume that we’ll cut each other’s hair in retirement, which will save some dollars. Once we don’t have to look professional for clients, we’re both game to take some risks like that. Plus, hair grows back, if you mess up. :-) And we’re with you — dogs are worth the money if you love them. We always plan to have dogs, though we try not to turn into completely emotional decision-makers at the vet. Oftentimes pets don’t need the priciest option the vet suggests, and vets are much better than human doctors about being clear-eyed about the financial side of things!

  8. Prudence Debtfree

    Thanks for breaking this down. I don’t think you’ve exaggerated the difference – and it IS significant. Our “allowance” is similar to yours. I often think we should cut back on it . . . I think you’re right in predicting a lower grocery bill. It’s amazing how inexpensive groceries can be if you make those time-consuming basic meals. 2 years to go? I will look forward to seeing your progress towards FIRE. What a great life you’re setting yourselves up for!

    1. Mr SSC

      Thanks! Yeah Mrs. SSC likes to take everything into account. If you leave out $50 a month for 3-4 things it can easily add up and wreck your FI plans. Just trying to get a dose of reality in there.
      Yeah for now no income tax is better.

  9. Jason

    I do love the detail and it gives me some inspiration to create my own FI budget. I have a rough estimate in my head, but never as detailed as this. Another post to write about.

  10. D Large

    Just found your blog!
    Some comments:

    If you come to Virginia, plan on tolls (esp the Richmond area). If you live in a city to avoid commuting times/gas, you may need to consider private schools. Look carefully at the city school systems.

    Dental/braces: our dental plan had a $1000/pp benefit for braces, but we had to subscribe to a higher tier of dental insurance. The cost vs benefit wasn’t worth it. The best benefit was I got to select any orthodontist I wanted. (We put 2 in braces)

    Colleges: Virginia has great colleges! I have 2 in college now, so believe me, we are living frugally. One of the biggest surprises was with son #2, when we were notified when the bill came in July before he was to arrive in August that the tuition was going up about $4500 per year, but they would not raise it again for during the 4 years he was to be there. That was like paying another year of college!!!

    Travel: when I was considering flying the four of us to California when they were about 11 and 13, my wise principal whipped around and said “yes! do it now!”. We did (found cheap air fare out of BWI) and took several “large” trips before they got involved in too much with school, summer work, etc. When they get to college, getting everyone to get some time off at the same time is difficult. Now our family vacations are long weekends!

    1. Mrs SSC Post author

      Thanks for the advice. We are currently looking at the Roanoke area suburbs… we have been keeping in mind the idea that good public schools are key. And braces – I hadn’t thought of those costs. I haven’t looked too hard at dental plans, but from what I’ve seen, they aren’t too impressive. And that is a great point about doing travel when they are younger. I kind of had forgotten about summer jobs and other fun high school activities. Thanks for the tips – I’m glad you found our blog!

    2. Mrs SSC Post author

      Thanks for the tips! One of our main criteria is good public schools. We figure when we move we will hopefully have at least a decade of school left for the kids, so we figure schools need to be good.

  11. Isaac

    Would you mind sharing the goal for kids’ college savings? This is something I’m so unsure of – in 18 years, I can’t decide if I should be aiming for $125K or $250K or even more?!?

    1. Mrs SSC Post author

      Ah – this is a tricky question! We plan on saving ~$40k/kid by about 2018. That should grow to about $80k by the time they go to college, and according to online cost predictors, that should cover 2 years of in-state college. Both of us agree that the kids need to pay for some themselves. Mr. SSC paid for his entirely (well, I guess I paid for a bunch since the majority of loans were paid off after we were married!), and I paid for part of mine – and worked my bum off to graduate in 3 years to incur less loans. But, I have lots of friends who want to save 100%, I even have co-workers who are saving for all of their grandkids! Anyways – I think the college cost system is a little wonky, and I think something will happen in the next 15 years or so – because right now it seems over priced and inflating too rapidly. And, depending on how our retirement stash is going – if the kids are deserving, we may dip into that to help them out too. But, I think college is a great first step for kids to learn to make good financial decisions!

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