Thursday, January 7, 2010

Day of (Budget) Reckoning

With the start of 2010, we tackled the task of analyzing our 2009 expenses. I think we were both a little concerned about how well we had stayed within our budget, since we weren’t disciplined enough to track expenses month by month. I’m sure we will address this monthly from now on, because it took Ron several days to work on the whole year at once. Some electronic records are unspecific, and as time goes by, the memory fades. But Ron was tenacious, digging through all the details a month at a time, categorizing expenses into our pre-defined categories.

Before I tell you about the results, I should explain that for the purpose of modeling and analysis, we actually have four budgets with different levels of discretionary spending. Our Extravagant budget allows a generous level of discretionary spending, especially in the Entertainment and Travel categories. On the other extreme of the scale, the Low budget cuts discretionary expenses to the bare minimum. The Low budget is about 40% below Extravagant. In between, are High and Average budgets. These variations allow us to employ the appropriate annual budget based on economic conditions and/or other external factors.

We closed 2009 with our expenses about 3% under the High budget. We are very satisfied with this result, because we admit that we lived large last year while acclimating to retired life. Our expectation was that we would be closer to the Extravagant level. At the expense category level, we had just a few anomalies. Our Food expenses were slightly above budget, because we cooked at home more (better for our diet and keeping our Dining expenses well within budget). Housing ran above budget due to the cost of refinancing our mortgage last year, and monthly parking jumped from $180 to $225. (Ongoing, our mortgage payment drops $200 per month.) Transportation expenses were much lower than budgeted, as we replaced most auto usage with public transportation. Utilities came in about 50% under budget, probably because we had a really mild summer and we hardly had to use air conditioning at all. I am proud that I stayed well within my Clothing budget. The truth is that I am now happy to live in t-shirts or sweaters and jeans 90% of the time.

FYI, the big Mediterranean cruise was covered under our Capital budget – not included in expenses.

This year, we’ll do our analysis monthly, to give us a chance to make budget and/or spending adjustments throughout the year. It really gives us confidence in our retirement plans to have this data and analysis to validate our long term financials.

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