Second to Last Thought on Expenses…

Let’s take a moment to double click on lump sum type expenses. As you go through each and every one of you expenses to build your budget and to calculate you FIRE number you’ll generally find two types of expenses. Ones that occur monthly like rent or mortgage payments and those that occur once yearly or billed bi-annually. How do we handle these?

Monthly Expenses

These are predictable expenses that occur with consistency month over month. Such as fixed expenses like your car payment, or housing payment. This also includes variable expenses like your monthly grocery and gas/petrol bills. Enumerate all these types of expenses, create a line item for each and assign a budget to them. I recommend including sales tax for line items that are subject to it. For example, if there’s a 10% sales tax in your state/province, your $0.99/month iCloud subscription should be documented as $1.09. This is as straight forward as it sounds just take the time necessary to include absolutely everything. Including monthly contributions to Sinking Funds – designated for anything. From Vehicle Maintenance or new car purchase, to pet care, to travel.

Lumpy Expenses

Here’s where things change, but not by much, just a degree. These are expenses or cash outflows that don’t occur monthly, they’re either annual, semi-annual, quarterly, or some cadence other than monthly. Think about property tax on your home, or home insurance, or car insurance. These are typically billed on a non-monthly frequency. For these, lumpy expenses, I recommend dividing or amortizing the lump sum expense across the 12 months of the year. Putting away the monthly amortized amount into a High Yield Savings Account until payment is due. This way you’ll always be prepared for large, expected expenses.

Your Budget Spreadsheet

Setup your mechanism of enumerating and tracking expenses. I recommend a simple spreadsheet but you can choose anything even a pen and notepad if that’s what works best for you. If you’d like to save some work and time, I’ve authored an Excel compatible Google Sheet FIRE Budget Template for download for a small donation. It’s over on GumRoad through the following link:

rad9creative.gumroad.com/l/ermxd

Thanks for your support!