Who Moved My Cash?

When I was retired for a year, I was quite impressed by how little money I seemed to need to get by – enjoyably – on a week to week basis. My biggest expenditure seemed to be on coffees and cake, which I’d indulge in when I went to the gym, or when I met my DOH during her work break, or when I’d wandered into town to visit the library or on some sort of errand.

In many ways I now see my year out as “retired” was quite unusual and, I’m beginning to think, was certainly so when it came to money. I now think I was getting quite a kick out of actively avoiding unnecessary expenditure because, for me, it was quite a novel situation to be in. Why spend today what you can put off until tomorrow, or better still, put off indefinitely? I’d mentally scoff when many of my friends seemed to be continuing with their bad spending habits and congratulate myself that I had matured on from that childish “I want, I want” stage.  I mean, imagine spending sixty quid on a meal out for two! Imagine buying another set of new golf clubs when you’d bought one five years previously! Imagine buying a new winter coat when that one you’ve worn for the past two years is still in perfectly good nick! Imagine believing that you need to change your car every three years. And so on.

Before I found myself retired, I was never much of a spender and much more of a saver, but I enjoyed having the monthly salary dropping into the bank account giving me choice and relative flexibility when it came to money. Security too, as there wasn’t much I could imagine happening that I couldn’t take in my financial stride. Although I could still sometimes imagine money running through my hands like sand through an egg timer, I was topping up that top half of the egg timer every month with more sand. I didn’t take it for granted, but maybe I didn’t appreciate it as much as I might have either.

My year out, financially, didn’t do much to disillusion my notion that I didn’t need all that much to get by and that’s probably true, but ironically – or fortuitously – since I’ve returned to work I’ve begun to wonder if I was kidding myself? Because this year, so far, has turned out to be a bit of an “unplanned spend” nightmare. Last year, in retirement, I don’t remember spending too much on the house. So far this year alone I’ve needed a skylight window replaced; our garden furniture has literally fallen to bits; our central heating has broken down; our kitchen tap (a bloody expensive one, courtesy of the previous occupant) needs replaced; our shower leaked and needed a plumber to get to a leak behind the shower wall. This month our roof needs a major repair, our hoover has broken down and needs replaced (and no, Youtube couldn’t help for once).

Same can be said for cars – four tires so far this year, plus minor repairs.

Then there’s the social “special events” that, I reckon, have cost about a grand this year on presents, hotels, dinners and booze. Weddings, “21st’s”, fiftieths, Silver Weddings, Golden Weddings, this year has been the year for them.

And, coming to think of it, the year began with a round of dental treatment that I had to pay for because the NHS would have pulled the tooth instead of trying to save it. This cost the best part of a thousand pounds too which, as I write it, I can hardly believe. But the bank statements don’t lie.

The other day I had a go at calculating what I’ve spent over and above my monthly budget this year and took a sharp intake of breath when I realised that the figure was nearing ten grand! Unbelievable Jeff, but the devil is there in the detail on my financial spreadsheets. I began to wonder, however, if maybe this was a more normal situation than my retirement year when, it seemed, that I was able to stick pretty closely to my budget. Maybe I just had a lucky year out? Plus, prior to that point, I was fortunate enough to have a salary that took care of all eventualities without breaking sweat. Perhaps my “unplanned spend” in those days went by almost unnoticed?

When I was working, I was never much of a fan of having an “Emergency Fund” in cash that equated to about three month’s worth of salary, as many financial advisors would tell you that you should have. This year is teaching me that it’s not too bad an idea at all. Apart from anything else, it’s a psychological cushion because, in a way, you’ve planned to have that emergency cash available. My “Unplanned Spend” this year has had to come from my investments and I haven’t liked cashing them in to bridge the gap. It makes me feel like I’ve slipped up, miscalculated and got my sums wrong.

I’ve quite a few spreadsheets that try to calculate what income I’ll need when both my wife and I retire for good. None of them have previously included a line or amount for “Unplanned Spending”. They do now.

25 thoughts on “Who Moved My Cash?

  1. I guess I wouldn’t see house repairs as unexpected. If you own a house, you’ll have repairs. Here in the Netherlands they advise you to set aside 2% of the house’s value per year for repairs. Maybe you get lucky in the first few years and only need a euro here or there for a paint job, but at some point you’ll need to repair the roof or a leak or whatever, and then you spend more.

    Same with owning a car.

    Other things can be really unexpected. I guess you couldn’t have expected that the NHS and you would differ on how to work on that tooth problem.

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  2. We tried to solve this issue in our calculation by having a “repair/replace” budget. It’s cumbersome but it was very useful for us, when trying to calculate how much money we will need into retirement.

    We started by listing all our things, well all the big things, like cars, furniture, computers, etc. We then gave them an estimated lifespan, say 48 months for a laptop, 10 years for a car, 4 years for car tires, 5 years for bikes and so on. Then we calculated the monthly value that was “consumed” (price over timespan ) and that gave us a rough repair/replace value each month.

    This value sits currently at 25% of our estimated bugdet in retirement, so not chump change. This includes paying for a serious health issue every 5 years for each of us out of pocket, because our bodies need to be maintained as well.

    It was eye oppening for us, mostly because we had never really visualized just how many things we actually own. All of these things will need to be replaced at some point and the money needs to come from somewhere.

    The good thing about doing this calculation is that we’re no longer stressed if our stuff breaks down, rather we give it a farewell party, thank it for its contribution and move on. Another good thing: we decided that some things don’t need replacing because really, we’re not using them that much and then we promptly listed them online and sold them.

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  3. House maintenance costs are very important. I tried quite hard to find estimates of %age costs when I was trying to do a retirement budget, and it was really hard to get good figures, as the changes are so lumpy, and its so easy to coast after buying somewhere in good condition. I wonder if the 2% is the fraction of the rebuild/insurance cost, or the purchase cost, as the latter includes the land who’s premium is so location dependent. And of course the maintenance can be very different if DIY early in your retirement, or by professionals later on

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    • I think because the costs can actually be quite scary – a major roof repair, a major leak – it’s easier not to think about them and hope they’ll never happen. And, if they do, that insurance will cover them. But I’ve found to my cost, especially on central heating boilers, that the list of things I’m not covered for is much longer than what I am.

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  4. This is a personal bugbear of mine with the majority of the US extreme early retirement wanabees: a complete inability to account for replacement costs or repairs. They map out in exquisite detail how their planned $25k annual budget will cover their groceries, utilities, and global travel budget, but apparently none of them are ever going to replace their cars/ washing machines/ computers for the next 50 years, and their house will never go wrong.

    And going even further, they never allow for ‘things that will be invented in my lifetime that will become essentials’. 50-60 years is a looooong time to not have something like internet access or a smartphone, because that didn’t exist and wasn’t in your budget when you retired at 32.

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    • When it comes to the US, I always wonder about health care. Even although my trip to the dentist this year was a financial shock, at least it didn’t happen on holiday in the States (most holiday insurance doesn’t cover dental issues).

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  5. I’d never had an emergency fund before I started one this year and I was very grateful that I did (dental treatment for me also!). I’d only been planning on setting just a couple of grand aside, but have not really considered the big house-type emergency expenses, so I may have to put aside more.

    When I return from my holiday, jobless, I think I’ll be a little like you when you ‘retired’, ie spending money on coffee at the gym!

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  6. I have a column in my net worth spreadsheet, accessible, but its huge, as its everything apart from pensions. I might aim for a £1000 balance in my current account to avoid faffing around, but for anything more it can go through a credit card or invoicing mechanism that would allow me to liquidate assets to cover it, so I can’t see the point of a cash-in-the-bank emergency fund.

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  7. A couple of thoughts on budgeting for property repairs/maintenance.

    When you took out building and contents insurance you will have specified a replacement or rebuild value for your property. Assuming for a second that figure covers all that you would be interested in replacing should your house burn down or get flooded or whatever, we can use that as a starting point.

    In the US the tax authorities allow an investor to depreciate the cost of the building over either 27.5 or 40 years (depending on which system is chosen), which means an annual depreciation rate of between 2.5% and 3.6%.

    In Australia the tax authorities also allow buildings to be depreciated at a rate of 2.5% per year.

    So in the absence of a better method, why not apply the 2.5% per annum rate to the replacement value of your building and contents. Most years you hopefully wouldn’t need to spend this, but it’d help survive those train wreck years when you need to replace your roof or rewire the electrics.

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    • The problem with the percentage of value method is that UK house prices are absurdly inflated in some areas – an identical house (e.g. a 3-bedroom semi) can easily be £150k or £450k depending on location (or massively more in London).

      Applying a 2.5% maintenance assumption would give a range of £3,750 to £11,250 per annum on the range I showed – both are way more than any kind of reality. I have spent under £2k/annum over the last 5 years and less over the long term (in a high cost of living area).

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      • Not so SpreadsheetMan. You are including the cost of the land in your analysis.

        Look at it this way, imagine you watched one too many episodes of Grand Designs and decided to buy one of those Huf Haus kit homes. The price of the actual building is exactly the same regardless of whether you want it constructed in Putney or Peterborough or Portsmouth. It is this building only cost that you calculate your 2.5% from.

        Once it was completed were you to get it valued then you are correct, there would be a wide variation in the assessed market value depending on the location.

        When you take out home buildings insurance you only insure the replacement/rebuild cost of reconstructing the buildings. You aren’t insuring the market value of the house+land that you would see listed in the estate agent.

        The actual rate a person uses is somewhat arbitrary, some years the maintenance gods will smile and the costs won’t approach anything like 2.5%. Other years the roof will need replacing, or the bathroom will need to be redone, or there may be a problem with damp or subsidence or whatever… a single instance of such a high cost maintenance activity may cost much more than the 2.5% average figure.

        The rate also depends on the type of dwelling you have. The rate would be much lower in the case of a flat, because the service charge *should* cover the cost of all the structural and external maintenance. You’d still need to account for things like heating, electrics, repainting, replacing bathrooms, etc.

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    • Hi Slow Dad, what I’m doing a the moment is trying to track and record my “unplanned spend” and labelling it accordingly. I’m hoping that over time it will give me a good idea of what I should budget per month for those unaccounted costs. As for train wreck years, I’m just hoping they never happen (but maybe you have a point!)

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  8. I think this is where tracking monthly spending indefinitely comes in handy. As you’ve found you might go months, or a full year, without any unexpected spending; but by tracking monthly indefinitely the unexpected are eventually tracked and can be factored in.

    It might mean that your annual withdraw amount needs to be increased, and when the months that dont have that extra spend roll by, you can keep that as a buffer. Anything thats left over at the end of the year can then be counted before withdrawing next years budget.

    Great blog btw, keep it up

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    • Monthly accounting will miss one major aspect of maintenance spend, the selling of a tired property and purchase of a renovated one. The gradual dilapidation of my parents’ house will cost £50k+ to put right when I inherit it, but if I sell it as a fixer-upper, I’ll not view the reduced price as a maintenance cost.

      Of course my parents have saved a fortune running a house with 60 year old kitchen, bathroom and windows, as we watch the houses around us have their 2nd set of double glazing or 5th kitchen go in.

      Freshening a house can involve much higher costs than maintenance of dated but serviceable fittings.

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  9. Hi Jim,

    Its really a very good point on multiple sides. On the house maintenance, part of the “things I dont avoid” includes a monthly direct debit to pay for these eventualities – so a small drop of cash every month isnt an issue. Years ago I got hit with a substantial bill (into 5 figures) for housing repairs – and by drip feeding money in meant I didnt even “notice” it in my day to day spending, it was covered.

    As others say above – there are things that will come out that often get classed as not expected but can be predicted, and that is what I use my emergency fund for. Its the discipline you need to know its there and not touch it that is harder!

    I really dont think I could personally cope with having to sell investments in order to pay for an unexpected bill – it would have to be major for that (with one exception of some funds which I have put into investments knowing I will need to sell them in the future for such eventualities)

    Cheers,
    FiL

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    • Hi Fil, for me, I’d put pretty all of my cash into investments on the insane notion that, in the long run, it would increase more than if it was sitting in the bank. Now I find I quite like having cash available in a savings account that doesn’t reduce unless I spend it!

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      • Hi Jim,
        I have to say I am moving towards less cash holdings now, especially with the change in allowance for the ISA going to 20,000 – I think I could do it if it was something like a set Vanguard Fund (80/20) say then I knew it was the equivalent of my cash holdings, then I could.
        I can just imagine the cash just sitting there waiting for you to spend it 🙂
        FiL

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  10. Yea I got stung on this when I first discovered FIRE and tried doing a yearly budget.
    My first attempt was laughable and we went waaaay over.

    There is always “unplanned spend” and so while you can’t exactly predict it, I recently just started to put in about £1000 for house spend and then maybe another £1000 on random stuff.
    Even so – £2K per year unplanned is still not that much, if the boiler goes one year then you are done and dusted. I guess you might hope that some years the unplanned spend is less than predicted and so you will end up averaging out over say 10 years or so!?

    Next year is a big wedding/stag do etc year for us after having (thankfully!) a quiet year last year on that front. However I know that is coming up so it’s not actually unplanned and will budget accordingly. That said, it will still be annoying to see our target budget next year being higher than it was this year, although I definitely have less planned spending on the house, so we’ll see if the unplanned side of things comes to bite me and the arse!

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