Weekend Reading – When did you stop budgeting?
Well hello!
Welcome to some new Weekend Reading on budgeting and more specifically, asking the question: when did you stop budgeting?
In case you missed some recent posts…
Last weekend, I wondered what is / is not the middle class:
And I updated this post, related to how much cash should you keep? It varies!
Weekend Reading – When did you stop budgeting?
Inspiration for the discussion this week on the site arrived from sketch artist and U.S. financial planner, Carl Richards.
Source: Behavior Gap
Love it.
In his recent newsletter, he wrote:
“Greetings, Carl here.
I’ve always hated budgeting.
The word makes me cringe. Felt like punishment.
Like getting grounded for something you didn’t do.
That all changed when I started thinking about cash flow instead.
Cash flow has energy. It moves. It fuels everything you want to do.
That’s why this sketch means so much to me.
Your goals?
They’re not built on spreadsheets.
They’re built on cash flow.
It’s not about guilt. Or spreadsheets. Or blame.
It’s about awareness.”
Agree or disagree?
Personally, we’ve largely ignored strict forms of budgeting – for decades.
Instead, we focused on building cashflow from our portfolio for financial independence. That journey started 20 years ago.
That said, budgets can work for some in these ways:
1. Traditional Budgeting: This strategy defines all income sources and all expenses and maps them out in a spreadsheet or app to see what you need to allocate where to stick within a certain threshold.
2. Container Budgeting: Each month, allocate a certain amount of cash to each area of your budget. Ensure to keep some money in savings just in case some spending categories get out of hand.
3. 50/20/30 Budgeting: This method involves dividing your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings. Needs include obligatory expenses like rent or mortgage payments. Wants are your basic pleasures of life, like travel. You then allocate the final 20% towards setting up an emergency fund, or paying down any high-interest debt, and when debt is gone, ideally 20% is plowed into investing.
So, there any many ways to budget but it doesn’t work for many because it takes discipline and maintaining financial discipline is hard work.
Back to our approach (that helped us reach financial independence), this is what we essentially did as part of our discipline:
- We paid ourselves first – like a bill payment to “Us Inc.”
- We focused on investing for a mix of income (for cashflow) and some growth.
- We lived within our means after that.
Instead of container strategies or putting certain spending categories here or there, we simply paid ourselves first, increased that savings rate where possible over time, and spent the rest.
This worked for us before 2014, during 2014 and after 2014. We no longer really need to save for retirement now.
Financial independence realized.
Weekend Reading – Beyond when did you stop budgeting?
Congrats to my wife. Her (early) retirement notice was issued at work this week. She leaves her organization in a month. I’m very proud of you. 🙂
From the older but goodie file:
How should you confirm your asset allocation? A Wealth of Common Sense has some ideas of which I remain very much aligned with Ben’s thinking. From the article:
“I don’t have the right answer for every investor because there is no such thing as the perfect portfolio.
The right asset allocation is the one that offers you a high probability of achieving your goals while balancing out the potential emotional strain of gains and losses or unexpected life events.”
Some tiny thoughts I thought about while cycling this week during my day off:
“Your capacity for excellence is inversely proportional to the number of your commitments.” – Farnam Street Blog.
I was thinking about my own crossover point recently and recalled this Dividend Growth Investor post: his thoughts on the crossover point for investing.
Aligned to our own cashflow is king mantra:
“The key ingredients to accumulating a sufficient dividend income stream include time, dividend reinvestment and regular contributions to your portfolio. The power of regular contributions is important, because this ensures that investors consciously keep working towards their goal of dividend independence by investing in dividend stocks every month. While markets fluctuate greatly, I have always found at least 15 – 20 attractively valued income stocks at all times. Dividend reinvestment in dividend growth stocks is essential for turbo-charging your passive income. And last but not least, investors need the time to let their income compound to their desired amount.”
Couldn’t agree more when it comes to our financial independence journey.
I hope your journey or retirement income spending plans are doing well too.
Enjoy your weekend,
Mark
Sorry for the late reply – been a hectic week. Honestly – I’ve never really been big into formal budgeting. Although I once did track expenses for about a year (using that budget template spreadsheet from your Cashflows & Portfolios site), I found that even though budgeting could outline exactly where we were spending our money, it didn’t really end up changing our behaviour. We need gas to fill the car, food to put on the table, utilities for the house, pet food, insurance, etc. – now just because I had a budget to track that, it didn’t mean I suddenly ended up changing what I spent! Well, maybe in a rare case – eg. oh gee, we spent quite a bit eating out at restaurants last month, maybe we scale back a bit this month? Bottom line – I like the approach, as Mark mentioned already, to PAY YOURSELF FIRST, then spend whatever is remaining as required. Oh, and one other thing – when we were in the “heart of it” with respect to expenses – mortgage, raising 3 kids in multiple rep sports, etc, I did try to ensure we never felt “house-poor” – ie. mortgage + property taxes + utils was never more than 30-40% of total net income. My 2 cents….
You strike me as someone who has their financial act together, MikeyP.
Detailed budgeting never worked for us.
In our asset accumulation years, basically pay ourselves first – spend the rest.
In our upcoming asset decumulation years, we will of course have to track spending to ensure we don’t spend more than $75k-$84k or so per year starting in 2026…but can spend more in future years rising by 3% inflation.
Retirement is treating you well?
Mark
Awww.. thanks Mark! Lots of credit goes to my immigrant parents (from Italy) who instilled my “live within your means” attitude. Retirement going well..including golfing more than I used to. Heck – I was a FOOT away from getting my first eagle this week (on a par 4). One day maybe!
Wow, nice. I haven’t played golf much this summer but hope to play more next year!
Mark
All my very best to your wife for her upcoming early retirement. If she is anything like my wife, she will now have much more time to find jobs for you to do around your home. At least a condo has much more limited scope for upgrades than an old house with a big yard.
Best of luck to both of you; it’ll be fun.
Very kind, Bob.
Yes, I’m sure there will be a few smaller projects in my future.
Best wishes back,
Mark
Our focus is on tracking spending rather than budgeting. That said, the tracking data is used to determine our expected spend in the following year and is projected forward with inflation adjustments. Also, entering the data into the tracking spreadsheet every two weeks ensures we review our credit card and bank statements for anomalous withdrawals.
A key reason for knowing our spending is to maintain just the right amount in cash reserves to cover a stock market crash and slow recovery. I really don’t want more cash sitting out of the market than is necessary.
So, tracking our spending plays into budgeting for future spending in our financial plan, and determines the size of our cash wedge, maximizing potential gains in the markets.
Detailed tracking works for us, and oddly enough, we enjoy it!
We sound very similar.
We will continue to track spending, necessary for us, but we haven’t done any detailed budgeting for almost 20 years now.
I maintain a spreadsheet whereby we forecast income/cashflow in and then expenses/cashflow out for about 3-4 months in advance. That’s it.
We try and ensure cashflow > expenses. That was rather easy in our asset accumulation years but retirement could be different.
Our goal in the early retirement years is to spend from existing cash savings but we should be close to whereby income delivered from our portfolio by late-2027/early-2028, income is consistently > expenses.
Like you, I prefer to remain invested as much as possible re: “I really don’t want more cash sitting out of the market than is necessary” but I could see us always having at least $50k on hand as a larger emergency fund long-term.
You really sound like you have your financial act together. 🙂
Cheers,
Mark
Not tracking expenses in detail most don’t matter, change or materially impact our cashflow we kinda know what’s up. We have enough cashflow to cover most incidentals, account for inflation and probably most importantly collectively do not suffer from lifestyle dysphoria.
I simply focus on big ticket needs or anomalies mostly our utilities, insurance and property taxes etc. and make sure we have a plan for those as they tend to be harder/impossible to workaround in the short term. Most other things you can barter imo. If there are issues then I rather address them vs. making a budget. I.e. over the years we have reduced our controllable cost for City and gas (30%-50% below typical) electricity unfortunately is still our nemesis +40% vs typical we are a power hungry family:( I can budget a 4% yoy increase but I’d rather put energy into fixing the problem (hence the foray into solar).
Mrs. retiring is good news, well deserved!
Great to read.
I mean, if you don’t have to track any expenses in detail, that implies to me that you have your “enough”.
Thanks for the kind words about my wife….she is VERY happy to say the least she has the option to retire and likely might not work again.
I will let her know readers are sharing their wishes!
Cheers,
Mark
Congrats to your wife. I am thinking about retiring recently, might change my plan to retire earlier than I planned. Will see how it goes.
We are fortunate enough never need budgeting. Always spending within our means. I think our problem has always been having spent not enough, saving rate too high.
Might need some budgeting after retired.
Excellent, May. Anything in particular that changed your mind?
Certainly supporting my dad this summer has been a bit of an eye-opener for me and has encouraged me to reconsider things.
Life is very short and precious.
Our “problem” will be watching spending patterns in the coming 1-2 years to see if that matches the plan. It is my hope we can live off about $75k-$85k per year, in that range and if so, we should be fine longer term.
I will keep you and others posted via the site to see how things go!?
Mark
Company might have a change of policy regarding to working from home. I don’t think I can handle going to the office everyday with the heavier traffic at my age. I do enjoy my work otherwise so if I can continue to work from home I will. Well, we already have enough for retirement. So might just retire instead of long commuting everyday. No interest for a new job either.
Sounds like you might be ready to retire. I suspect others in your financial position might do the same if such work-rules come into effect.
Mark
My wife and I started with a blue line ledger 26 years ago to budget income and expenses out of necessity since money was tight, and fondly remembering spending the last $5 we had left over on a Blockbuster movie rental, but only after filling envelopes with cash for upcoming bills.
Now retired 3 years, we travel the continent in our motorhome all winter, but still take time every month to enter our expenses in a spreadsheet and update our net worth, just to be sure we don’t overspend too early.
Soon we will start gifting money and experiences to our adult children as it looks like we aren’t likely to spend what we have invested.
We’ll likely keep track of our spending for the foreseeable future because we worked hard for our money and never take it for granted.
The Blockbuster comment took me back in time, Carl!
Ya, that’s where my head is at: track our expenses so we don’t spend too much, too quickly from our portfolio.
I figure the first two years or so in retirement is a zone we need to watch out for…and after that, we should be ok from there since I anticipate cashflow from the portfolio will be > expenses fairly consistently.
I can’t see us not tracking our spending as we age either.
Mark
As does Lloyd, I still use a spreadsheet to record my expenses year by year, as well as my income from all accounts. I have a very good idea of my monthly expenses so I don’t see the need to budget. I have always been a saver, especially after reading The Wealthy Barber. When I started my own business, monthly income fluctuated but I made sure I saved when I could. Now retired, I fully fund my TFSA with extra cash or through transfers of investments . My travel fund is what is left over and has led to some wonderful experiences. I will continue to simplify the finances in the next couple of years to free up time from doing the books and tax returns of the company. After that will come bigger gifts to family. Retirement is wonderful.
Amazing, Jan. You seem to be a great place financially and mentally.
Kudos 🙂
Mark
I use the 4 year rule outlined in Ben’s article for exactly the reason outlined. 4 years seems a reasonable enough buffer to accommodate both the downturn and the bounce back of recovery based on past data. I use a return threshold of 9% based on long term returns performance from a 50:50 mix from US and CDN investments. Cash flow needs are defined as that needed after use of dividend income and p/t consulting income. In years where the returns are greater than the threshold, I draw from the investments to fund annual cash flow needs , and the excess return over the threshold is put aside to build the cash wedge up to a cap of 4 years of cash flow needs. In positive return years at or below the threshold, nothing is put aside and I use the returns to cover annual cash flow needs. And finally in negative years, I draw from the cash reserves to meet annual cash flow needs.
Excellent, Glenn = “I draw from the investments to fund annual cash flow needs , and the excess return over the threshold is put aside to build the cash wedge up to a cap of 4 years of cash flow needs.”
Do you think you’d ever really need 4 years of spending set aside in advance? I assume you’re doing that to avoid sequence of returns risks?
We’re about 2 years in advance here.
We have all 2026 spending set aside.
We are working on 2027 spending to be set aside.
Finally, for 2028 spending, it is our hope all dividends and distributions > expenses every year so we can likely lower our cash wedge to about 12-18 months.
Thoughts?
Mark
Yes, I’ve adopted this approach because of sequence of returns risk. Here’s a summary of bear market downs and ups in my lifetime.
https://lautorite.qc.ca/en/general-public/investments/tips-for-better-investments/turbulence-on-the-canadian-stock-markets
It’s not so much the time down but the time to recover to the last high before the tumble. It ranges from 1-5 years and averages 2-2.5 years.
Although I see us in the thralls of a long term secular bull with still 5+ years to run, and I’m ahead of our long term assets and cash flow requirements in our road map at this point, I’m still comfortable with 4 years in reserve at this point because I’m still early in semi retirement and desire to put off CPP/OAS as far out as possible
That’s my experience as well…markets can be down for about 1-1.5 years.
https://www.myownadvisor.ca/how-long-do-stock-market-corrections-last/
So, few things to combat that:
1. Either cashflow from the portfolio must always be > expenses, to navigate poor returns risks, and/or
2. Cash wedge sizeable enough such that you can spend cash/cash eqiuvalents for up to 1.5 years and therefore ride out most of the market storms and then get back to regular withdrawals in the range of 3%-5% or so as you age, if not higher than that in your 70s+.
Even if you HAD to withdraw from your portfolio in flat markets, 4% rules are generally “safe” but that also means you need to have $2M portfolio to withdraw $80k per year and then have to navigate taxation on top of that.
Our withdrawal plan which I have written about on this site often is largely this near-term:
1. Spend cash/cash equivalents saved in 2026 and 2027.
2. As we spend cash, dividends and distributions should flow-in during 2026 and 2027 to fill up spending buckets again for 2028.
3. By 2028, the sum of RRSPs x2 + Taxables x2 + LIRAs turned to LIFs x2 (6 accounts?) = should be enough cashflow from the portfolio to be > expenses. That would seem pretty safe to me since this doesn’t even including TFSAs nor any government benefits….
Happy to get your thoughts.
4 years in cash reserves is very, very good and way ahead of the game I think.
Mark
In our early years when every dollar was stretched to the limit, we used jars to track our budget and spending. That was 35 years ago but our kids were able to visualize how much money we had for the next two weeks and it was helpful teaching them about money. If your kids only see you swiping a card they can get an unhealthy understanding of how much they can spend. Nowadays in retirement, we live a simple life and don’t need much beyond the basic necessities and travelling a bit more. It can be hard to spend, so sometimes we splurge on a meal without feeling guilty. We also give to charity and help our kids out.
You sound like you’ve done so many things well, Donna.
Kudos.
Are you gifting to the kids while you are alive and well? Living inheritance per se?
Mark
Thanks Mark, we also got a lot of things wrong, but our kids all survived and stayed out of jail, 😂. We’re trying to gift now while they need it to buy a house and raise their own kids, much the same as my mom did for us. Congratulations to your wife on her retirement.
Ha. Well, that’s success unto itself!
Thanks – I’ll let my wife know readers are wishing her congrats. She only reads the site from time to time. 🙂
Mark
I always paid off credit cards in full and avoided debt other than our mortgage (which was paid off in our 40s). I just paid myself first (The Wealthy Barber concept) of at least 10% for the retirement fund, fully funded RESP for the kids, and threw annual bonuses at the mortgage principal. Otherwise we lived within our means. It meant we were frugal but our kids got into extra curriculars, we still did family vacations (inexpensive winter beach vacations and camping trips in the summer). I didn’t really budget. Sometimes I would add up how much we spent on dining out and my hubby would think it’s outrageous so we’d tighten up for a while.
Now that I am retired we are pulling out more than we need so I have some account buckets for current spend, future spend (cash wedge), taxes. I keep topping up our TFSAs so they are fully funded. We didn’t spend all the education fund so I have been adding to my kids TFSAs so the money compounds there (instead of in our estate, getting fully taxed upon death).
We have a fairly hefty cash cushion covering 2 years of spend in case of a market downturn. But this is partly because we aren’t getting CPP/OAS yet so I don’t want to be caught off guard. This allows me to sleep at night. The only budget I am currently tracking is our travel bucket, in an effort to make sure we spend our target amount. 🙂
I stopped budgeting because I chose to optimize everything instead.
The budgeting time could be used for optimize shopping, and thus free up cash for investing or debt repayment.
I usually have an idea when I have enough money to pay for something we need.
The checking account and other accounts have double the cash I need for every month expenses. That helps when the banking system is offline. Also helps to have multiple accounts.
All the expenses are mapped out on a simple calendar for the year. Insurance is written out in the month before it is due so we don’t miss any payments.
I also pay more than the utility bill or credit card requires. It kind of evens out the expenses and helps you credit score.
We do keep extra cash in savings for sudden unexpected expenses.
Attacking the expenses with the idea of finding a better option is a better use of our time, which is limited.
Before we were debt free I would put every pay increase into paying off debts early. Tax refunds would goto buying new RRSP/TFSA account contributions.
Doing the Quicken update ($100) every year and the hours spent in filling in the cells was a depressing effort.
I never had to limit my spending with the crazy food inflation spiral after the pandemic.
The only thing I worry about now is a $150,000 renovation for our home. I guess the kitchen is the most expensive part that will cost the majority of our savings. The other projects like bathroom renovation are inexpensive enough to payout of our future monthly income.
Things are three times what I use to expect to pay for in the past.
It took a while to get here, but it was worth it.
You sound very organized and systematic, Mike.
We have our chequing account for daily expenses, then savings, then investments.
Ideally by 2028 (?), once both LIRAs are converted to LIFs, it is our hope that dividends and distributions will be > expenses. We shall see!?
“I also pay more than the utility bill or credit card requires. It kind of evens out the expenses and helps you credit score.”
Yes, very smart. I do the same thing.
What your emergency fund for sudden / unexpected expenses? Curious.
We have a standing float of $10k for that and we’ve had that in place since about 2014.
Cheers,
Mark
We don’t budget but we do track….pretty much everything. I have been using Quicken since 1999 and am able to run a monthly or annual report to look at cash flow. We have had the good fortune of being is well paying professional jobs that have provided us with strong DBPPs so much of our saving was done for us. We would max out our RRSPs each year, keep some $ in the checking account and from there just focus on the mortgage, which we were able to pay down quite quickly for a middle income household. When TFSA came along we jumped on that bandwagon and maxed those out each year as well. We upgraded our home once and when that mortgage was paid off we added a non registered account to our portfolio. I’ve been retire for 6 years now and my wife, who has chosen to work longer, will retire this year. We been living off my wife’s wages for the last 6 years and banking the pension check each month, DRIPPING all the portfolio income and living the dream.
It is now time to learn to spend….that’s tough as we find that we really don’t want more stuff. We are not big travelers, although we bought an RV this year and are traveling in B.C. so far and loving it. We are truely living the dream and the portfolio just keeps growing. Forward annual dividends are sitting at $70,000. It’s a beautiful thing to not have to budget, or worry. A lifetime of saving has been worth it.
Thanks for another great post Mark.
Rod, that is excellent: forward annual dividends are sitting at $70,000.
And you have a DB pension (or two of them?) on top of that?
No need to budget if that’s the case – just spend. 🙂
All my best to you and continued success,
Mark
As with Lloyd above I also do not budget expenditures.
I first prepared a pre-retirement budget to try and get a handle on the “NEEDS” section.
Once that was established then you can look at your income and see if it does/will jive with expenditures when retired.
I do have a spreadsheet to track expenditures just to know where the dinaro are going. If you don’t like something then you can have a look at why you are spending on whatever it is.
Other than that, if your income is positive vs outflow, then you are home free.
RICARDO
Seems a few of you (readers) don’t!
Kinda how I look at things today, as long as cashflow from portfolio > expenses, we’re fine. 🙂
Thanks for your comments,
Mark
Hi Mark
I enjoy your posts very much.
Budgetting?
Well, in our case we never have. Basically my wife and I are not spendthrifts and the only time I recall being in a cash flow negative situation was when we were putting two kids through college…a situation we expected and planned for.
It helps if your hobbies don’t include mall walking when the shops are open 😉
Great stuff, and thanks very much Mike!
Sounds like you have very good money management principles!
Mark
Since the advent of computers and the internet, we’ve never used a budget plan to try to “control” spending, only to track the spending. It’s just an excell spreadsheet tab to mimic the current chequeing account reconciliation with extrapolation for the calendar year. It also has a further four tabs to extrapolate for future years. Monthly surpluses are transferred out to some kind of investment/savings account and are tracked in the investment spreadsheet. Back when we had HELOC liabilities, surpluses would have generally gone to that account only after TFSA and possibly RRSP contributions were considered or done.
As I age, I embrace simplicity – I mean, I always have I think but coming into overdrive now.
I try not to overthink things.
I save, I invest and then I try and live my life as best I can!
I appreciate your candor back. 🙂
Mark
I use a similar spreadsheet. It tracks the monthly deposits and withdrawals in my chequing account. Not individual transactions, just the monthly cashflow.
Also tracking monthly deposits and withdrawals to/from savings and investments is important to make sense of the numbers. It allows the savings rate to be calculated.
This approach is not perfect. With multiple accounts or lumpy expenses it can be hard to see the big picture.
What matters is knowing your savings rate and past years’ expenses. That way you know if you’re on track.