One of the biggest things that would have helped us in our journey, especially in the lead up to considering whether we could make the leap to FIRE, was having a better handle on our expenses. Whilst we’ve never been in any real financial straits, we certainly didn’t really understand how much we were spending or where the money was going.
In 2015, when we first started thinking about retirement as a very real possibility in the not too distant future (at that time we were looking about a couple of years plus away), we needed to start defining what our budget was going to be. This was a critical step in understanding whether retirement was a consideration, and yet we had a real hard time coming up with accurate, or even approximate, numbers. And without good budget data any hope of being able to confidently predict our financial future went right out the window.
So our first step on the path to retirement was capturing the truth. Where was all our money going? But where to start?
We looked at several tools to help us, from a simple spreadsheet to web-based tools to regular applications. I’ve used spreadsheets considerably, but wanted something a little more manageable. A lot of the tools wanted direct access to our accounts, which we were somewhat uncomfortable with. In the end we settled on YNAB (You Need A Budget). It allowed the creation of multiple accounts, budget categories and sub-categories, there were iOS apps for our mobile devices, and the data was stored on Dropbox for easy access across all devices. Overall it’s worked for us, although not being able to keep two budgets open is somewhat annoying.
However, having a tool is not the whole story – you have to learn to use it properly, and that took us a couple of years. Initially we were a bit gung-ho on tracking all our expenditure and we weren’t using YNAB to balance our accounts and all the movements, so we were well off on our budgeting. Eventually we made a clean start, with all our accounts and balances, and are now almost religious in our tracking of expenses and keeping everything balanced. After all these years we’re back to balancing our check books (and credit cards) every month.
This does mean, however, that we are now very aware of where every single penny is going, and allowed us to identify an insurance policy that was supposed to have been canceled months before but had been missed. Because we weren’t balancing our checking account this payment had continued unnoticed for 10 months. Ugh.
Coincidentally, I was just looking at a web page on the best and worst places to retire, and their experts said “Cash flow discipline can be difficult if a client never practiced it while they were working.” and “[…] you might be surprised how many people have no idea where their money goes.” Whoah! Us in a nutshell.