Wednesday, October 20, 2010

A Sample Budget

How much money do you need to retire?  What is the square root of minus 1?  It is a hard number to quantify.  All I can say is, however much you have saved up, you probably need more - or you wouldn't be reading this blog.  You'll need at least a half-million bucks in the bank, if you expect to have a $50,000 annual income, with Social Security added, when you retire.  Not many have even that much saved.

I have been entering all of my expenses on Quickbooks over the last year.  It allows me to total up what we have been spending.  It also gives me an idea of what we would need to live a "debt-free" retirement on Jekyll Island - and whether we want to live there at all.

Simplified Annual Budget

I.  Fixed Costs:
  1. Mortgage - 0
  2. Insurance - homeowner's  $800
  3. Insurance - flood $800
  4. Insurance - wind  $1000
  5. Lot Lease - $1000
  6. Property Taxes - $2825
  7. Fire Fee - $450
  8. Water, Sewer, Trash - $400
  9. Electric Bill - $1200
  10. Telephone & Internet - $720
  11. Wireless Phone - $800
  12. Car Insurance - $500
  13. Umbrella Liability Insurance $600
  14. Car Payments - $0
  15. Credit Card Payments - $0
  16. Health Insurance - $4000
TOTAL: $15,095

Observations:  Living on Jekyll Island, even if you have no mortgage, is not a cheap place to live.  The cost of property taxes, the excess insurance (flood and wind), fire fee, water and sewer, etc. comes to $6475 a year - about what the property taxes were in New York (and why we sold that home!).

As such, we may move from Jekyll Island eventually and find a place with overall expenses of $3000 a year or less, if possible.

Note that Health Insurance, about $350 a month, is the largest single fixed expense, and will go up in cost every year, rather steeply, from here on out.  It is entirely possible that this cost could rival our previous mortgage payment by the time we are sixty.  Now you know why being debt-free is not merely an option!

II. Variable Costs (based on year-to-date numbers projected over 12 months):

  1. Groceries  $7200
  2. Liquor $4200
  3. Travel and Entertainment $8400
  4. Clothing $500
  5. Miscellaneous $1000
  6. Automobile Expenses (gas and oil) $2000
TOTAL:  $22,300.00

Observations:  Spending way too much money on booze!  Nearly $350 a month

TOTAL of FIXED and VARIABLE costs:  $38,395

Note this is a simplified budget that does not take into account car repairs, savings, home repairs, emergency funds, etc.

In order to make that amount of money as take-home pay, we would need to earn about $50,000 a year, which should not be hard to do.  Yea, I think we can do that, without too much trouble.  And now we will have flexibility if our income goes down (as it did this year).

According to some online sources,  with Social Security payments, you'd need about $500,000 in savings in order to retire on a budget of  $50,000 a year.  Been there, done that.

So our goal for the next 15 years is to enhance that retirement savings, to the point where we can be assured of a more relaxed and enjoyable retirement.

These are just rough numbers.  My goal for the next decade is to increase our retirement savings to over a million dollars, so we can have a more enjoyable and relaxing retirement that the minimum budget outlined above.

Working out a budget for daily living and for retirement is important.  It helps you focus on where you are spending your money.  For example, we clearly are drinking way too much booze!