It’s Budgeting Time! Revealing Rich Frugal Life’s 2022 Budget

It’s a good practice to have a budget. How detailed and how strict you are with it is a personal decision which should be based on your financial situation and goals. We treat our budget the way we treat most of plans in life… as a “loose plan.” Our 2022 budget will serve as a way to document our goals and track actual spending compared to those goals. We’re pretty flexible with it, always making sure to budget in some “fun” money so we never feel deprived.

It may not be glamourous, but I truly believe budgeting and tracking your expenses is one of the best ways to keep your finances under control.

I think budgets unfairly receive a lot of hate because people view them as restrictive. However, done correctly, a budget can help you identify the things you value most and provide (guilt-free) permission to spend in those areas. Whether you build a budget with 5 or 50 categories, the results can be extremely enlightening.

If you have never budgeted, why not give it a try?

Here’s a little more about our budgeting process, along with a sneak peek at our 2022 spending budget and reconciliation of that budget to our FIRE number.

Our annual budgeting process

Ideally, you should perform a detailed comparison of your actual spending to budget multiple times a year, including at year-end.

Reviewing spending helps you identify where your money is going, and knowledge is power. You can then decide if you want to tweak the budget going forward or pay more attention to a certain category if you’ve been over-spending.  

I review our budget to actual each month. After October or November numbers are finalized, I then use that data to project spending for the rest of the year by adding expected spending for the remaining months (usually the budgeted amounts). From this, I create a draft budget for the upcoming year, considering where money went, where it will change (i.e. no more childcare), and where we want it to change (i.e. reduce alcohol spending).

Once the draft budget is completed, I sit down with Mr. RFL and we make any additional changes together. While the expense side of things is completed before year-end, we finalize the income side in January, once actual pay raises and bonuses are known.

You can check out our 2022 spending budget below and our Mid-year Budget Update for 2021 here.

Rich Frugal Life’s 2022 spending budget revealed

Gifts exclude charitable contributions, which we don’t count as “expenses,” to encourage more giving. We’ve historically not shared these details publicly, since doing so seems like a lose-lose proposition. However, in 2022, we plan on opening a Donor Advised Fund to allow for more tax-efficient charitable giving, and will write more about that in the first part of 2022.

How does this compare to 2021’s spending?

We’re expecting to come in just under our original 2021 budget of $53,556.  Based on my current projections, we’ll spend between $52,500 and $53,000 during 2021, excluding income taxes. 

I don’t always get the amounts per category right, but after tracking our family’s spending for 8 years, I’ve gotten pretty accurate in the overall budgeting process.  If you’re just starting out and feeling frustrated, know that both tracking your spending and budgeting get easier over time.

One of the reasons that we consistently come in under budget is that I build cushion into our estimates.  You can do this by including an “oops” line into the budget or by adding cushion in the categories you are likely to overspend in, which is what I do.  For example, this year we completely BLEW our medical budget, spending over $3,500 (through October) as compared to our budget for the year of $780.  Spending in this category has historically been really low, so this was completely unexpected. Luckily, I had extra cushion built into other categories which helped to offset this overage.

We’ll share our final 2021 budget-to-actual comparison in early January. 

What’s changing in our 2022 budget? 

More fun money!!!

Absent any serious stock market meltdown, we should reach financial independence in early 2022! 

Despite achieving this milestone, Mr. RFL doesn’t plan to immediately retire.  This means that we won’t drawdown on our investments anytime soon, and our portfolio will continue to grow. 

At a savings rate of over 65%, we have plenty of room in the budget to enjoy more of that hard-earned cash.  And so, we’re planning to do just that in 2022!

After working to reduce expenses in recent years, intentionally increasing our spending feels surprisingly difficult.  In fact, doing so has led to irrational feelings of guilt in the past.  To minimize this guilt, we’re incorporating these increases into our 2022 budget.   

The categories in which this increase is primarily reflected in our 2022 budget are restaurants, entertainment, and travel. 

One of the things that Mr. RFL and I intended to begin when I retired was to add weekly dates.  While the pandemic delayed things, we finally started this last month.  Because Mr. RFL still works, we won’t always have a full day to spend together.  However, most weeks we’ll have at least a few hours to spend alone together hiking, catching a movie, or enjoying a long lunch.  Either way, some of these dates will cost money.  And doing so during the daytime will give us alone time to work on our marriage… without having to pay a babysitter!   

We’re also planning to spend more on travel this year with one or two longer vacations and more weekend trips.

While there are some other changes in the budget this year, that’s the biggest. Check out any one of our monthly financial updates to learn more about what we include in each category.

How does this compare to our FIRE Number?

Yes, I do realize that our 2022 budget is higher than our FIRE budget of $40,000… by quite a bit.

Am I worried about it? No. Because our 2022 budget isn’t fully reflective of what we expect our expenses to be in early retirement.

Some of our expenses will decrease in retirement, while others are due to the intentional increase in discretionary spending discussed above. 

Although there’s a risk this extra spending could lead to lifestyle inflation, most of these increases will go towards experiences or services that buy back more of Mr. RFL’s time while he’s still working.

I did have a brief “oh shit” moment after creating our 2022 budget, so decided to reconcile it to our intended FIRE lifestyle, to make sure we’ll still on track. Phew!

Adjustments to get from our 2022 budget to our FIRE budget

As a part of our 5-year transition plan, we will move once retired and limit our next home’s cost to the equity received from selling our current one. We won’t have any debt. Currently we estimate our home equity to be around $650,000 (after real estate commissions).

Additionally, we won’t be paying for childcare after 2022, although I recognize that some costs of raising a child will up with age.

With a lower income, we should actually save money on our health insurance! That is, as long as the Affordable Care Act remains intact. My recent search for silver-tiered plans cost $2,700 per year, after subsidies, with an income of $50,000. A lower income would reduce these costs further. We’ll also buy dental insurance separately. For conservative purposes, I’ve assumed that we’ll pay $3,100, a savings of $1,200 per year.

Finally we get to our discretionary spending, which makes up a healthy 30% of our 2022 budget. Keeping your needs and fixed costs low is the one of the best ways to ensure you have the financial flexibility needed in early retirement. While we’ve built some extra fun money into our current budget, most of these items could easily be lowered.

We don’t plan to spend $6,000 every year on travel, but have some big trips planned this year. Our target travel budget for retirement is $4,000 per year.

As discussed above, we intentionally increased spending on restaurants and entertainment this year. Additionally, we budgeted for a larger purchase of $1,000 in tools for Mr. RFL’s budding woodworking hobby, which won’t occur every year. Overall, I think the $2,000 adjustment made for discretionary spending is reasonable, and we could easily save more if needed.

What big changes are you making to your budget in 2022?

Sharing is caring! If you enjoyed this post, please consider sharing it on social media. This helps the blog continue to grow and reach a larger audience. Thank you for your support!

Disclaimers:

This website reflects the author’s personal opinions and experiences, which may be different than your own. It is not a replacement for, nor is it intended to represent, financial or investing advice. Please refer to our disclosure and privacy policy for further details

This post may include affiliate links, which provide a small commission to the blog when used to make a purchase (at no additional cost to you).

Photo by Tima Miroshnichenko from Pexels