It’s Budgeting Time! Revealing Rich Frugal Life’s 2023 Budget

Budgets seem to have a bad reputation, but I think they’re just misunderstood. When used properly, a budget can help you reach your financial goals and give you the freedom to spend lavishly on the things you value (guilt-free). I actually love budgeting and I know that our 2023 budget will help us achieve these things.

Like most plans we make in life, our 2023 budget will serve as a “loose plan.” We’re pretty flexible with our budget, always making sure to include some “fun” money so we don’t feel deprived.

I think that the greatest value people get from budgeting doesn’t come from the budget itself, rather, comes from the discipline of tracking expenses. What we track, we can control.

However, setting a budget for each category does provide some additional benefits. Having an expected number in mind keeps us from going too crazy in any one area. It also reminds us of the areas we value, helping us to avoid underspending on things that we know bring us joy.

Here’s a little more about our budgeting process, along with a sneak peek at our 2023 spending budget and reconciliation of that budget to our FIRE number.

Our annual budgeting process

We perform a detailed comparison of our actual spending to budget multiple times a year, including at year-end.

Reviewing spending can help you see exactly where your money is going so you can make financial decisions that best align with your values going forward.

Because I’m obsessed with personal finance, and because I share our finances regularly on the blog, I review our budget to actual each month. You could easily do this quarterly or annually if you preferred and still obtain most of the benefits.

Once November numbers are finalized, I use that data to project spending for the rest of the year. From there, I create a draft budget for the upcoming year, considering where money went, where it will change, and where we want it to change.

Mr. RFL and I review and make changes to this draft budget together before it becomes our official budget for the year. 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 2023 spending budget below and our Mid-Year Budget Update for 2022 HERE.

Rich Frugal Life’s 2023 spending budget revealed

Where is charity?

You won’t find a line item for charitable giving in our public budget for two reasons.

The first being that we don’t share this number publicly. Frankly, I believe that charitable giving is personal. Sharing our number just feels like a lose-lose proposition.

The second reason you won’t find charitable giving above is that we don’t treat it as an “expense” in our budget. I’m constantly looking for ways to manage and reduce our expenses, and this is one area where I don’t want to be tempted to cut back. In an effort to give more, we’ve reframed the way we view charitable giving.

That said, giving is still something that we plan for each year after setting our budget. This year, we opened a Donor Advised Fund to allow for more tax-efficient charitable giving. The account is excluded from our net worth. While a portion of our annual giving will be paid out of the DAF going forward, the majority will still come out of our normal cash flows. It just won’t count against our expenses or savings rate.

How does this compare to 2022’s spending?

Although we originally set our 2022 budget at $53,000 in December 2021, we subsequently updated that budget to $61,000 to allow for more “fun” money as we grappled with whether or not we actually wanted a FAT FIRE lifestyle.

Based on my current projections, we’ll actually end up much closer to the original budget, despite spending more in several discretionary areas this year. It seems we weren’t quite ready to completely abandon our frugal ways.

I’ll share our final 2022 budget-to-actual comparison in January. 

What’s changing in our 2023 budget? 

Even more fun money!

We’re trying this again and going even bigger this year.

After reaching financial independence in early 2022, we decided that we no longer need to be saving 75-80% of our income. Mr. RFL is still working so we are still in the wealth accumulation phase and aren’t drawing down on our investment portfolio just yet.  

Despite my lingering feelings of guilt when spending money, there is certainly room in the budget to buy back more time and splurge on experiences that will provide lasting memories.

Once again, we’re adding these splurges to our 2023 budget.  

The biggest increase this year is in the travel category, which went from a budget of $8,000 in 2022 to $14,000 in 2023. I still don’t know if we’ll actually spend this, since we came in well under budget in 2022 despite taking multiple trips. We hope to travel even more in 2023!

This year, we’re also boosting our budget for the following:

• Restaurants & alcohol for more spouse dates;
• Self-care for guilt free spending to support physical, mental, and emotional health; and
• Hired services around the house to buy back time

Finally, you may have noticed a pretty significant bump in the “Other” category. Typically, this category is small and includes miscellaneous expenses. This year, we’ve included $2,000 to pay for a lawyer to create a formal will & trust for us, which will be a one-time charge.

While there are certainly other changes in the budget this year, these represent 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?

We seem to be moving in the wrong direction from our original FIRE budget of $40,000!

Like last year, I decided to reconcile our 2023 budget to our desired FIRE lifestyle. I do this because our current 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 other increases in this year’s budget are intentional and discretionary. 

Here’s a reconciliation of this year’s budget to our intended FIRE lifestyle:

The results? Perhaps it’s time to boost this number a little.

Though I guess that shouldn’t come as too big of a surprise given how hot inflation has been running during the last 18 months.

If it is indeed time to increase our FIRE Number to $45,000 or more, we’ll still be okay since we overshot our original FIRE goal and are still earning income.

Adjustments to get from our 2023 budget to our FIRE budget

There are several items within this budget that will go away with little to know effort after retirement. Others we plan to pare back once we begin withdrawing from our investment portfolio.

Automatic reductions

As a part of our 5-year transition plan, we plan to move once retired and limit our next home’s cost to the equity received from selling this one. We won’t have any debt. Currently we estimate our home equity to be around $800,000 (after real estate commissions).

Additionally, we won’t have to pay for childcare in the future, although I recognize that some costs of raising a child will up with age. Our budgeted spending for 2023 is for discretionary after-school care and the occasional babysitter.

With a lower income, we may 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 under $2,000 per year, including dental, and after subsidies (expected income of $50,000). Surprisingly, costs have gone down since the last time I performed this analysis. That’s a savings of over $2,300 per year.

Finally, we expect to see reductions in some categories once Mr. RFL retires and I quit my part-time job. Without a formal job or the need to go into an office, we’ll naturally spend less on clothing, gas and office gifts.

Discretionary spending reductions

Discretionary spending makes up approximately 50% of our 2023 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.

One category we plan to spend less on in retirement is Travel.

We’ve never spent $14,000 on travel before, and certainly don’t plan on spending that much every year. However, while we live in Arizona, where the summer is H-O-T, we’ve decided to allocate more money to this category. Our target travel budget for retirement is currently $4,000 per year.

Additionally, as mentioned above, we intentionally increased spending in several categories this year. It’s fun to have the freedom to splurge a little while we’re still earning money, but we don’t think we need to spend more on these things to be happy.

For example, we expect to do most of our own household cleaning and maintenance in early retirement, even though we’ve budgeted extra money to pay for some of those things this year. Mr. RFL and I enjoy DIY and take pride in caring for our things.

The reality is that we may not use all the money we are budgeting for these things, but I wanted the freedom to spend it if we so chose.

Overall, I think the $5,000 adjustment made for discretionary spending is reasonable, and we could save more if needed.

We’re still financially independent, even if our budget needs to increase to $45,000. However, we’ll keep monitoring and adjusting this target as we get closer to full early retirement.

What big changes are you making to your budget in 2023?

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