What’s your minimum monthly requirement?


Mea Culpa! 

This piece was originally published on Tuesday morning. In a rush to publish before I headed up to beautiful Vancouver, BC for a mid-week getaway, I inadvertently posted what amounted to a very rough draft. I wrote the piece in the middle of the night the day before we left town, planning to go over it in detail in the morning, include correct numbers from my assumption spreadsheet and then head out of town. Well, of course, I failed to do that. Thank you to those of you who wrote pointing out my errors and thanks to those of you who politely overlooked the errors and took away the overall point. I took the unprecedented step of taking this down until I could get home to my computer and carefully correct things. Publishing this before it was ready was not fair to you, my readers, and it won’t happen again. Thanks for understanding! 

I’ve never really tried to live within a budget. That has probably been a mistake.

Budgets can be powerful and great for setting yourself on a path to financial success. But I usually had enough money for whatever I needed. And if I didn’t, I typically would just wait. And being somewhat frugal by nature, I never really needed to restrict myself to a given number.

However what I have done is keep close track of what really is going OUT the door. (Which is different than setting budget goals and restricting myself to them.) This sometimes depressing look at my finances helps me rein in runaway bills and think about new ways to drive costs down.

Keeping close track of your actual spending is particularly critical if you’re pursuing pretirement. If we view pretirement as the point when our passive income becomes large enough to cover our monthly bills, knowing that number becomes all-important. And, even more importantly, the lower we can get this number to go, the sooner we can be free.

Take two hypothetical couples: (as I often do, let’s assume both have no housing costs and both have the same income for this example)

  • Couple 1: Monthly bills = $3,000 (a couple car payments, high utilities and commuting costs, cable TV, expensive vacations and some spending money)
  • Couple 2: Monthly bills = $1,800 (relatively frugal living but still a nice middle-class lifestyle)

Couple 1 would need a fund of more than $1 million to support their lifestyle. Couple 2 will need around $600,000 for theirs. Worse, Couple 1 probably can’t even build up enough to pretire because most of their income is likely being spent. But if we assume both couples can save a nice, round $1,000/month or $12,000/year (remember, this is pretirement, not “retirement”), the differences are vast.

Our frugal couple that only needs to reach $600,000 would be pretired in 25 years from the point when they started building their pretirement fund. Our spendy couple, Couple 1, would need to work 10 extra years beyond that to reach their $1 million goal. (I’m assuming a reasonable 5% taxable yield from their pretirement funds in both cases.)

But more realistically, because Couple 2 is frugal, they should be able to build their fund much more quickly. Let’s say the $1,200 difference between the two couples is put into the pretirement fund. Both are still saving the original $1,000/month. So Couple 1 is just saving $1,000/month and Couple 2 is building their pretirement fund with $2,200 each month. Couple 2 will now reach pretirement in around 15 years.

For our spendy couple, that’s an additional 18 YEARS OF WORKING!

Hold on a second while I add some additional exclamation points to ensure this point gets across:

So since none of us want to be forced to work an extra 18 years or more, let’s agree that driving down ongoing monthly expenses is critical to reaching your pretirement goals. But how low can we get that monthly nut to go?

This is where every person or couple is different. Our expenses may differ from person-to-person and even during various stages of life, and especially in different regions geographically. But we can agree that there are some common spending leaks that should be eliminated immediately. And if we eliminate the mindless spending from our monthly outgo, how much is left that HAS to be paid?

In discussing this topic recently with a few friends and in reading some other blogs, nearly every household said the same thing: the monthly “core” bills total to around $2,000/month. Some a little less, some a little more, but every time it comes up, it’s around $2,000. Isn’t that odd?

I was rather shocked there was so little variance so I went back and double-checked my own numbers. Here are my core monthly expenses:

  • Groceries/Eating out: $350
  • Utilities (water/sewer/garbage) $101
  • Electricity: $78
  • Gas (heating and stove): $66
  • Internet and TV: $63
  • Cell phones: $129
  • Car insurance: $256
  • Life insurance: $88
  • Property tax house: $440
  • Homeowners insurance house: $46
  • TOTAL: $1,618

I’m not counting a few things here, which is a little misleading. Any social spending is not included, such as going out to breakfast with a friend, like I did last week. Also certain expenses and random spending money aren’t included like haircuts, my wife’s commuting costs (I don’t have an office I have to go to, except down the hall), or our small splurge at the Farmer’s Market on Sunday. So maybe we average around $1,800 or so most months. Like I said, “around” $2,000/month. But can we drive it even farther down?

The $1,600 above corresponds roughly to our current “pretirement” goal (or $800 for my both my wife and I). Now, obviously(?), we’re not going to stop building our pretirement fund once those levels are reached. Rather, it’s a difference in mindset. We want to know we’re free. And in this case, we’re just talking about the minimum. We know we’ll need a little more safety cushion and we haven’t even talked about inflation and costs related to raising our son. And, because this is lunatic America, we have to think about health insurance (but not today since my wife is still working full-time).

So how low can we get our monthly bills if we really pushed it? Without moving from our home, we feel we can get down to $1,500 for our basic bills. That’s dropping the fancy cell phone plan (already underway) and lowering our car insurance (we have three vehicles currently — long story) and using our utilities more efficiently. But the much larger savings come if we downsize to a smaller home and can pay less property tax. Or if we were to move and rent, we’d probably be cashflow-positive so we could potentially be even a couple hundred lower.

But even with those savings, and knowing we’d want to have some spending and cushion money, our realistic minimum monthly requirement is still “around” the magical $2,000. Once we hit our goal of bringing in a passive $1,600/month, we’ll declare ourselves “pretired” but we’ll keep building at least until we have a solid $2,000 rolling in.

I’d be very interested to know if readers are finding themselves close to the same number. Are you over or above $2,000/month? What is your minimum monthly requirement?

Image courtesy of Stuart Miles / FreeDigitalPhotos.net
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13 Thoughts on “What’s your minimum monthly requirement?

  1. anonymous photographer on May 14, 2013 at 8:41 am said:

    Are you sure your conclusions are correct?
    “Couple 1: Monthly bills = $3,000 (a couple car payments, high utilities and commuting costs, cable TV, expensive vacations and some spending money)
    Couple 2: Monthly bills = $1,800 (relatively frugal living but still a nice middle-class lifestyle)

    Couple 1 will need a pretirement fund of just over $600,000, while Couple 2 would need a fund of more than $1 million to support their lifestyle. Worse, Couple 2 probably can’t even build up enough to pretire because most of their income is likely being spent. ”

    Why would a couple that only spends $1800 a month is expenses need one million to retire, when a couple spending $3000 a month only need $600K? That’s only 16.6 years spending in retirement vs the 46 years the $1800 a month couple will need.

    Is your math correct? Or are you presuming that the $1800 a month is all they earn thus impossible to save? Then how could they possible save one million dollars?

    For the record, I need $2500 a month to live frugally on. Currently living on $3500 a month right now. And yes, I am pre-retired, same as you, with a spouse working. You left out medical insurance which runs approximately, for us, $560 a month. Whether working or not, I don’t know anyone who isn’t paying something towards medical bills.

    • Pretired Nick on May 18, 2013 at 9:04 am said:

      Thanks, AP. That section was a mess and had several errors. Sorry about that. Should be fixed up now! Thanks for sharing your perspective on monthly costs. I still need to write up a detailed post on health insurance, but for us we’ve been paying nothing out of pocket, although that is changing to paying a little bit soon. However, the bigger picture is that it is one of the largest monthly bills we’d have if neither one of us was working. We do have some plans in that arena, that I’ll get into later.

  2. Chad on May 14, 2013 at 10:02 am said:

    I think that you’ve got your couples reversed in the example.

  3. Funny, Nick, we are about at that same amt for our family of six, maybe $2100. Weird that 2k seems to be the number for so many people. So yes, we’ll shoot for that number, which will suffice nicely once all debt is paid off.
    Laurie @thefrugalfarmer recently posted…The Elusive Pot of GoldMy Profile

    • Pretired Nick on May 18, 2013 at 9:06 am said:

      Isn’t it crazy how many people wind up in that same range? Seems like the lowest “normal” (living in an apartment or house) lifestyle folks can get it down to around $1,500 while the more expensive folks top out at around $2,500. Very interesting!

    • I also would say roughly $2k. That’s counting housing, but not counting taxes or day care costs.

      • Pretired Nick on May 31, 2013 at 8:00 am said:

        Yeah, if you’re including housing, you’re doing even better than most! But isn’t it weird how nearly everyone ends up “around” $2,000?

  4. This is a very eye opening article. I love actually crunching the numbers to see what the differences are. It just shows that being frugal will allow you to be free quicker than if you weren’t frugal. I think converting the numbers to years really shows people what a difference in lifestyle can do for their future.
    Jake Erickson recently posted…How to Buy a BikeMy Profile

    • Pretired Nick on May 20, 2013 at 10:52 am said:

      Thanks! Yeah, I wish I’d read it myself 20 years ago! Oh well, I sure it helps folks who are wanting out of the corporate game.

  5. Pingback: How many times have you blown $1,000? | Pretired.org

  6. Pingback: Rethinking Retirement | Root of Good

  7. I don’t see the cost for a home or house in this. I’m guessing the assumption is the house is paid for given the taxes in your “Monthly Nut”.

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