In one of my previous posts, I briefly mentioned that I planned my monthly expenses to be around Rs. 50,000 per month. In this post, I want to explain a bit more on how I arrived at those numbers. May be it will help you figure out your own expenses in your retirement.
Before nearing retirement I never kept a meticulous record of my expenses, but I was keeping track of where they are going in general. But come 2017 (a year before my retirement), I finally decided to sit and write down what I thought my expenses ought to be in my retirement. I first started with expenses that show up more frequently than a year. Examples of such expenses include groceries which are very frequent, and vehicle servicing which happens less frequently, etc. If you are doing this exercise yourself, think of all the expenses that occur at least once a year and jot them down.
Next, I put some numbers to each of the expenses. For the expenses that I had bills for (example electricity or internet), I just used the average of the bills in the past one year, plus a little bit headroom. For others like groceries and such, I just came up with some number. Put all the expense types and the amounts into a spreadsheet and it should look something like this one below.
I went a bit crazy and even color coded things (I will explain what the colors mean in a bit). As you can see, my biggest expense is Food and cash expenses. I clubbed a bunch of related things into that one big basket. In India, unfortunately, a lot of transactions are still cash based. You cannot go to the local fruit and vegetable vendor and use a plastic card. Since food component has the most cash expenses, I clubbed them together. These are the constituents of the Food and cash expenses
- Kitchen supplies (fruits, nuts, rice, vegetables etc)
- Bathroom supplies (soaps, toothpaste etc)
- Cleaning supplies (floor cleaner, clothes detergent, etc)
- Cash expenses
- Most other things that I can't seem to remember now
The next three expenses are probably obvious. Gas is the cooking gas cylinder expense on average for a month. The Electricity expense is average monthly electricity bill. The Medical expenses include any expenses related to visiting a doctor and buying medicines but does not include health insurance. Layout maintenance is the monthly bill I pay to the housing society to which I belong. The pooled up money from all the houses and apartments in our layout goes towards paying security and street light bills. The final expense in the green section is kid expenses. Since my kid does not go to school, there are no school expenses just these ones
- Activities (karate, swimming, skating, etc)
- Apps and games on tablet
- Visiting places for kids (parks, museums etc)
Now coming to the yellow section of the expenses, most of which are fairly obvious. While I don't watch much TV, I do like watching cricket and my parents like watching news and religious channels. So we pay for a bunch of channels under the Cable expenses head. Next comes Cell phone bills and Internet expenses. As you can expect, we live in a connected world and these things have become a part of our life now. The final expense in the yellow section is Fitness expenses. These include any expenses related to fitness (mostly for me), like karate classes and protein shakes.
Red section has a bunch of stuff related to travel. This is my most hated section. For one, I hate spending money on a depreciating assets and yet I own 3 vehicles! I really need to clean up here because these depreciating assets are a huge drag on my finances. There is the sedan for those once in a while long drives, then there is a small hatchback to drive around in the city because parking and road space for a sedan is a premium in India. Finally there is the 2 wheeler for short rides where zipping through traffic is paramount. I have lame reasons to not be able to get rid of any vehicle. The sedan gives a comfortable ride for ageing parents and the kid when going on long rides.
The hatchback helps when the weather is not great to use the two wheeler and my dad prefers driving it over sedan when driving in the city. The scooter is for the short errands because parking is difficult near local vendors. Anyway, the point I am trying to make is that I could have avoided a bunch of expenses if I did not have the vehicles. Hopefully I will find a way to get rid of them. These vehicles need Petrol, Vehicle service and Vehicle insurance, which are the 3 expenses out of the 4. Finally I have another expense in the red which is Travel and that includes any flight or train expenses not related to a vacation.
Finally we come to the blue section, which includes any expenses not covered by the above heads. Some random examples of miscellaneous expenses that I incurred during 2018 include rechargeable batteries, speaker wires, domain renewal for this blog etc. The way I arrived at the number for Misc expenses is what ever is left over after deducting all the expenses from Rs. 50,000 because that is what I want my monthly expenses to be ;) for 2018.
Now to explain the color coding. I used green for those expenses which are non negotiable and I don't plan on cutting down on those expenses. The yellow ones have some leeway in how much I want to spend. I don't actively find ways to reduce those expenses, but will be on the look out for better plans when possible, like better mobile or internet plans, or fewer cable channels etc. The red section, as you might expect, is where I want to cut down the most if my monthly expenses go out of hand. There you have it, my expense planning explained! You already know how my monthly expenses have turned out in 2018.