We Ran Out of Money

Or how we’re budget poor. Ah, my first venture into clickbait….

The other day my wife sat me down and told me we ran out of money this month.

Sorta.

So my wife loves YNAB, and aside from me reconciling my accounts, she does all the work on our shared budget. I got to admit, it’s pretty sweet. I’m too lazy to implement YNAB on my own, and if it were just me I’d probably just use Personal Capital to reverse budget and call it good. Despite my sloth-like tendencies, I do enjoy allocating money to each budget item, and it feels less crazy spending on a big ticket item when we’ve budgeted the money for it. So yay for wife doing YNAB! Being spreadsheet nerds, we also have a combined tracking wall chart sheet, a la Your Money or Your life, and she updates that with data from YNAB.

We reconcile our accounts and set our budget around the first of the month, then my wife goes in and checks everything before we start allocating the current month’s amounts. We use last month’s income for the current month, apparently this is some prudent budgeting method, and then we sit down together to see how it all washed out. This is how I found myself sitting next to her as she broke the news.

As you know, I FIRE’d(or sabbaticaled, or took a mini-retirement-who knows what this will end up as) back in February. I dropped my resignation letter last year, worked until the end of February, and then started burning leave. Though my last working day was months ago, I continued to get paid through August as I got compensated for my leave time. I also get a fair chunk of change from the VA due to some service-connected disabilities, which will likely stick around for the foreseeable future. I count the VA as income for budgeting purposes. My income did drop quite a bit in August, as obviously I finally lost my primary source of money.

My wife also continues to work. She went to part time a few years ago, then last year negotiated to be paid hourly. This year she’s averaging 27 hours a week. Her work is highly variable; she’s been as low as 9 hours a week, and occasionally gets up to 45. This is based on the needs of the projects she’s working on, but more on her own desire to be around for family stuff. She was over clocking in hours for busy work, and now completes her tasks then calls it good. This is great as we’ve been going out for coffee or brunch regularly, and it’s not hard for her to take a day or two off every week. Since she’s compensated for only the hours she’s actually working, and doesn’t get paid sick or vacation days, (unlike my former employed self and many current full time workers, who are chained to the computer for 8 hours a day but may spend near half that watching Youtube), her income is highly variable. In the past this was smoothed out by my regular income from my full time job. Now, not so much.

Last month my wife took time off for vacation, and when I was off backpacking our kids got sick, so she took that week off too(she’s a saint). This was the first time she had a low hour month after I left my job. When it was time to budget for our daughter’s part time childcare this month, we were about $1200 shy, and hadn’t even started budgeting for our personal spending. Yikes! 😱

Then comes in the sorta.

The budget showed that our income (wife’s pay and my VA from last month) was not enough to cover all our budgeted items. Luckily we’ve budgeted extra money in our daycare category, as a carry over from way back when our 2 year old was born and my wife was on unpaid FLMA leave. We raided this surplus of cash sitting in our savings account, and were then able to fully fund our budget like normal for this month. Still, this was the first time that our income didn’t cover everything, and we had to dip into savings a bit.

It felt weird. And scary.

Before I freak out, let’s have a little reality check. First, my wife continues to fully fund her 401k and Dependent Care FSA. Second, though I’ve FIRE’d(?), I haven’t made any withdraws from my investments. Math that shit up, and we could withdraw the amount of this year’s 401k contribution limit ($20,500) from our taxable investments, and our overall portfolio would would be effectively the same amount. Or as my wife and I are calling it, we’re sitting at net neutral for our investments-we’d essentially be on a Coast FIRE plan. FYI, we’d do this whole max 401k while pulling investments to reduce taxes and healthcare costs.

To be clear, back in the day when we started this FIRE thing, we opened separate investments accounts, which we also funded separately. We also track our expenses separately, of which is combined but unequal. We evenly split all the household and child related expenses, but our individual fun expenses are separate. I consider myself FI as my separate investment income covers my average expenses, given the 4% rule and not including my VA pay. Obviously there’s some issues with the 4% rule (or was before the CAPE ratio dropped with the market), but throw in my VA pay and I’m looking at somewhere around a 1.5% withdraw rate. Even if my VA pay gets reduced significantly, I’d still be barely scratching a 3% withdraw rate. I got to FI before my wife primarily because I was an idiot and went super hard on the savings rate to the point of deprivation and burnout. Meanwhile my wife wisely chose to dial back her work, and take a slower approach.

All this separate finances stuff is notional though. We’re married(duh), and at the end of the day I’d like my wife to enjoy the tranquility of not having to work ever again too. This means if we are net neutral on our investment withdraw/contributions, we’re looking at 7.5 years(using 5% real return rate, 4% SWR) before our combined portfolio compounds to cover our total combined expenses, again not including VA money. We’re mostly cool with that.

So in reality I should not freak the fuck out that we ran out of money in our budget this month. Hell, I could even start withdrawing well under than 4% out of my investment accounts, and we could increase our spending significantly. Given, that would stretch out our Coast FIRE timeline, but with one us not working (me) and the other working about 27 hours a week at job she mostly likes, this seems sustainable for quite some time. Plus I’ve noticed I’m getting more motivated to do something around here besides mountain biking and chase our kids; I think whatever that ends up being will produce some income.

Totally no reason to be scared.

But still- I was.

Before my mind raced through all of the above hoops, I must admit I did in fact freak the fuck out a little. It felt scary not having income covering expenses. The prospect of finally withdrawing money after years of building it up was more than a tinsy bit terrifying. Yup, I’ve read all of the articles discussing this over the years, and knew it might be a thing. Scarcity mindset blah blah blah. As it’s been more eloquently put in other places, it’s one thing to understand how the sausage is made, it’s another thing entirely to be the pig.

All that terror took around 2 minutes. Then I went through the previously mentioned mental leaps, the big one being that we could remain net neutral on investments even if we increase our spending. I chilled after.

I’ll admit, I’m not some monk with centered chi or whatever. The idea of pulling withdraws, even though they’ll be balanced by deposits of even amounts, still seems weird and somewhat uncomfortable. It is definitely not a walk in the park, and we haven’t even done it yet. I imagine when neither my wife or I are working and we actually make real withdraws it’ll be even harder. It seems like the old school FIRE crowd glossed over this, and was like “nah, you just pull 4% and fuggitabout it-no big”. I’m glad more recent stuff out there has discussed how the psychological shift is not so easy.

There you are, how we became budget poor this month. Amazing that money can still bring stress, even when you’ve got over a million sitting around. If anything, this reaffirms that we could keep building our net worth in the effort to chase some ever shifting goalpost. Guess I’ll try to not do that, and continue to stave off me freaking out about almost imaginary budget issues.

Well, what do you think? Have you ever been budget poor, and worried about it despite having some relatively decent fiances? I’d love to hear about it.