[v2] Visual FIRE Budget Tracking Spreadsheet v2.0

Back in July I published my FIRE Budget Tracking Spreadsheet to help people track their progress visually towards their FIRE goal. The r/singaporefi community received it extremely well.

Since publishing the sheet, I’ve received suggestions on improvements. Kyith Ng of Investment Moats made one key recommendation. This change helped shave S$540K from my FIRE target and gives me higher confidence in my number.

So I’ve decided to incorporate it and publish an updated version.

Before you dive into this post, I highly recommend you read up on the previous version first to give yourself the background necessary to read and understand this updated version.

Without further ado, let’s jump into what was good about the original, where it fell short, and the changes that were made to this version to address it.

What the original did well

In general, the positive feedbacks for the original spreadsheet were around a few key areas:

Encouraged itemization of retirement expenses

The sheet lets you visually track your FIRE progress. It shows how many retirement expense items your portfolio’s passive income “fully covers.” This forces you to create a detailed list of expense line items for retirement.

This often is the first time that users thought about their retirement expense in this level of detail.

As the user’s life and needs changes, they can regularly keep this sheet up to date to include or exclude items accordingly based on their desired lifestyle at retirement.

Encouraged consideration of how much is required for each item

Since each item can only be “crossed off” or marked as “done” once the portfolio has enough to cover the monthly cost of each item, the user is required to provide the amount each item would require each month to sustain that line of expense item.

This encourages people to dig into their spending amounts for each item. They fully understand how much each item costs. They become more informed about their expenses.

Some users asked “What about inflation adjustments?” – this is something that the sheet does not do automatically, but it shouldn’t need to. Since the cost of each expense items won’t inflate at the same rate (some items get more expensive quicker than others, and some depends on lifestyle inflation rather than economic inflation itself) the easiest way to take this into account would be to revisit the sheet every year to update the cost of each item to match the most up to date information.

Encouraged consideration of relative priorities between expense items

Since items within the list are “crossed off” or marked as “done” in order from top to bottom, it forces the user to think about how they want to order the items such that the more important items are covered first before the items lower down the list.

It helps users consider which expense line item is more critical to be covered than others – and potentially if push come to shove, what they might sacrifice first if markets aren’t doing as well as planned.

Encouraged consideration of which items are must-haves vs nice-to-haves

Similar to the above point on priorities, the sheet also helps the user think about what items are absolutely must-have vs which are just nice-to-have. It helps the users consider whether some items are worth keeping on the list if it would increase the FIRE number by $X – which equates to working Y more years.

It puts into extremely clear terms that “If I want to be able to afford this thing, I’m going to need to work this much longer to afford it.” Then the user can consider whether that tradeoff is worth it.

Well those sound great, so what’s the problem? What didn’t it do well in and how am I addressing it in the new version?

What the short coming was

The core improvement opportunity is that the original sheet used only a single Safe Withdrawal Rate (SWR) for everything.

Why is that a problem you ask?

Well as Kyith rightly pointed out, each of the retirement expense items tend to have a different level of flexibility – both in terms of how long we’d need to be able to pay for them and how much confidence we’d like to have in being able to afford that item during retirement.

The higher confidence we’d want and the longer we’d want to be able to afford to pay for an item, the lower the SWR should be.

However, some items only need funding for 10-20 years. Other items offer more flexibility (you can cut back if needed). For these items, you can use a higher SWR.

Based on this criteria, I see 4 distinct buckets:

Note: Short-term items should just be saved for explicitly and not added as part of this sheet.

The higher confidence you need, the higher your portfolio value will need to be and the longer you’ll need to work – so it’s always a balance.

Therefore, ideally we’d want to be able to have a different “margin of safety” or conservativeness in planning for each of the item. Applying a single SWR number is the opposite of that and will likely cause the FIRE number to either be too high or too low.

Adding separate SWR for each item

To address this, I updated the sheet with a new column (highlighted in green.) This allows different withdrawal rates for each line item instead of using a single value for all.

This means that the user can now assign a different SWR for individual line item based on how much “certainty” the user want to have.

Lower SWR values give you more certainty that your portfolio can sustain each item. However, you’ll need a larger portfolio value to achieve this. The tool lets you make this trade-off for each individual item.

Here are some of my examples, and how to interpret them:

Items with 3.25% SWR: Required Indefinitely

I need high certainty that I can sustain spending on these items almost forever (at least until I die). They include survival and quality-of-life expenses. Examples: food, transport, insurance, vacation & fun budget.

I added children in here as well to ensure I’ve saved enough to also fund their upbringing as well as having enough to also cover expenses in college later.

I’ve only just had my first kid, so I would expect to fund this for over 20 years at least.

Items with 4% SWR: Required for Close to 30 years

These are items that I would expect to be able to fund for around the next 30 years, but no longer. So mortgages and hiring a helper goes in here, as I don’t expect to need a helper once the children has left home.

Items with 5% SWR: Good to Have or Required Mid-Term

These are the items that are likely not to be required after 10-20 years, or items that we are more flexible with, so a higher SWR would be fine.

Items in this category for myself are items related to my parents. While this is difficult to talk about, given their age, it’s unlikely that they will still be around for longer than 20 years from now so I can afford to allocate a higher withdrawal rate for their allowance and insurance.

Of course, your situation may be different and whether you already have money set aside from their elderly care and whether you have siblings that will also be helping out will affect how you plan for this.

Other items in this category are insurance that I may not need to fund once I am retired like disability income and also life insurance, but I have it in there just in case.

How this shaved S$540K from my FIRE number

The individual SWR results in a FIRE number much closer to what you minimally need, rather than too large or too small. You also have higher flexibility in adjusting how conservative you want to be for each item. Then you can decide how much additional buffer you’d like to build in based on your risk tolerance.

In my case, it allows me to reduce my FIRE number significantly from about S$4.2M down to just S$3.66M, a reduction of almost S$540K – a pretty big chunk of change!

This is because in my original planning, I had used 3.25% SWR for all items, which had been on the conservative side.

Now, several items have been updated to use a 4% and 5% SWR, which more closely reflects how long I’d need to have them covered (i.e. mortgage, children, helper, and parents related support.)

Thus I have a much more realistic number to shoot for as my baseline for FIRE.

Of course, I can still target S$4.2M still, but now I know that the number would likely be on the conservative side and I’m purposely building in a buffer.

Conclusion

That’s it! Hope you find this new version useful for your FIRE planning and progress tracking! Let me know if you have other suggestions on areas it can be improved!

Until next time!
FPL