Wednesday, January 7, 2015

Tightening the financial belt

Our VW Jetta TDI has not been costly.
The good times are over -- for now. When the markets were climbing, as was the case in recent years, my wife and I enjoyed the windfall. We have a new car, a Volkswagen Jetta TDI, we made lots of improvements to our home, making it a nicer place to hang in our retirement. I refreshed my wardrobe. The list goes on.

Now, with the markets down and our portfolio down even more, the taps controlling our spending have been closed. Not completely, we are will still be taking my oldest granddaughter to see Paddington Bear at the nearby cinema, but big tickets items are no longer in the budget.

And when I say budget, I am not just talking figuratively. We have an actual budget. It is an Excel spread sheet and it pulls no punches. I list all our sources of income and all our can't-wiggle-out-of-these expenses. I then add the expenses we can control and these are the ones I trim. The shortfall is what must come out of our RSPs. This year we will try to remove less than four percent. This is less than our dividend income.

To get our expenses down, I have applied zero-based budgeting where all expenses must be justified. For instance, I could not justify our monthly cell phone expense. I've canceled our monthly plan and moved us to a prepaid annual plan. This chopped our cell phone expense from some $420 a year to about $100. Although there were some one time costs associated with the move. I figure these only amounted to about another $50.

A budget is important and a very important part of the budget is the section where one estimates how much one might spend on stuff that was impossible to accurately estimate. For instance, our central vac hose has split and must be replaced. We did not anticipate this expense. But, I have a field for these unanticipated expenses and it is not blank. I know I will be blindsided during the year. I am just not sure by what.

For instance, we had to have a new furnace installed immediately after Christmas. This was one of those financial hits difficult to see coming. Recently, we have been battered onto the financial ropes by both increasing expenses and decreasing income. This will be a year for testing the resilience of our investment strategy.

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