Personal Finance

We use some sort of holistic approach. We don't have specific envelopes or accounts for saving. We do have specific accounts for asset allocation although it's not relevant for budgeting.

1. sometimes in January, I look at our yearly income, input that through a model along with other things such as discount rate, net worth etc. The model shows us the projected time it will take to reach the table flipping point* (TFP) based on what we decide to spend.
2. Generally, as with most people, income increases over the years as our career progresses so we usually have three options: increase spending and keep the TFP the same, keep spending the same and reach TFP sooner, or a mix in between. I show that to my wife and we decide which option we want.
3. We now have a target spending for the year. I allocate it into categories in our budgeting app. I try to predict bills based on previous years. For example I try to account for likely increases in housing, etc.
4. every couple months, I look back and adjust the categories based on actual spending. Reallocate between under budget categories and over budget categories. I look at the ratio year-to-date spending / year-to-date projected spending. It generally fluctuates between 90% and 110%, because actual expenses are not linear throughout the year. Vacations are discrete events for instance. If it goes over 110%, we start slowing down on lifestyle. Maybe eat out slightly less, etc.
5. next year, repeat the process

With practical numbers: in 2023 for instance, we set our target spending to about 25% - 30% of our income at the time. Money comes in, and as long as we control what money goes out, the rest is bound to stay saved.

• Table flipping point: the point in time at which the amount of income provided from your portfolio becomes equal to the amount you are spending. From this point in time you have the constant option of flipping the table in your boss's face, say I quit, and live from your investments from now on. It is usually called early retirement, but I don't like that word because it assumes that you plan to retire when you reach it. Table flipping point means you keep working, but you do it because you enjoy your work, not because you need the money. You don't have to take crap from your boss, you don't have to worry about AI replacing you, etc...