So how do we know what we need ?

So how much does anyone need ? Interesting question and similar to the old one ‘how long is a piece of string ?’

Question really is ‘what does need mean ?’ Maslow had an answer with his hierarchy of needs.

In terms of FIRE, perhaps the thing to do is to look at need in terms of banding. What is essential (ie, just have to have it to live), What is pretty essential (ie what we really need but could forgo, or reduce if we really had too), and what is really just discretionary. In essence, the priority of spending is in that order.


  • Housing
  • Utilities
  • Household bills

Pretty Essential – i.e. need but some discretion could be applied

  • Car – could have a smaller or older one, or just one per family.
  • Veh Fuel – there is a minimum need for travel, but think about it. Lots could be foregone
  • Insurance – yes there are options (often risky though)

Real Discretionary Spend

  • Lifestyle
  • Holidays
  • Home improvements
  • Gifts

Its actually very easy to get carried away and try to think of every single thing … not a very useful thing to do and no practical. Just be boring after a month. So the following 3 images are shot of a slightly simplified tracker I use which some numbers populating.

Starting with Essentials: Household Bills, Mortgage, Car costs, Phone & Shopping. One thing to note is that aside from the fixed elements, things like car costs, phones and shopping can to some extent be compressed – its all about the choices you have: beans on toast vs smoked salmon. This is why so many of the musings I have read fail to really grasp the picture ,- its all about choice. As there are no absolutes, for me the way to make sense is to construct a picture and see what happens when different elements flex.

Some Numbers

Note: The clips of spreadsheets are real from a slightly simplified one I have used for years. Lots of numbers are made up or rounded about for effect and as I do not want all my personal figures on the internet. In the end, the story is about creating a picture so its really about the construction and structure. A few numbers are coloured in Yellow. This is just how I show actuals (coloured) vs planned/estimated. I have toyed with variance tracking but it just gets too complicated and busy. In the end, it is all about your personal picture for yourself. KISS (Keep It Simple Stupid)

Now Discretionary Spend. These are items you could pretty well do without if you had too.

And in summary…

WOW ! .. do I need 55 grand !!

… nah …. This is just an all in if +if + if +if …

Now one year does not a picture make. What it makes is a snapshot. A picture is a few years worth.


A Bigger Picture –  Forward Forecast

For example, we can roll up the current year and make predictions for forward years. For each line item I have an annual increment % I apply and they are different. Some will go up with inflation and others (particularly energy) will go up at a higher rate for the forceable future.

Other items I don’t increment so in effect I am reducing outgoings in real terms. It does not matter if this turns out to be incorrect, make an adjustment for future years. It is also really important to remember that outgoings start to diminish naturally with age. Not seen any hard and fast rule, but it seems self-evident that 70 onwards a bit more sedate may well be in order. Other items may well reduce such as cars. We have two cars but can see a time when we only need one.

Now this is more useful !!



In this I can see that (assuming we decide to pay off the mortgage this year) we need from next year about £20K. Start adding in Provisions for things (like home improvements, new kitchen and the like), add in a lot of travel and holidays we plan and suddenly its around the £40K pa mark. I make an assumption as to annual increment or not and the rate. It’s a guess. So what if out turns out wrong. Review the figures and update next year.

There are other items that could be added, for example new cars. We may just lease or we may just take some of our funds and just buy. What for me matters more is to look at the main spend items and see a picture. The picture basically says we can live modestly for 20K pa or very nicely for twice that.


In Summary

Everything else is just a shade of grey. Don’t get hung up on absolutes –  look at the picture, understand the boundaries and just adjust as you go along.

There are no hard and fast rules. Some of the online materials I have seen just seem bizarre. The Nth degree is not nearly as important as something simple to maintain and simple to revise, not least because the fund returns one gets will most definitely govern useful spend. And fund returns are very much affected by the point in economic cycles that they are used. Its called Sequence Risk and forms a critical part of long term financial planning. It’s also why having a clear forward budget plan and clearly identified essentials, desirable and highly discretionary matter so much.

When putting numbers together the really important thing is to run over time. As can be seen above, a one year summary is a snapshot. It does not tell me or help me understand what my funds need to deliver in 3, 5  or 10 years time. Also, by updating with real numbers annually a better set of estimates will emerge. I tend to be fairly conservative so pretty sure my top end numbers will be a fairly hard limit (assuming we don’t go off to New Zealand to visit friends business class !!), and looking at how I generated my bottom end, I feel fairly confident I have a solid working range for us to plan.

Of course, I run mine out to aged 90 even though I am not at all sure my creaking bones will last that long. Above example is just a bit simplified for space . Above all, create something that works for you.