The formula
How to calculate annual expenses
Annual spending is the input every retirement calculation depends on, and the one most often guessed. Building it from categories rather than from memory produces a figure you can defend.
The trap is annual and irregular costs. Car insurance, MOT and servicing, Christmas, holidays, dentistry and appliance replacement do not show up in a typical month, and together they routinely add 15–20% to the total.
Fill in the following:
- Housing per month — rent or mortgage, council tax, insurance, maintenance
- Food and utilities per month
- Transport per month
- Everything else per month — subscriptions, clothes, gifts, hobbies, holidays spread across the year
The result updates on every keystroke. The URL updates too, which makes the filled-in version easy to bookmark or send to someone else.
Worked example
Here is the calculation with the starting values:
- Housing per month: 1,200
- Food and utilities per month: 750
- Transport per month: 350
- Everything else per month: 600
That gives:
- Annual expenses: 34,800
- Monthly total: 2,900
- FIRE number this implies at 4%: 870,000
Reading the result
The third output shows what your lifestyle costs in capital terms. Seeing £86,400 a year translate into a £2.16 million target makes the trade-off between spending now and independence later concrete.
Where this goes wrong. Building the budget from what you intend to spend rather than what you did. Export twelve months of bank and card transactions and total them — the gap between the two figures is usually 10–20%.
For a FIRE target, use expected retirement spending. Commuting and work costs disappear, but time at home, travel and healthcare tend to rise, so they do not simply cancel out.
Convert them into a monthly figure: a £20,000 car replaced every ten years is £167 a month. Retirement plans without a capital replacement line quietly understate the requirement.
The answer it gives you is annual expenses. With 1,200 housing per month, 750 food and utilities per month and 350 transport per month, that comes to 34,800. Change any field and the figure moves with it.