I've got all my information in the program, and it has calculated a living standard. I can't seem to find a description of exactly how it calculates it.
F'rinstance, ESP says my standard of living is around $65k, but my actual spending is considerably different.
Thx.
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Mark,
That's correct, your standard of living and your total spending are two different numbers. Standard of living is your "disposable" cash on hand after you've paid all your bills (housing/real estate costs, medicare premiums, life insurance premiums, taxes, savings, contributions to retirement accounts, what have you). If you sum your standard of living and all your expenses you should come out to your total spending (I think I have that right, I don't have the code in front of me at the moment).
Best,
Dick Munroe
If I do the numbers right, it is consumption not living standard that you need to add to all those other things. If the plan is for one person only (no spouse or kids) I would think then consumption and living standard are the same value. Am I wrong here?
What Dick wrote about summing up the living standard isn't correct. The relationship between living standard and consumption is non-linear. So, for example, if the living standard is $20,000 and there are four people in the household, consumption will NOT equal $80,000. The non-linearity reflects two things.
The first thing is economies in shared living. Going from 1 person spending $20,000 on consumption and having a $20,000 living standard to providing that same living standard to four people doesn't require 4 times the amount of consumption expenditures because many expenditures, such as the TV, lighting, heat, and kitchen appliances, can be shared.
The second factor is the relative cost of children. Going from 2 adults to 2 adults plus 2 children doesn't require doubling consumption expenditures to give everyone the same living standard as the two adults initially have. The reason is that kids are relatively cheap compared with parents in providing them the same living standard.
The program (see the assumptions folder) lets you set your preferred degrees of economies of shared living and the relative cost of children.
best, Larry
You ask:
What, for example, does a $65k living standard tell me?
It simply tells you that you have 65k to live on after you pay the off the top expenses (see Spending Report and note the eight columns to the right of the Consumption column). These expenses include housing, taxes, retirement savings, etc.
But note, as Larry points out, that Living Standard is scaled relative to Consumption. Consumption and Living Standard "mean" the same thing, but Living Standard is scaled to reflect the expense of children and, if applicable, that two adults live as cheaply as 1.6.
So it's not about "perception." It's simply the amount of money you have spend (i.e., live on). In this case, it means you have 65k to live on in that year after those off-the-top expenses (and after being scaled for two adults and children). If you look at "Consumption" you see the Living Standard number before it is scaled.
Dan
...I've come back to the forum after about a year to refresh my ESP skills, and find my own post, with the same question :roll: .
I've not used ESP for some time...and am just running a gut check after a year of retirement.
I can't find the spending report mentioned by royer in his reply to my original query from last year:
"It simply tells you that you have 65k to live on after you pay the off the top expenses (see Spending Report and note the eight columns to the right of the Consumption column). These expenses include housing, taxes, retirement savings, etc. "
I've tweaked my data to account for a year of retirement (THANKS!), and run the various reports, but have become fuzzy about what SPECIFIC living expenses ESP calculates before presenting me with a "Living Standard."
Thanks, by the way, we're finding that our spending has decreased substantially more than we had anticipated, despite more travel, etc....
Thanks,
Mark
Hi Mark:
I should have said the "Total Spending" tab in the Main Report sheet. Perhaps it's easiest to see if you create the Excel sheet. The little tabs at the bottom of the Main Report (note that Excel generates two reports: Main and Detail) reveal that one is Total Spending.
In the Total Spending Report you see a balance sheet of your total spending. The total is in the far right-hand column. Then, all the numbers in the eight or nine columns to the left of that total sum to equal that number in the far right column. Consumption, the first column on the left, will be the biggest number because that's your household discretionary spending. That consumption number will also appear in the Annual Recommendations tab as the number on the far left. It will then be scaled to per-person (the far right column) on that same Annual Recommendations tab.
In short, your Consumption is what is left of your total spending after subtracting all of the numbers in the Total Spending sheet.
It might be useful to you to look at the Excel sheets and just create your own litlte flow chart of money using the three tabs: Regular Assets, Total Spending, Total Income. Once you see the relationship of the numbers on those three tabs, the questions you are asking will be clear to you.
How's that?
Thanks, Dan, turned out it was (sort of) operator error on my part. I ran the report, but didn't notice some of the Excel spending columns were for some reason hidden. I got 'em all to pop back up and all was as you described.
Continuing this very basic question discussion, what is the relationship between smoothed discretionary spending and living standard per adult? Example:
Couple age 35 with two children ages 10 and 5
Two adults can live as cheaply as 1.6, and child costs 70% of adult.
ESPlanner results:
Age Spending LS/Adult
35-43 $24,238 $10,571
44-48 $20,730 $10,571
49+ $16,913 $10,571
$16,913 = (1.6)(10,571), so that makes sense.
How does $24,238 for two adults and two children relate to $10,571?
How does $20,730 for two adults and one child relate to $10,571?