A budget that survives December
Most budgets fail in the same month. The fix is to plan for the month that breaks them, twelve months early...
A budget is a promise you make in January about a year that contains a December. Most budgets break there, and then the whole idea is abandoned. The fix is to admit December exists.
The annual expenses
List every cost that comes once a year or less: presents, holidays, insurance, the car's service, the boiler's, birthdays, a wedding you already know about. Add them up. For most households this is between 3,000 and 6,000, and none of it is in the monthly budget.
The twelfth
Divide the total by twelve. Move that amount, every month, into an account with the word "annual" on it. When the expense arrives, pay it from there. December is now a month like any other, except the account is empty at the end of it, which is what it was for.
What is left
The monthly budget, minus the twelfth. That is the number you actually have to live on, and it is smaller than the one you had before. It was always smaller. The budget was lying.
The one rule
The annual account is not savings and it is not the emergency fund. It is spent money that has not been spent yet. Do not raid it, and do not count it as wealth.
Anita Desai
Twelve years in pensions administration, now writing Atlas full time. Believes every money question has a worked example, and that most advice skips it.
All Posts →Atlas
Money, explained slowly. Saving, investing, housing, tax, work, family, retirement and debt, one topic at a time.
Visit Site
One topic a week, by email
Every Atlas post, the morning it is published, with the worked example and nothing else.
