A Series of Unusual Months

Have you ever noticed that your budget doesn’t work? You comb through recent spending, project it as future spending, and then somehow there isn’t enough left to save, or the credit card balance trickles over to the next month? We often rationalize this as, “Man, there have just been a lot of unusual months lately!”

The same effect occurs with our calendars and waistlines. I finish nearly every workday thinking, “Wow, I did not get through the to-do list because of all of the pop-up’s…” and I drift from diets thinking, “That diet would have worked except that there all of these non-standard eating days…”

I’ll sort out my unusual workdays and diet days later, but let’s solve those Unusual Budget Months.

If we learned to budget by projecting an average month or “usual” month based on historical averages, we try to smooth out the lumpy spending by using averages. The lumpy $3K spending on Christmas gifts smooths out to $250 a month, but if we don’t spend $250 on Christmas gifts in February, then it’s irrelevant to our budgeting.

Unusual spending months happen EVERY MONTH because no two months have Christmas, Spring Break, or the same child’s birthday. Most budgets don’t survive first contact with the month because the budget is for a hypothetical month, not this month.

Even if we have a Crystal Ball, a typical budget won’t work because it’s designed for an average month, not the month we’re going to have.

Unusual Month Defeat Mechanisms

Reverse budgeting is a great technique for some families. But the planners among us need to have a better sense of what mission each dollar will perform. So, let’s start with the lumps in our otherwise smooth monthly spending such as:

Gifts (holiday, birthday, etc.)
Travel
Repairs
Medical & Veterinary
Taxes (estimated and April if we mismanage withholding)
Appliance/Furniture

It’s not difficult to determine how much we’ve historically spent on these lumpy budget categories, but that doesn’t mean there’s extra money available to spend on Fido’s vet bill when he eats another sock instead of those dry smelly compressed food lumps you bought him.

But if we know Fido’s vet bills are usually $1,200 per year and we start setting aside $100 each month, then most of the time, we’ll have a fund, call it a “mini emergency fund” or “vet bills fund” or anything you want… but we’ll have a separate pile of dollars to smooth out a lumpy spending event.

If we just plan to cover Fido’s sock appetites with the same dollars that also need to buy a Red Rider BB Gun for Christmas and the pop-up refrigerator replacement, our normal monthly budget isn’t going to work. Unusual months happen because we do not set aside money for lumpy spending events.

If the pile of dollars that covers down on normal monthly spending and unusual monthly spending is the same pile of dollars, it’s simply too easy to spend those dollars without leaving enough in reserve for those unusual, pop-up, lumpy-spending needs.

Most families manage unusual months by spending on credit cards or depleting savings (or just never saving). This just boils down to not actually saving. There’s a better method.

Call it “Electronics Envelopes,” “Mental Accounting,” or “Unusual Month Management”, but you need to put an actual barrier between your normal monthly spending dollars and your “unusual event” spending dollars.

Here’s the method that finally tamed my Unusual Months:

Identify your budget busting categories such as Travel, Medical/Veterinary, Repair, Appliance/Furniture, Gifts.
Estimate the annual average/desired spending on each category.
Open a new checking or savings account for each category. Name the account based on its purpose.
Fund these “Unusual Month accounts” with 1/12^th of the expected annual spending each month ON PAYDAY.
When lumpy spending events occur, use the money from the appropriate account.

This technique works for several reasons:

You can automate transfers to the “Unusual Month accounts.”
You can still use your platinum convenience card for purchases, but pay it off from the proper account.
You’re unlikely to use Travel Account money for unnecessary spending each month. The act of doing so will feel like a vote against vacations. Will you really take Christmas Gift account money to buy tchotchkes that don’t fit in the spending plan?
It keeps your primary checking account balance lower. Not only is this good for fraud management, it keeps you mindful of how much you can spend on discretionary purchases.

While this “Electronic Envelope” system works great, keep in mind that:

When you first start, your “Unusual Month” accounts aren’t fully funded unless you had enough cash to start them with a year’s worth of dough. You may need to shuffle dollars among the accounts until you’ve been at it for a year or so. Stay the course.
You should still have an emergency fund account for deductibles, furloughs, job loss, government shutdown, helping family, etc.
While you can automate transfers to your extra accounts, you’ll need to manually pull from them for the lumpy spending events. It takes a few seconds.

Finally, if you like this idea but just can’t stomach having more bank accounts than fingers you can use tools like ynab.com or banks that build similar partitioning into a single account. These don’t prevent you from overspending, but they’ll increase your mindfulness about it if you use the tools provided.

Cleared to Rejoin

Unusual Months happen approximately every 28-31 days to 100% of us. If we have infinite dollars and aren’t too busy pretending to know how the government works, perhaps we don’t need to worry about how to handle those Unusual Months. For the rest of us, we need proven tactics. Separate those dollars ON PAYDAY by using additional accounts. It doesn’t take much effort, and it will tame those Unusual Months!

Fight’s On!

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