Living on what's left

The phrase "what's left" now means something new. Under the old plan it was whatever remained on the twenty-seventh, and that was nothing. Now it's what remains on payday after the transfer has gone. This is the money you live on, and the change takes a little getting used to.

The balance tells the truth. Once the transfer and your fixed costs have gone out, what you see in your current account is what you have for the month. You no longer have to remember that some of it is meant for savings. That's the practical pay-off of doing it this way. You could never have done the mental subtraction forty times a month, and now you don't need to. If the balance says four hundred and ten pounds on the tenth, you have four hundred and ten pounds. Spend it however you like, and do it with a clear conscience. It's an under-appreciated benefit of paying yourself first that the spending money is cleanly yours. The saving is already done, so you needn't feel guilty about a takeaway.

The month adapts. I said in chapter 3 that spending adjusts to what's available. That now works for you. You'll make a few slightly different choices without much noticing, and the month will close at about the same near-empty point as before. If you chose a modest amount, as I advised, you're unlikely to feel deprived. Most people say the first month feels a little tight and that they're used to it by the third.

If you run short. Some months you will, particularly early on. Try to get through without touching the pot. Trim something, or put off a purchase by a week. If you really can't, take back only what you need. Then don't give up. Lower the standing order to a figure you can sustain. A transfer of thirty pounds that stays put does you more good than one of a hundred that you keep reversing. If the transfer proves too high, you've learned what the right figure is, and you should treat it that way. It doesn't mean you've failed.

Write down what the cushion is for. Do this once, and before you need it. Keep it to one or two sentences, in the notes on your phone or on paper. "This money is for things that are necessary, unexpected and can't wait. Repairs, urgent travel, vet, dentist, loss of income." When you're tempted to dip in, check the sentence. A sale doesn't qualify. A holiday is lovely but it isn't unexpected, and it can have its own pot later. The boiler qualifies, and when it goes, pay from the cushion without any guilt. This is what the money was saved for.

Refill after use. When the cushion's been used, the transfers refill it. If the withdrawal was large and you can manage it, raise the standing order for a few months. Don't try to restore the money in one go out of a single month's spending money. That's the leftover plan again.

Raise it when your pay rises. Following chapter 5, when you get a rise, increase the standing order by about half of the monthly increase, in the same week, before the new money has been absorbed into your way of living. Do the same when a loan or a finance agreement ends. Redirect some or all of that payment to the pot on the day it stops.

A second pot for the costs you can see coming. Chapter 4 asked you to list a year of so-called one-offs. Some of them weren't surprises at all. Christmas comes every December. The car insurance, the MOT, the TV licence and the school uniform all come round on known dates. If you add up the ones you can name and divide by twelve, you have a monthly figure. Once the cushion is under way, a second standing order for that figure, into a second pot with a name like "Annual bills", takes most of the lumps out of your year. December stops being a financial event. This pot is meant to be emptied, and it'll go up and down all year. Keep it apart from the cushion, so that paying for Christmas never looks like raiding your emergency money.

Look at it sometimes, but not often. Check the pot every month or two. It's pleasant to watch it grow, and that reinforces the habit. Checking it daily serves no purpose, and keeping it out of your daily sight is part of what protects it.

When the cushion is full. At some point the pot will reach a level that you judge to be enough for emergencies. I mentioned the commonly quoted figure of three months' essential costs. Your own figure depends on how secure your income is and who depends on you. Don't cancel the transfer when you get there. Point it at the next thing, in a second pot. That might be a holiday, a car, a deposit or the longer term. What to do with longer-term money is beyond this book, and it's worth getting proper guidance for it. Whatever you decide, the transfer should keep going out on payday.