"I'll save what's left"

The arithmetic on the first of the month was correct. Your income less your fixed costs left eight hundred and fifty pounds, and eight hundred and fifty less two hundred is six hundred and fifty. It's perfectly possible to live for a month on six hundred and fifty pounds of spending money, and you've done it on less. So it's worth understanding why a plan that works on paper fails every month in practice.

The first reason is that the two hundred pounds was never separated from the rest. It sat in the same account, in the same balance, as the money for food and tyres. Nothing marked it out. When you looked at your balance on the tenth and saw six hundred and twenty pounds, the screen didn't show that two hundred of it was already spoken for. It showed six hundred and twenty pounds, and that was the figure you spent against. Shefrin and Thaler's point from the last chapter applies exactly. Everything in a current account is current income, and your mind treats current income as money for spending.

The second reason is the number of decisions. The leftover plan doesn't require one decision to save. It requires a decision not to spend, taken again at every purchase from the first of the month to the last. There may be forty or sixty such moments in a month, in the supermarket, online and in the pub. For the plan to succeed, saving has to win nearly all of them. It's also at a disadvantage in each. The thing you might buy is present and specific, a coat that's in front of you in the right size. The saving is abstract and lies a month off, and the only thing that represents it is a vague intention. Present bias tilts every one of these contests a little towards the purchase. The tilt is small each time, but it operates on every purchase, and over a month it's enough to decide the result.

The third reason is that spending adjusts to what's available. I can't cite a study for this, and I offer it as an observation you can check against your own records. People don't generally spend a fixed amount and leave the rest. They spend in rough proportion to what they can see. When the balance looks healthy you say yes to the takeaway and choose the slightly better coat. When it looks thin you economise. The balance is your guide to what you can afford. Under the leftover plan the savings are still in the account, so the guide is always two hundred pounds too high.

Put these together and the outcome is close to certain. The money meant for saving isn't marked, it has to win dozens of separate contests, and its presence in the balance makes you spend more freely. On the twenty-seventh it's gone. You never spent it on anything in particular. It was absorbed into a slightly more comfortable version of the month.

You can see the third reason in your own statements. Take the last three months and look at two stretches in each, the first week after payday and the last week before it. Add up what you spent in each on things that weren't fixed costs. For most people the first week is a good deal more expensive than the last. You didn't need more in the first week. You had more, and the balance told you so. By the last week you were being careful, because the balance told you that too. If that's the pattern in your records, then what you spend is already following your balance. The transfer in chapter 12 makes the balance lower at the start of the month, and your spending follows it down.

This has nothing to do with extravagance. Look back at your October list, with the birthday, the tyres and the coat. Nobody could call it reckless. The leftover plan doesn't fail because people waste money. It fails because ordinary, reasonable spending expands to fill the balance, and at the end of an ordinary month nothing remains.

If that's right, it has an encouraging side. The same process runs in reverse. Suppose the two hundred pounds had left the account on the first of the month. Your balance on the tenth would have read four hundred and twenty, and you'd have spent against that. You'd have said no to one or two things, or chosen the cheaper coat, and you wouldn't have felt especially deprived. The month would have adjusted to fit the smaller figure, as it did to the larger one. The balance would still have been sixty-odd pounds on the twenty-seventh. The savings account would have had five hundred and forty pounds in it.