You Can Fix Your Budget By Capturing The Phantom Month (2024)

This piece is written in collaboration with a colleague of mine, Amir Noor, CFP®, director of financial planning at United Financial Planning Group, who first developed the idea of the phantom month.

Not only do Americans struggle with budgeting, it simply doesn’t seem to work for them. The issue - and solution - to this budgeting conundrum lies in plain sight.

According to a recent survey of 2,000 U.S. adults, Nerdwallet found that nearly 75% have monthly spending parameters in place, but 84% say they have gone over budget. While it’s easy to point to rising food prices or inflation as the cause, the main culprit may lie in the strategy people take to budget. If your own spending plan isn’t working, make sure you have captured what we’ve dubbed ‘the Phantom Month.’

When people budget, they often take a category, say food, track it for a week, then multiply by four to create a monthly plan. The problem with this mental math? If you take 4 weeks and multiply by 12, it comes out to 48 weeks. That leaves an entire month’s worth of time unaccounted for in the budget by the end of the year.

This math only works if there are exactly 28 days in each month. Those extra days - 30 or 31 days per month - make a meaningful difference by the end of the year since those days have costs as well. After all, you’re still eating, using electricity, or having coffee on January 30th

What’s the result? A budget that’s quickly overblown. With this blown up budget, it results in lower savings rates, less investment opportunities or, worst of all, more debt. It’s no wonder that 53% of people in a new Bankrate poll said that it’s difficult to impossible to save for emergencies or retirement.

It’s possible they’re not accounting for the phantom month.

Why does Phantom Month have such an impact?

Let’s put some concrete numbers to the phantom month phenomenon.

Say you spend $150 per week on groceries. If you multiply 150 by 4, that’s $600 or $7,200 per year if you then multiply by 12. But your estimate falls short of your actual spend by $600. And that’s just one category within your overall budget.

This can impact any variable cost that you charge more than once in a month, from eating out, to entertainment, to buying clothes, and on and on.

The phantom month is to blame for the lack of clarity in your budget. Realizing that the extra month exists from a planning standpoint will allow you to properly evaluate where your money actually goes.

With that in hand, you can then get a strategy in place to save.

Try budgeting weekly instead of monthly

While most apps on your phone or the web break budgets down to the month, in reality you will have a much greater chance of success if you break your spending down by the week. Why?

It’s simply because it’s easier to track, easier to put money aside into savings vehicles and easier to keep your spending at the top of mind.

While there’s a ton of discussion online about whether to buy the latte or not, how much you spend will have a significant impact on your savings. To cover everything, including savings, you need to either spend less or make more. But you’re not always in control of making more. This means that taking a proactive approach to your spending can unlock an abundance of resources for your long-term goals.

By breaking down your budget to the week, you’re not falling prey to that hidden month. Meanwhile, you know each week if you’re slightly over your budget or not, allowing you to adjust faster.

Say you plan to spend $1,000 on everything you need this week, and you will bring in $1,250, after taxes. You can put aside the $250 into an emergency savings or investment account (depending on your goal). After four weeks, that’s $1,000. After 52 weeks, or one year, that’s $13,000.

Of course, not every week will be quite the same. But you’re now putting your savings at the forefront, while becoming more aware of your spending. This will have a greater impact over time. It’s also a skill that you must learn in order to protect your finances, whether you have a dollar to your name or a million.

Without it, then over time, that net worth will fall no matter how much you bring in.

Weekly budgeting ensures accuracy in your spending

When you’re evaluating your budget at the end of the month, you might be looking at 75 to 100 transactions. It can become overwhelming, since the transactions all start to look similar.

But by breaking down the budget to the weekly spend, you’re reducing the number of transactions you’re evaluating to 15 or so (depending on how much you spend). This allows you to see clearly where your money pitfalls lie.

Say someone asks you how much you spend on eating out each week. You might say, maybe $100. But when you’re looking at your budget on a weekly basis, you might find it’s closer to $135 per week. That’s over $7,020 a year, compared to $5,200 if you’re only spending $100 per week.

The estimate leaves a $1,820 shortfall.

With more manageable awareness, you can make a quick change. Since it’s more manageable, it’s also more accurate, allowing you to see where the overflow lies.

Use the right math

If you simply cannot bring yourself to look at your budget each week, then at least use the right math when calculating your monthly spend.

Instead of taking a week’s worth of spending, multiplying it by four, then multiplying it by 12 to get a yearly number, adapt it to the reality. After you multiply it by four, then multiply it by 13.

This will give you a much better estimate of your yearly spend, since it’s accounting for the phantom month.

Say you spend $20 a week on coffee. Then if you’re trying to evaluate your yearly spend, multiply that number by four to get $80 and then again by 13 to come to a yearly amount of $1,040. This will be a more accurate figure than multiplying by 12 to get $960. You can also easily double-check this by multiplying the $20 by 52 for the number of weeks in the year.

There’s a lot of factors that go into overspending. But if you’re beginning the process of controlling your expenses, start with the right math.

From there, it’s making the right decisions for both your short-term needs and long-term goals, without the worry of any specters getting in the way.