Surprise! Your Budget is Busted Again

Just in time for holiday shopping, I want to discuss a new term I’ve learned:  Exceptional Accounting.  Thanks to an interesting podcast by Dr. Katy Milkman titled Expect the Unexpected, I now have a name for when people tell me they only spend $5,000/month except in months where they have to buy their ski pass or purchase holiday gifts or pay their car insurance.


Exceptional Accounting is when we have one category in our minds for how we operate every day (healthy eating, regular exercise, monthly spending) and another spot in our brains for the unusual activity (Wendy’s Double Baconator, sitting on the couch all day, buying a new phone).


According to science, the unusual activity seems to “not count” in our brains because it’s, well, unusual. Even though these events happen with regular, even predictable, frequency.


While the activity itself is not every day, the rate of recurrence of not-everyday activities adds up.  Exceptional Accounting is why a client who makes $120,000/year and saves $20,000/year can tell me with a straight face that he spends $3,000/month.


Really?  Where is the rest of that money going?  Now I know – the Exceptional Accounting area of the brain.  I think it’s located behind the left earlobe. In our minds the exceptional spend doesn’t really exist because it doesn’t happen often enough.


It may be too late in 2021 for this reminder, but holiday shopping happens EVERY year.  And, if you are a family of four where everyone is over the age of 10, a new phone purchase happens every year.  And if you ski, your season pass purchase happens every year, along with the replacement of some number of gloves, goggles, long johns.


In conclusion, when planning your spending – especially those of you about to enter retirement – I encourage you to add up all the non-monthly expenses you have and divide by 12.  Add those to your monthly expenses so you are honest with yourself about how much money flows out of your household.  This will help you realistically plan and save for the big goals ahead.



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