Online budget planner: making a monthly budget that still holds up after three months

Almost every budget that fails, fails in the same three ways. It is too detailed: twenty categories, with a separate amount for coffee out and another for coffee at home. That looks thorough, but it means you have to think about which box every purchase belongs in, and after a week you stop doing it.

It is too optimistic. You put down the amount you would like to spend, not the amount you actually spent over the past few months. You feel the difference on the 20th, when the box is empty and the month isn't.

And there is no room for what doesn't come every month. The insurance in March, the birthday in June, the winter tyres in November. A budget built on an ordinary month breaks on the first month that isn't ordinary, and that month always comes.

Don't start with what you want to save; start with what you can't change. Rent or loan, energy, insurance, telecom, subscriptions. For most people that block is bigger than they think and it barely changes from month to month, so it only needs mapping out properly once.

How to do that is explained in the guide on mapping out your fixed costs: twelve months of statements, the list of direct debits (domiciliations) at your bank and the subscriptions on your phone. Subtract that total from your income. What remains is the only amount your budget is about.

For groceries, transport, eating out and the rest, you don't take a target amount but a measured one. Look at the past three months, add up what you spent per category and divide by three. Three months is enough to smooth out an outlier and short enough to still be about your life as it is now.

That average is your starting point, even if you don't like it. If you spend €480 a month on groceries and put 300 in your budget planner, you don't have a budget, you have a wish. Put in 480, and only lower it once you have stayed under 450 two months in a row.

Keep the number of categories small. Five to eight is enough: groceries, transport, eating and drinking out, clothes and stuff, health, and an "other" box you don't try to empty.

Everything that comes once or a few times a year goes on a list, with the yearly amount next to it. Insurance charged once a year, road tax, presents, a weekend away, the dentist, servicing the car. Add it up and divide by twelve.

You set that monthly amount aside every month, even in a month when nothing is paid out of it. For most people that is €100 to €250 a month, and it is exactly the amount missing from a classic budget. The pot is the reason the expensive month is no longer a drama: the money is already there.

Take what is left after your fixed costs and the pot, and plan 80 per cent of it. The other 20 per cent you don't give a name. That isn't laziness but a buffer for the things you didn't see coming, and there are some every month.

An example with round figures. Income €2,400, fixed costs 1,150, pot 150. That leaves 1,100. You plan 880 of it across your categories and leave 220 unplanned. If the month goes your way, that 220 goes to your savings account. If it goes against you, you needed it, and your budget still isn't broken.

A budget at 100 per cent can go wrong only once. A budget at 80 per cent can go wrong a few times, and that difference is what gets you to the third month.

A monthly budget isn't a document you make once. On the first of the month, take ten minutes and ask three questions. Which category went over, and was that an exception or a pattern? Has a fixed cost changed or been added? And was something paid from the pot that wasn't on the yearly list?

A category that goes over two months in a row isn't budgeted too low, it is budgeted wrong: raise the amount and lower something else. A category that stays well under two months in a row can come down. That is all you need to do. Anyone who tinkers with their budget every week is sick of it after a month.

To be fair: everything above works in a spreadsheet, and it works in a notebook too. People were budgeting long before there was software for it. The question isn't whether it can be done, but what an online budget planner takes off your hands and what you give up for it.

• An online planner does better: monthly totals that add themselves up without a formula you break by accident, fixed costs you enter once that then come back every month by themselves, and a forecast of next month based on what you did over the past months. A spreadsheet can do that last one too, but nobody builds it.
• A spreadsheet does better: everything the maker of the planner didn't foresee. A separate column for your colleague paying you back, a chart you come up with yourself, a rule that only applies to your situation. A spreadsheet can do anything, and that is also the reason it is a mess after three months.

Budgetto is one of the options in the first group. It is free, it works in the browser without installing anything, you set up your fixed costs once and the monthly forecast works from your own figures as soon as you have tracked two months. It doesn't connect to your bank; why that is a choice and not a shortcoming is explained in the guide on budgeting without linking your bank. If you would rather use a spreadsheet, you aren't missing anything essential. The method is what counts, not the tool.

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