Optimism Is Bankrupting You: Why We Plan for the Best-Case and How to Break the Habit

You are, statistically, a wildly overconfident planner. So am I. So is the bloke who confidently told his wife the kitchen renovation would take "three weeks, tops" and is currently boiling pasta on a camping stove eight months later.

We don't budget for reality. We budget for the version of us that exists in a montage — the disciplined, healthy, well-organised human who never orders Deliveroo at 10pm on a Tuesday. That person doesn't exist. And planning your finances around them is quietly torching your bank balance.

Let's talk about why your brain does this, what it's costing you, and how to trick yourself into being honest for once.

The Planning Fallacy: A Very Fancy Name for "I Have No Idea What I'm Doing"

In 1979, Daniel Kahneman and Amos Tversky gave a name to something you've been doing your entire adult life: the planning fallacy. It's our chronic tendency to underestimate how long things take, how much they cost, and how much can go wrong — even when we have direct, painful evidence of past disasters.

Classic experiment: students were asked to predict when they'd finish their thesis. Best case, worst case, realistic case. The average student blew past even their worst-case estimate. These are not stupid people. They're humans, which is worse.

Money works exactly the same way. You'll estimate your weekly food shop at £60. It's £95. You'll budget £200 for Christmas presents. It's £480 by Boxing Day. You'll say the wedding will cost £15,000. Your parents remortgage.

The kicker? Knowing about the planning fallacy doesn't stop you doing it. Kahneman himself admitted he kept falling for it. If a Nobel laureate can't outsmart his own optimism, you and I are cooked.

Meet Your Financial Alter Ego, "Future You" (Who Is a Liar)

Future You is a magnificent creature. Future You wakes at 6am, meal preps on Sundays, contributes maximally to their pension, and finds joy in a spreadsheet. Present You committed Future You to a gym membership, a subscription box, a "smart" savings challenge, and dinner with people you don't even like this Thursday.

Here's the psychology: we relate to our future selves the way we relate to strangers. Brain scans literally show it — thinking about future-you activates similar regions to thinking about someone else entirely. Which is why it feels fine to hand them your problems.

So when you plan a budget, you're not planning for you. You're planning for a stranger you've decided to trust, based on no evidence whatsoever.

The gap between what we plan and what we spend isn't a rounding error. It's a canyon. And every month you fall into it and act surprised.

The Best-Case Budget: A Beautiful Piece of Fiction

Most budgets are essentially wish lists dressed up in a spreadsheet. You list your income, subtract "essentials" (calculated on a good month), sprinkle in some savings, and marvel at the leftover cash you've apparently discovered.

Then February happens. Your car needs new tyres. Your friend gets married in Portugal. Your boiler makes a noise that can only be described as "regretful." Suddenly the surplus is gone and you're wondering why you're bad with money.

You're not bad with money. You just built a plan that had zero tolerance for the actual world. It's like designing a bridge assuming there'll be no wind, ever.

The best-case budget assumes: - No unexpected expenses (there will be several) - Consistent income (freelancers, weep with me) - Perfect willpower every single day (lol) - No social obligations that cost money (weddings, hen dos, that leaving drinks you have to attend) - No lifestyle inflation from that pay rise (spoiler)

A budget without a buffer isn't a budget. It's optimism wearing a suit.

Reference Class Forecasting, or "Look at What Actually Happened, You Melon"

Here's a trick borrowed from megaproject planners (who, incidentally, are also terrible at this — see: every railway ever). It's called reference class forecasting, and it's beautifully simple.

Instead of asking "how much will this cost?", you ask "how much did this cost last time, and the time before, and for other people doing the same thing?"

Bathroom renovation? Don't estimate from scratch. Look at your last renovation, ask three friends, then add 25%. Wedding budget? Find the average UK wedding cost (£20,700 in 2024), then assume yours will do the same, because you are not, in fact, special.

Try this with your own spending:

1. Pull 3 months of bank statements
2. Categorise everything ruthlessly
3. Take the highest month as your baseline
4. Now budget from there

The numbers will horrify you. Good. That horror is the first honest financial feeling you've had in years.

Build a "Chaos Budget" — Because Life Is Chaos

Instead of a best-case budget, try what I call the chaos budget. Same categories, different assumption: things will go wrong, and you're pricing that in.

Here's the framework:

Fixed costs — rent, bills, minimum debt payments. Easy. These don't lie.

Variable essentials — food, transport, household stuff. Take your average and add 20%. Yes, 20%. Do it.

Life happens fund — 10-15% of take-home. Not for emergencies (that's separate). This is for the wedding, the vet bill, the birthday you forgot, the phone that dies six months out of warranty. Because these aren't emergencies. These are life. They just feel like surprises because we refuse to plan for them.

Fun money — a fixed amount, spent guilt-free. Restrict this and you'll blow the whole budget out of spite by Wednesday.

Savings and goals — whatever's left, automated on payday so Present You doesn't get to negotiate with it.

The chaos budget looks less impressive on paper. You'll "save less." But you'll actually save it, because you didn't design a plan that requires you to be a saint.

Pre-Mortems: Imagine the Disaster Before It Happens

Psychologist Gary Klein came up with this one. Before committing to a plan, sit down and imagine it's six months from now and everything has gone catastrophically wrong. Then ask: what happened?

Applied to money, it's brutal and brilliant:

• "I planned to save £500 a month and saved £0. Why?"
• "I bought the house and now can't afford to leave it. What did I miss?"
• "I quit my job to freelance and I'm back on the market by October. What went wrong?"

Your brain, freed from the pressure of being optimistic, will suddenly generate a list of very obvious problems you'd conveniently ignored. Car might break. Client might leave. Boiler might explode. Rate might rise.

Now build those into the plan. You're not being pessimistic. You're being accurate, which is a completely different thing that we've forgotten exists.

The Takeaway: Plan for the You That Exists, Not the One You're Advertising

Here's the actionable bit, because I'm not writing 1,400 words to leave you with a shrug.

This week: Pull three months of statements. Calculate your actual average spend by category. Compare to your budget. Sit with the shame briefly, then move on.

This month: Rebuild your budget on real numbers plus a 20% buffer on variable spending. Add a "life happens" line worth 10-15% of income.

Ongoing: Every time you plan a big purchase, holiday, or project, run a pre-mortem. Ask what could go wrong. Add contingency. Then add more contingency.

Optimism is a lovely trait for dinner parties. It is a terrible trait for spreadsheets. Plan for the human you are, not the one you're pretending to be — and the gap between your intentions and your bank balance will start, finally, to close.

Your future self, the real one, will thank you. Right after they finish paying off the credit card.