How to use Monzo to create a budget, and actually stick to it
For the last few years, every month has been characterised by a distinctive, repeating, and infuriating pattern.
The first half of the month was decadent, nay opulent, characterised by excessive Deliveroo, outlandish Amazon purchases and copious drinks with friends. The second half was the opposite: desolate, lonely, mainly composed of packed lunches and turning down invitations to see my friends to go home and watch Freeview. Probably whilst drinking tap water.
All this because, no matter my income or no matter what I tried, I seemed unable to spend in a manner which stayed flat throughout the month.
For those who have read this blog before, you will know this is not a new thing for me, and something I have struggled with for a while. But after a year of trying (and failing) to find a different method, I can now concretely say I have found something that works for me, and works for my wallet.
To follow this along yourself, I recommend that you firstly have a Monzo account, and secondly get paid into that Monzo account. In reality this isn’t completely necessary, but Monzo has some really awesome features that make dividing your salary painless and easy. This would work with other neobanks like Starling or N26 or Revolut that have Pots/Spaces/Vaults to tuck your money into, but for this post I’ll be speaking specifically about Monzo’s features. And getting paid into the account isn’t necessary, but again Monzo’s salary sorter feature means once you set this up once, it can keep refreshing every month, automatically. Easy.
Setting it up
Using Monzo’s salary sorter, when my money comes in at the beginning (or end) of each month, I sort it into a series of pots (currently eight), and retain some in the normal account balance.
To start, I put money aside for my recurring bills and subscriptions, such as my phone bill, gym membership, Netflix, Spotify and health insurance. I don’t put my rent into here because I move that into a joint account I have with my flatmates and pay that from there.
This works well because Monzo has a feature where you can pay any Direct Debit payment from a particular pot, so I have set my bills pot up so that when a payment for my gym comes in, it takes it straight from the pot instead of coming from my account balance. By tucking it away at the beginning of the month, I can kind of forget about it, which I prefer to the other way around where you forget about it and HAVEN’T got the cash tucked away somewhere.
I then tuck money into a series of other pots. The main three are the three that make up the majority of my discretionary spending — groceries, eating out, and drinks out. I have separated these in particular because these are the three areas I know I need to do better at spending less on.
I also put money aside for savings in a variety of forms. Some gets taken out by Moneybox and invested into an LISA once a month (easily the most grown up thing I do) as well as putting a variable amount aside depending on how big my credit card bill is that month.
Lastly, I tuck some money into a savings pot for emergencies and shit like that, and put some in a ‘Treat Yo’self’ pot which I’m currently using to save up for Glasto2020. (Humble brag, yes I got tickets).
This leaves me with a portion left over, which I see as my money for literally everything else in the month — transport, clothes, gifts, stupid amazon purchases, etc. This is the most murky part of my budget, and often the amount that falls the fastest, but it becomes really easy to see where my money is going from that. When I realised I was spending lots on clothes for example, I stopped this by creating a new pot, and limiting the amount I put in there each month. Simple.
All in all this takes about three minutes to setup in the app, with a little bit of time beforehand to work out how much should go where. Then using salary sorter every payday takes another maybe 20 seconds. And that’s it.
Budgeting? Easy mate.
How it works in practice
So setting the limits for myself at the beginning helps me understand where I want my money to go, but the practice of actually ensuring it goes where I expect is a little more manual.
If I spend anything that falls into one of my main categories, such as grabbing some food from Tesco on the way home, I then deduct that amount from one of the pots, back to my main balance. Takes about 10 seconds. And I keep doing that, every day until bingo, it’s next payday, rinse and repeat.
This may seem arduous, but it takes me maximum one or two minutes a day on the bus or in bed to work out what I’ve spent and where I need to transfer money between. No spreadsheets, no moving money between banks, just a few minutes a day.
Why this works for me
This works for me primarily because it forces me to look at my spending and my balance every day. I used to go days if not weeks without looking at my balance, and this has really helped me normalise looking at my balance, and being comfortable with it changing.
If I have overspent in one area one month, it becomes very easy for me to understand where I have to cutback because of this. If I end the month with one pot significantly higher than the others, I know to put less money into it next month.
The act of simply taking the time at the beginning of the month understand where I want my money to go, and being able to compare that at the end of the month has really helped me visualise where I am spending my money. No more big rounds at big stupid bars at 2am on Saturday.
I also love being able to siphon money for things like my bills, credit card and savings away at the beginning of the month, even if they aren’t due for a while. Nothing worse than seeing your balance at £300, before remembering you have a £120 bill due in a few days. This method helps me avoid that.
And lastly, being able to change the photo on your pots is not only fun, but helps me visualise the thing I’m saving for, and stops me spending money from my pots on something I actually want to save for.
Overall, it’s definitely not perfect, but it’s working really well for me. More than anything, being able to visualise my spending across a whole month at the beginning of the month is helping my balance stay positive the whole month. And that’s really what I wanted help with.
Don’t have Monzo? Sign up here! https://join.monzo.com/r/2vtt6zg
