Your daughter's spending plan
This is the final post in my series on different ways to budget a steady income. You can hear more discussion of the different methods here on my podcast, Squanderlust.
This method is actually a digitised version of the old school ‘envelope’ or ‘jam jar’ method. Hence the name. To do this, you’ll need an account with one of the new app-based ‘challenger’ banks - Starling or Monzo. It uses their spaces (Starling) or pots (Monzo) features to manage your spending. These features are usually marketed as a way to save for goals and they can certainly be great for that, they can also be used for controlling normal monthly spending.
How to
You will need to decide what your spending types are. I suggest keeping things simple and having no more than ten. These should be a combination of your day to day spending (e.g. groceries, clothing, transport) and occasional spending (e.g. repairs, device upgrades, gifts). Both Monzo and Starling have built in categories for types of spending, which they use to label your payments out so you can see where your money is going. You can choose to base your types on their categories or create new ones if theirs don’t quite fit.
You’ll need to work out how much money you need to cover each type of expense and I talked about this in a previous post in this series. This is your spending plan. The difference in this method is how you keep track once you have the amounts worked out.
Now make a pot or space for each type of expense.
When your income comes in, sort it into the pots/spaces according to your spending plan. Monzo has a Salary Sorter function which can help with that. You’ll need to do it manually with Starling.
Monzo has a function which allows you to nominate a bill to come from a specific pot, so you can name one pot “bills” and have all your direct debits/standing orders come from this pot.
If you have a Starling account you’ll need to keep the money for bills outside of your spaces until all the bills are paid, so you will want to make sure your bills come out of your account ASAP after payday.
Alternatively you might prefer to combine this with the ‘multi-account method’ from my previous post and have a completely separate account for bills. If you want this separate bills account also to be with Starling they charge a fee of £2 a month. You may decide this is worth it to get the additional control of splitting your bills from your spending while also keeping all your accounts with one provider.
Now when you spend money, pull down the same amount of money from the relevant space or pot, so you know what you have left to spend on each area of your life.
If you need to meet an occasional expense, transfer the relevant amount from the relevant pot to the main account.
If you are extra frugal one month and have money left in your spending money type spaces/pots on pay day, transfer the extra to an occasional expense pot/space or, if these are already looking healthy, into an actual savings or investment account where you can get a good return.
Let’s talk about the advantages and disadvantages of this method.
Pros and cons
The pros:
This is a relatively low maintenance way to control spending and make sure you have enough money to cover bills and save for short term goals.
It’s more mindful than the multi-account method. If you’re spending more than you intended, you can tell fairly easily where the over-spend is coming from.
Although it’s an all digital method, this has the advantages of a cash budget method. The amounts left available for each type of expense are very clearly visible whenever you go into the app.
As with the multi-account method, as long as you err on the side of caution each time, you can be a bit rough and ready in your calculations and still be ok. For example, if you know your phone bill is typically £17-20 then as long as you leave £21 in your bills account/pot for it, you know you will be ok.
You are almost certainly never going to get a charge for a bounced direct debit or an unpaid bill.
While you’re out and about, you can tell straight away if you can afford to treat yourself now or if you’ll need to wait. No need to consult your spreadsheet.
Very easy to sustain. If book-keeping style budgets don’t work for you and become overwhelming, this will almost certainly be a better choice.
Don’t have to remember to request/keep your receipts.
The cons:
May need to switch banking providers, which can have an impact on your credit record.
Takes time to set up.
Need to be comfortable with app-based banking.
Need to spend time moving money between the pots.
Need to be sure any automations are working correctly, have the right amounts and come out on the right days.
Unless you create a single “occasional spends” pot/space, you may find you need to pay for a particular item before you have saved enough e.g. if the washing machine breaks suddenly. This might mean you have to transfer between the pots/spaces for this type of spending to make up the difference.
What do you think? Would this style of spending plan work for you?
To hear more about different ways to plan and track spending, check out my podcast Squanderlust Episode 7 : Budget Pick ‘n’ Mix