Everyone has a financial month. Ours begins on the 28th, which is just after my salary arrives. A discretionary allowance is transferred automatically to our Monzo account and we’re off to the races.
When money gets tight we enter lock-down mode and try to spend as little as possible until the next month. Lock-down mode sucks, but if we’ve been spending like drunken sailors (as we often do), it’s inevitable. Once in lock-down mode, we spend the bare minimum and postpone any optional spending until the next month.
One of the many issues with lock-down mode is that it front-loads spending at the start of the next month. All the postponed purchases have to be bought. This means the month starts badly, perhaps with quarter of our discretionary cash gone in the first few days. After such a poor start, it’s easy to give up for a couple of weeks, before jerking back to reality and entering lock-down mode again. And so it goes on.
We’ve recently broken this vicious cycle with a small tweak to our psychological approach to budgeting. Let’s use some real numbers to illustrate…
Each month we allow ourselves £1,600 to spend on anything that isn’t a direct debit. This includes stuff like food, clothing, petrol, etc. It’s loads of money and God knows how we spend it, but we do.
This cash moves automatically to our Monzo account. After I’ve allocated £400 for groceries, £200 for petrol and £80 for a cheeky romantic dinner, I set a budget to track the remaining £900 (see screenshot).
Now suppose we are emerging from lock-down mode and have £350 of school uniform to purchase. That’s a crappy start to our spending and we could be heading off the rails before we start.
Monzo compounds those guilty feelings with its approach to budgeting. The friendly green circle turns judgemental orange if you spend too quickly. It’s a bad start to the month when your app is disappointed with you.
Our simple escape has been to budget for these hangover expenses before the month starts. If we know we have £350 looming over us, we take that off the budget before we set it in Monzo.
There’s a flag you can set on transactions called “Exclude from Summary”, which stops that transaction from appearing in your budget screen. We set this flag on any expenses we were already mentally excluding, to avoid feeling like we’ve spent all our money up front.
This small trick has really helped. Now our pot of money, albeit smaller, decreases smoothly over the month and we are far less likely to overspend and give up as a result. Hooray!
If you have any budgeting tricks, let me know in the comments.