Piggy banking is a simple but powerful budgeting technique that can help you keep your spending under control.
Money-saving gurus like Martin Lewis and Dave Ramsey love it, and we see it crop up on personal finance forums and blogs all the time. It's gained a cult-like following because it's simple to use, and helps you see really clearly how much you've got left to spend on certain things. And it's easy to do with Monzo!
Setting it up takes a little organising. But if you want to try this popular technique yourself, we're here to walk you through it!
How does piggy banking work?
Piggy banking involves setting up multiple piggy banks (like Monzo Pots) and splitting your money between each one. You use the money in each piggy bank for a different purpose (like bills, groceries or having fun).
It makes it easier to see how much you've got left for each type of spending. And it helps make sure you have enough for the essentials (like paying bills or rent).
Say you have £200 left overall. There's £30 left in your piggy bank for shopping, and the rest is in your piggy bank for bills. This method makes it easy to see that shouldn’t touch your bills money.
Here’s how to start piggy banking with Monzo in four steps. If you don't have Monzo yet, download the app to get started!
1. Balance your budget
First, you need to see if you can afford your expenses. This is called balancing your budget. It means comparing what you expect to earn with what you plan to spend, and deciding how to cut costs if you need to.
Monzo makes it easy to see all your spending, which will hopefully make this bit less of a slog.
It’s really important not to skip this step. As no amount of tips or tricks will work unless you know your income can cover your expenses. Plus, you’ll learn things about your spending patterns that can help with the next few steps.
2. Choose your categories
Next, group your spending into a few different categories, like:
Tax (if you’re self-employed)
There’s no rule about the number of categories. Just remember that each one gets its own piggy bank.
3. Decide how much to spend on each category
Decide how to split your income between the different categories. You should already have an idea about how to do this from the first step (balancing your budget). And because Monzo already groups your spending into some of these categories, it should be easy to see how much you've spent in the past.
It’s usually a good idea to slightly overestimate the amount you’ll need for bills and other essentials. And don’t forget about big annual or one-off expenses, like Christmas presents or an MOT. You might want to update your allowances regularly to cover these. Or you could set up a separate piggy bank and put money into it every month so you’re prepared.
4. Set up and feed your piggy banks
Each category needs it own piggy bank – a place where you can pay in an allowance and keep it separate from the rest of your money.
You can do this with Monzo by separating your money into different Pots. Salary Sorter will even help you do it automatically after you get paid!
Give each Pot a name, and put the right amounts into your Pots as soon as you get paid. When you need to pay for something, take the right amount out of the right Pot.
You can even set up a Bills Pot, so you can set aside your bills money and pay them straight from the Pot.
Tempted to smash your piggy bank early? Why not lock your Pots until a particular date.
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