Automating a Simple Personal Finance System with Monzo (2023)

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Automating a Simple Personal Finance System with Monzo (2023)

By @Charlie Revett on @May 16, 2023

Two friends from work were interested in understanding how you can use Monzo for an automated personal finance setup. I think a practical example would be useful for others, so I am sharing it here.

As with any personal finance blog post, I’d like to start by saying:

  • This is information; not financial advice or a recommendation
  • Rates, products, and service providers change regularly so have a look yourself
  • This aims to take the best practices from the world of personal finance and package them in a simple, automated setup; thus is not designed for best-in-class returns and is aimed at beginners
ℹ️
Monzo is a UK-based digital banking platform that provides users with a mobile app for accessing a wide range of financial services and tools.

Goals

My goals with this system are:

  • Set and forget; it should automate within reason
  • Minimalist; you shouldn’t need a spreadsheet to track your different accounts
  • Transparency; it should nudge you in the right direction when budgeting

The system should provide:

  1. A main account just for daily spending, with budgeting in mind
  2. A separate account for paying bills
  3. Access to credit for additional monthly cash flow
  4. Instant access savings for short-term saving goals and an emergency fund
  5. Long-term tax efficient savings via index fund investments

Structure

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1. Monzo Plus (Daily Spending)

  • Go full Monzo via a current account switch
  • Upgrade to the Plus account as we’ll need Virtual Cards for automating paying bills, and the 1% AER/Gross up to £2,000 is a nice-to-have
  • Your salary should be paid into this account, and you’ll use it for daily spending
    • It should only have what is required for your monthly budget, extra disposable income should go to savings

2. Monzo Pot (Bills)

  • Create a Pot called “Bills” and enable a Virtual Card for it
  • Configure all direct debits and subscriptions (e.g. Netflix) to be paid from the pot
    • Having these payments separated from your Monzo Plus daily spending account will make budgeting much clearer
  • Create an automatic deposit on the 1st of the month from your Monzo Plus account, which covers the total amount for bills per month

3. Monzo Flex (Credit)

  • Sign up to Flex, which allows you to purchase something and pay it back over 3 months interest free
  • Use this for additional monthly cash flow if necessary, for example to buy a flight
  • Having this within Monzo instead of a traditional credit card provider makes a huge impact on the transparency of your spending, it’s all too easy to spend over what you planned when transactions sit in a different app
  • Frustratingly, Monzo doesn’t allow you to configure the default payment duration, therefore for each transaction you’ll want to set it to the “1 month” instalment plan
    • This is to ensure that you start each month with £0 to pay back in your Flex account

4. Marcus (Short-Term Savings)

  • Open a Marcus Online Savings Account (instant access) to house your emergency fund and any short-term savings (e.g. mortgage deposit)
  • Create a standing order from your Monzo Plus account for the 1st of the month, which regularly contributes to your short-term saving goals
  • An emergency fund refers to savings that are specifically set aside to handle unexpected expenses, ideally 1 to 3 months worth of salary
  • The emergency fund should be ignored until required, it will need to be replenished manually from your Monzo Plus account on the rare occasion it is used

5. Vanguard S&S ISA (Long-Term Savings)

  • Open a Vanguard Stocks & Shares ISA to house your long-term savings
  • Create a standing order from your Monzo Plus account for the 1st of the month, which regularly contributes to your long-term saving goal by investing in an index fund
    • e.g. FTSE Global All Cap Index Fund Accumulation

FAQ

How can I simplify this further?

  1. Remove the use of a Monzo Pot for bills; instead paying for them from your main Monzo account, which now no longer needs to be a Plus account
  2. Replace the Marcus savings account with one from Monzo to reduce the number of service providers from three to two

What to do with surplus disposable income?

  • Either; open a Vanguard GIA and further invest in the same fund as your Vanguard S&S ISA within this new account
  • Or; contribute to your workplace pension whilst claiming additional tax relief

What if I don’t like index funds or equity investing?

  • Read in to the LifeStrategy funds that Vanguard offer, as they have a mix of bonds which will reduce the overall risk (and expected yield) of the investment
  • Alternatively; you can avoid investing via a S&S ISA, and instead only make use of your Marcus account, or read in to Cash ISA accounts

What about pensions?

  • Ensure you’re contributing enough to your workplace pension to receive the maximum employer match, and enrol in salary sacrifice if your employer offers it
  • Open a Vanguard SIPP and transfer all old employer pensions over to this account
    • You’ll pay fewer fees, have access to better funds, and it will be far easier to keep track of them all within a service provider you’re already using for your S&S ISA

What if I don’t like Monzo?

I’ve been impressed by what Chase has been doing lately, and there’s always the other challenger banks.

Should I overpay my student loan?

Read → UKPF: “Will you see any benefit from overpaying your student loan?”

Should I overpay my mortgage?

Further Reading

  • ukpersonal.finance - much of this was learnt by amending the UKPF flowchart
  • monevator.com - a wealth of knowledge going back many years
  • 📚 “The Richest Man in Babylon” by George Clason
  • 📚 “The Psychology of Money” by Morgan Housel

Credits

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