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:

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

Structure

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?

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
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?

I’m personally against doing this, however I think it heavily depends on the psychological benefit it provides to you and current interest rates
Read → UKPF: “How do mortgage overpayments compare to savings or investments?”