How we cut our personal spending by 38% (without really trying)
I've always watched our costs closely, but we were spending unintentionally.
My husband and I each used a credit card, and although we always cleared them in full every month, I just couldn't predict the total. And it was stressing me out not knowing how much the credit card bill would be that month.
I had to find a simple way to control our money better.
Then a friend showed me Monzo. (Other banks do similar things.)
And OMG I'd found THE way!
How I set it up
I didn't want the hassle of changing banks or moving standing orders and direct debits. That was going to be a barrier to getting this stuff sorted quickly.
So I kept our joint account where all that stuff happens, and kept our salaries and dividends being paid into that joint account.
So I just use Monzo for ALL our day-to-day spending - anything that isn’t a standing order or direct debit.
I set up our spending budgets
Essentials: I went through our credit cards to see what we spent on things like food, petrol, and pet food, and set a monthly budget for each one.
Non-essentials: I set monthly budgets for things like supplements, hair, house & garden, clothes, and guilt-free spending budgets for fun and pocket money.
The transfer: I transfer a fixed amount of money to our Monzo account to cover our total budget.
That's all we've got to spend!
I created our savings pots
I've set up a savings pot for each of:
House costs - like decorating, garden
Vet bills
Car costs - MOT, servicing, repairs
Holidays & adventures
Christmas and birthdays
General buffer fund
I already had these savings, so I transferred them from the old bank, and every month I auto-transfer a set amount of money to each of these pots.
How this works in practice:
When we have say a £200 vet bill, or a car repair bill, I just transfer that amount from the savings pot, so it doesn't dent that month's budget.
It smooths out our spending and avoids those months where you get wiped out.
Why it works
Every time you spend money, you allocate it to a budget. This makes you super aware of what you're spending.
Rather than spending unconsciously, and unintentionally, it makes you say:
"Right, if we want to go out tonight, how much have we got left in the Fun budget?"
Or before I buy that thing on Amazon: "WHAT BUDGET POT IS IT COMING OUT OF!!!"
That's when you realise you haven’t got a budget for it, don't need it … and more often than not it stops you buying it.
And all through the month they have these cool little graphs that show your spending against your budget - in total and for all your budgets, so you can see visually and instantly if your spending too quickly.
What about big expenses like holidays?
Ideally I want that money saved up in my savings pots before I spend it.
But If I need extra, I check my business budget first to see if I can afford to take out an additional dividend to cover it.
If it's going to dent my profit more than I’d like, then I can't afford to do it. It's as simple as that.
If you're not a business owner this is where you'd ask yourself can I wait another month and save for it? If it pushes you into debt, you can't afford it.
The results
Just by having this level of awareness, we've cut our costs by 38% against the monthly average we were spending before.
And we've been doing that for a year now. And we haven't felt deprived or restricted.
In fact, having those guard rails and KNOWING every month our money is under control is incredibly freeing and empowering.
Where did that money go?
Here's the double win. Because we're spending less personally, we take less money out of our business as dividends. That means we pay less personal tax.
Then we put what we saved into our pension, which saves even more tax and builds our future wealth.
Money that used to vanish into random Amazon purchases is now building compound interest for Future Us.
The bonus features you'll love
Monzo, and accounts like it, have extra features:
Round-ups: Every time you spend, they round it up to the nearest pound and put that money into a savings pot. We've got £350 in there already in just a year.
1p savings challenge: They take 1p on day 1, 2p on day 2, etc. for a year. If you let it roll up for the year you end up with over £700!
And you never notice the money going out.
That's an extra grand a year saved with absolutely no effort!
The bottom line
The first principle of building financial security is to spend less than you earn.
Then use that money you don't spend to invest for Future You.
Easier said than done, I know, because we generally think we NEED to spend what we spend.
But having those guard rails, KNOWING where your money goes, doesn't feel restrictive. It feels freeing.
We saved a LOT of money this year without sacrifice. That money is now working for our future instead of disappearing into things we can't even remember buying.
What could you do if you cut your spending by 38%?
If you fancy looking at Monzo, here’s a link that could give us both a little cash bonus!https://join.monzo.com/c/87yqtjhx