Should You Use The Piggybanking Method Of Budgeting

The piggybanking method is one I have been using for years without even knowing I was. It was only after some light financial reading online that I realised there was an actual name for it.

Creating a budget comes naturally to some of us. Others like the planning side of it but can’t stick to a budget. And some people just shudder at the very thought of a budget. Creating it is one thing, but sticking to it is another. By doing the piggybanking method you can at least control your spending. When you look at your bank accounts it’s tough to get an accurate picture of how your finances look. You’re getting a snapshot of what it looks like on that one day.

You may not know what payments are due in, what direct debits are going to come out, and what you’ll be left with afterward. Just because you have money in your account doesn’t mean your budget is balanced. I’ve said it time and time again you don’t want to live outside of your means. Your lifestyle can’t lead your finances as this may lead to you going into debt.

What is the piggybanking method of budgeting?

Piggybanking relays on splitting out your money and helping to automate your spending. This way you’ll always know how much money you can actually spend.

The first thing you need to do is think about the different areas of your life you spend on. This can include Christmas, Birthdays and events, Entertainment, Holidays, Food, Hobbies, Clothes etc. And if you’re self-employed tax needs to be in there as well. Once you’ve chosen your top areas it’s time to create their own piggybanks.

How you should separate out your piggybanks?

Choose your biggest few spending categories that you’re going to separate out. One will be your fixed costs so bills including rent/ mortgage. Then the rest will be individual and down to you but should include savings/ emergency fund as well. I’d say start with a few but you can increase these as time goes on.

For me, my pots are bills/ fixed expenses, wedding, Christmas, holiday (I have 3 separate piggybanks for different tips), food shop, emergency fund and other savings. Once you know your areas you’ll want to either create a bunch of new bank accounts. Or just get a Monzo account and create ‘pots’ which will split out your money.

By having a separate account for each type of spending you won’t suddenly get to Christmas and be asking how do I get all the presents and have the best possible time without spending much. You’ll be able to see how much you can afford to spend and plan around that.

Which bank accounts to use

For your main account where all the money comes from you want a bank account which is easy to use and benefits you. I opt for Halifax as they give me £5 a month just for having my wages go in and standing orders coming out. Plus their mobile app is pretty good and helps me add/ change payments very easily. Look around on comparison sites and see which ones work for you if you’re not happy with what you have.

For your bills/ fixed costs account you’ll want a current account as most of your bills will be paid by direct debit and most savings accounts won’t let you create these. I’d say it’s worth having a second account with the same bank that your main account is with. You’ll want to ensure they don’t require a minimum pay-in. The interest here doesn’t matter as money won’t be staying in the account for long.

For your pots, I’d highly suggest Monzo as I always do as you can have one account with as many different pots as you want. I used to have about 10 different bank accounts to do this method and keep money separately. But Monzo helped me get rid of most of them and have it all in one place. If you’re going to have your money in the account for a while as it’s a longer-term saving (wedding, house, car etc) then consider an ISA so you can make some extra money on your saving.

I have the accounts now what……

Once you have your pots set up you’ll want to create standing orders just after payday in order to fill/ feed your piggybanks. I always go for one or two days after payday to give a little wiggle room especially for bank holidays etc.

Then work out how much you want in each pot per week/ month or over the year to see how much you need to feed it. For example, if you spend on average £80 a week on your food shop you’ll want to add £320 each month to that piggybank. If you wanted to allocate £800 over the year to spend on Christmas you’d need to put aside £67 a month. Or more if you’re not a full year ahead.

Now when you look into your main account you know how much you truly have left to spend after setting aside for bills, food shops and other things you’re saving for or paying off. So this is yours to spend!

Do you do the piggybanking method?

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