What is the piggybacking technique?
The piggybacking technique helps you automate your spending so you always know how much money you can honestly spend.
It’s easy to do:
Step 1: Select your main categories of spending
The aim is to balance your books so you’re not spending more than you earn. To do that, you must determine how much you can spend on different areas of your life. You can use the “Part C—Monthly desired spend” column of the Budget Planner to do this.
Once that’s done, you must scan through to see the major categories. These could be holidays, wedding savings, Christmas, clothes, birthdays, hobbies, or whatever you spend on. If you’re self-employed, you should always have a tax account.
Step 2: Arrange your piggies.
Now you know how much money you want to spend on different items, the aim is to make it as simple as possible to know how much cash you have available.
There are a few ways to do this. You’d have to set up a couple of different bank accounts, one for each category, so the money was in little pots (almost as if you were putting it in different piggy banks). For example, you could have a central bank account, a bills account, and accounts for holidays, Christmas, and emergencies.
However, many current accounts now offer simpler and quicker ways to split money into different pots that can be easily managed in one place via an app or online. So you don’t need to worry about having many bank accounts with different providers. Three providers stand out:
Chase
Chase lets you split the money into separate savings accounts, each with its account number (and a decent 4.1% interest rate), so you can choose which account each regular payment goes into and out of. Chase also offers a range of opt-in rewards, such as a year of 1% cashback on everyday spending and 5% AER interest on ’rounded-up’ savings.
Monzo
Let’s create ‘pots’ with different names. You can arrange for your salary to be divided automatically between each pot. You can also pay bills from specific pots. Rates are currently from 4.1% for easy-access pots.
Starling
It also lets you set up ‘spaces’ and automatically send a portion of your salary into each space. You can then choose which bills come from each space.
These are just three of the many new options for piggybank-friendly accounts. Traditional banks often let you open other ‘savings’ accounts (paying little or no interest) and quickly set up standing orders between them. Explore the best bank accounts guide to find the right option.
Bonus tip:
For the piggies you’re only likely to access once a year, for example, holiday or Christmas piggies, it’s worth using a savings account so that you’re accumulating interest on the money you’re putting in there. Our Top Savings Accounts guide will point you toward the best options.
Step 3: Use a standing order to feed the piggies
Now that you’ve divided your money into separate pots, either by setting up separate bank accounts or using an online platform or app, it’s time to feed each piggybank—including the bills account, which you should always overestimate slightly—from your main account. Set up standing orders to shift the right amount of cash every month.
For example, if you allocated £800 a year to spend on Christmas (the typical amount for a UK family), you would put £67 a month into a Christmas account each month, so it builds over the year.
Tip:
Schedule this for two days after getting paid, not for the same day, to give yourself some room in case of any payment problems.
The result: Now your bank account(s) tell the whole truth
Now, when you look in your main account, it shows how much you must spend, as all the money for bills and other vital areas has been shifted out.
Plus, if you see a £700 holiday, but there’s only £400 in your holiday account, you now KNOW you can’t afford it and can cut your clothes accordingly.
Once you’ve piggybacked, you can spend the leftovers.
If you’ve adequately piggybacked, putting aside all the cash you need for bills and essentials, you can spend whatever is left in your main bank account each month. You know how much money you must spend at Christmas or go on your holiday – there’s no fooling yourself anymore.
Significant:
The result is that you can’t afford the holiday you wanted. But more importantly, you won’t spend what you can’t afford and wind up in a debt spiral.