The Pots Budgeting System: Saviour or Flawed From Day 1

I heard yesterday mortgage rates are expected to rise and my inital thought was, 'OMG, I must get my website published to help people, they need it even more'. And then I thought 'I must write that 'Pots' article I've been thinking about writing asap'.  So I spent yesterday crafting two posts, the 'Why it's great, the basic system set up and all the benefits of it for you', and a second post detailing the actual breakdown of how to set it up. I was even going to create a spreadsheet you can download to fill in your numbers and it would work out your monthly allowance.

But as I sat here reviewing the posts, I kept getting this niggling thought, something didn't add up.

The more I pondered the more I realised the mathematical flaw of it: what about the months that have 5 Mondays?

Hopefully the above illustrates what could happen.

So I adjusted my instructions for set up - to divide your monthly allowance by 5, instead of 4.2 - problem solved! Unfortunately even my approach, which will work and ensure you never go overdrawn when moving your weekly allowance from your monthly allowance pot, is just a workaround with some significant downsides that I think will make sticking to the system even harder.  

To make this a truly automated set-and-forget strategy, which is exactly what you need to curb your spending and start reducing your debts, you don't want to be worrying about living on a 20% allowance of your monthly allowance each week, or the alternative, leaving several weeks money sat in your monthly allowance pot, to ensure there is always enough cash sitting there to pay the weekly allowance transfer.  I would be devasted if I had given advice that caused someone to go overdrawn or, if using Monzo, you don't get a weekly transfer one week and don't have anything to live on for a few days until your next salary comes in.  

The basic system is flawed from a mathematical standpoint. If every month had 4 weeks, it would be easy.

But can the system work?

Yes, if you stick strictly to your weekly allowance (20% of your monthly allowance per week) and never cheat and sneak money out of the other pots. Also:

1. you need to have a contingency buffer in your main current account in case a direct debit gets taken out early, or if a bill amount increases and you missed the notification. 

2. You will have to adjust your pot values every time something changes, your water bill goes up, you change mortgage and that cost goes down, or your car tax has gone up. You even need to consider inflation or fuel price increases. Your spends are linked to these as well. 

3. It needs tending to on a regular basis.  

4. If you aren't managing your budget now by factoring in all those standard maintenance tasks, you will unlikely do it when you have 4 lots of standing orders to faff about with as well. 

Day to day banking is really not hard and the pots system teaches you to add up these numbers, then these numbers, then these, divide them by this, set up this transfer etc. It doesn't teach you the fundamental issue which is to stop spending it all every month and then you will automatically save some money you can use to pay those bills when they come in.

If you want your financial life to be different, you have to change. You need to realise that you do not have to be spending every single day of your life. Spending is not like breathing. You only need to do it when you choose to do it for something truly important to you. 

The fundamental thing that is most likely to break this system is YOU.  It still relies on you not raiding your bills pot or your annual costs pot, or your monthly allowance pot if you need extra money.  The bank can not lock you out of your own accounts to stop you spending.  So the only real way to use the pots, or any other system for budgeting, is to have clear goals and a plan for your future income, and strict discipline with yourself until it becomes a habit and you see all the advertising and credit deals for what they are. Enticing you to steal from Future You.

If my Grandad earned 50p a week, had a stay at home wife and 8 kids, and they managed to 'survive', how can you not live on £30k ?  Oh, it's the £18k non mortgage debt and £139k on a mortgage that's holding you back. All you have to do is put your money into clearing those debts, then you will have your whole £30k income to spend on you... and no debt repayment costs.

Discipline and a firm decision to spend less are the only way to manage your banking whether you have one bank account or 20. If you know what you truly want (reducing your debts, building some savings), you won't want to spend. A bit like a non smoker doesn't want a cigarette, they just don't smoke, but a smoker will always find an excuse to have another cigarette.

If you think you can be strict with yourself and resist the machine, if you are prepared to do all the admin necessary to keep all the numbers and standing orders working, then there are some absolutely fantastic benefits to be had from using this system, you can read all about them here, along with a link of how to implement the system. The Banking Pots Model

However if you know you struggle with willpower or you are simply not interested in managing your pots consistently and think you'll succumb to spending, sign up to Team Me for a motivational weekly email to keep you on track. Then read my blog posts, by the time you've finished reading my perspective and story, you should be well and truly convinced that living below your means is the only way to real freedom and happiness.

Written : 12th September 2012