Understanding Your Budget in Monarch

The Budget section is where you will plan for your monthly expenses. Keep reading to understand how budgeting works in Monarch and how to customize your budget. 

Monarch offers two types of budgeting: Category and Flex. In category budgeting (the more traditional method) you'll assign every expense category a budget, and track your spending at the category level. In flex budgeting, you'll focus instead on tracking your flexible spending - a high-level bucket that contains all the categories containing expenses that tend to vary more and are less predictable. You can read more about each type of budgeting here: Flex vs. Category Budgeting: How to Choose What's Right for You.

• Budgeting Account Balances
• Connecting Accounts & Categorizing Transactions
• Organizing Your Categories
• Estimating or Resetting a Budget
• Excluding a category from your budget
• Using Flex Budgeting

Regardless of whether you choose category or flex budgeting, your Monarch budget is built around a monthly cash flow system. Your total monthly budget figure is based on how much income you expect to receive that month, and expenses and savings are subtracted from the income in order to create a balanced budget.

Monarch helps you balance your budget by alerting you to how much you have left to budget - this number shows how much of your income is left over after subtracting your budgeted expenses from your budgeted income for the month:

As you spend money throughout the month, Monarch automatically helps you categorize transactions into appropriate categories (like mortgage payment, restaurant, etc.), letting you plan for the amount you wish to spend in each of those categories.

Not into budgeting? No problem! Monarch also works without setting a budget up at all, letting you simply monitor your cash flow. If your expenses are less than your income, Monarch will help you track what percentage of your income was left over (saved) each month. You can also track where you spend money without having set up budget amounts for categories on the cash flow page:

Budgeting Account Balances

The cash flow system used in Monarch is a different budget philosophy than account balance-based systems. These systems require you to look at money after you have already received it, rather than planning for future cash flow. They typically require that you set up and maintain a detailed accounting of every single dollar using your account balances.

Monarch uses account balances to budget for your goals long-term, and does not use account balances for regular daily spending. It is possible to run an envelope or zero-based budgeting system using Monarch as long as it's based in cash flow, using the equation of income = expenses + savings.

Connecting Accounts & Categorizing Transactions

The first step when setting up a budget is making sure all your financial accounts are connected to Monarch and the transactions are categorized accurately. In particular, you will want to ensure your income transactions are correctly categorized as paychecks, interest, bonuses, business income, etc. Since the budget is based on income, these are the most important transactions to categorize correctly.

Organizing Your Categories

Once your income is categorized, it's a good idea to take a look at the approximately 60 category options and decide which ones you want to keep or deactivate. The system categories use machine learning to automatically recognize merchants and will get better over time at categorization. 

Deactivating default categories will hide them, so you won't see them anywhere.  However, they will still appear greyed out in the categories settings page if you ever need to re-activate them. We recommend disabling any of the system categories if they don't apply to you. For example:

• Education (if you aren't in school)
• Children (if you don't have kids)
• Auto (if you don't own a car)
• Business (if you don't own a business)

Custom categories can be created, but these will not use machine learning to categorize new transactions as they arrive, so you will need to set up rules to automatically sort new transactions into the custom categories, or review them manually.

There are 3 layers to the category system. From top to bottom, they are:

• Type (Income, Expenses, Transfers - these can't be changed)
  • Group (Housing, Food, etc. - customizable)
    • Category (Rent, Groceries etc. - customizable)

Ideally, the Income type has groups and categories with mostly positive transactions and the Expenses type will mostly have negative transactions. The Transfer and Credit Card Payment categories are excluded from budgets and cash flow, so they are good for tracking money moved between your own accounts that aren't inflows or outflows.

Pro tip: If you are using category budgeting, the order in which you sort the categories on the settings page will be the order they appear in all lists throughout the rest of Monarch. Some people like to alphabetize their categories while others like to sort them on frequency of usage. Sort them however it makes sense to you! This order will also apply to the fixed and non-monthly buckets if you are using flex budgeting.

Estimating or Resetting a Budget

The first time you visit the Plan Budget page, it will use a monthly average from the last 6 months to set a planned budget amount for each category (this will look slightly different if you are using flex budgeting and will apply differently based on the bucket). You can change any of these estimates by clicking into the fields and updating them manually. You can also reset the budget amount for a category using an average from the last 6 months, or by any amount spent in the last six months, by clicking into the "budget" text box and selecting a month or the monthly average. Be sure to select "apply to all future months" if applicable.

If you don't have (or want) to plan a budget amount for a category you can set it to $0, which will hide the category at the bottom of the group:

Clicking it will still show how much was spent in that category, even without a budget set.

Excluding a category from your budget

You can pick and choose which categories you would like to contribute to your overall budget. Default categories will always contribute towards your budget. When you create a custom category, you can immediately decide if you would like to exclude the category from your budget.

To stop an existing category from being included in your budget while on desktop:

• Navigate to your Budget or your Categories settings page.
• Find the category you want stop contributing.
• Hover over the category name and select the settings gear icon.
• From here, you can toggle Exclude this category from the budget. This category and any transactions linked to it will be hidden from your budget. 
• Select Save. The change will be updated immediately. 

Using Flex Budgeting

In flex budgeting, rather than tracking each category individually, you'll instead focus on tracking your flexible spending number - a high-level bucket containing all the categories with expenses that tend to vary more and are less predictable. This allows you to zoom out from the category-level budgets and keep track of your spending at a higher level. You can organize your categories into fixed, non-monthly, and flex buckets. Learn more here: Understanding Flex Budgeting.