Avoid These Mistakes In Monarch Money! (And An Explanation On Transfers)

Hello, my name is Taylor, and I’m a financial coach. In my work, I get to see firsthand the common challenges and questions people face when managing their money. A tool that has become incredibly popular for personal finance is Monarch Money, and for good reason—it’s powerful, intuitive, and a fantastic replacement for those who miss the functionality of platforms like Mint.

However, like any powerful tool, it’s easy to make a few common mistakes that can throw off your entire financial picture. Through my consultations, where I help people optimize their Monarch Money setup, I’ve noticed a pattern of recurring issues. These aren’t just minor hiccups; they can lead to inaccurate financial reports, confusion, and a feeling that you’re not in full control of your money.

This article is designed to be a comprehensive guide to help you avoid these pitfalls. We’ll dive into the most frequent mistakes I see, with a special focus on the often-misunderstood topic of transfers. By the end, you’ll have a clear understanding of best practices that will ensure your Monarch Money account is not just a collection of numbers, but a true, accurate reflection of your financial life. Let’s dive in and fix those common mistakes so you can get the most out of your financial management.

Mistake #1: Not Spending Enough Time Organizing Your Categories

This is, by far, one of the biggest initial mistakes I see, especially for those who have migrated from Mint. Mint was known for having an overwhelming number of default categories, and if you simply imported them all into Monarch Money without a second thought, you’ve created a digital financial jungle.

A clean, organized set of categories is the foundation of effective financial tracking. If your categories are messy, you won’t gain any valuable insights into your spending habits. The goal is not to have a hundred categories that track every single granular expense. The goal is to have a system that is easy to maintain and provides meaningful data.

How to Fix It:

• Be Merciless: Go through your list of categories and delete anything you don’t need. If you don’t care how much you spend on “coffee from a specific coffee shop,” consolidate it into a broader category like “Coffee & Cafes” or even “Dining Out.” The fewer categories you have, the easier it is to manage.
• Consolidate and Simplify: Look for opportunities to group similar expenses. For example, instead of having separate categories for “Gas,” “Oil Changes,” and “Car Washes,” you might create a single “Vehicle Expenses” or “Auto & Transport” category.
• Organize into Groups: Utilize Monarch Money’s category groups feature. This allows you to visually organize your finances. You can create groups for “Housing,” “Groceries & Dining,” “Transportation,” “Personal Care,” and “Entertainment.” This makes your budget and spending reports much easier to read at a glance.
• Customize for Your Life: Your categories should reflect your values and priorities. If you are focused on paying down debt, you might want a very specific category for that. If you’re a homeowner, a “Home Maintenance” category might be crucial. Don’t be afraid to add or rename categories to fit your unique financial situation.

Spending a few dedicated hours on this at the beginning will save you countless hours of confusion and manual adjustments later. It’s the single most important step in setting up your Monarch Money account for success.

Mistake #2: Misunderstanding and Mislabeling Transfers

This is the one that trips up nearly everyone, including my full-on financial coaching clients during our monthly check-ins. The term “transfer” in a financial app can be confusing, but in Monarch Money, it has a very specific meaning.

What is a Transfer?

To understand this, let’s look at the category settings in Monarch Money. You have three main sections for categories: “Income,” “Expenses,” and “Transfers.”

• Income: Money coming in from a third party. This is your paycheck, a freelance payment, a tax refund, etc.
• Expenses: Money going out to a third party. This is your rent payment, a grocery bill, a dinner with friends, etc.
• Transfers: This is the key. A transfer refers to money being moved between accounts that you own. For example, moving money from your checking account to your savings account, or from your checking account to a Roth IRA, is a transfer. It’s money that is staying within your “sphere of control.”

The Big Mistake:

The common mistake is to confuse a transfer to another person with an expense. Services like Zelle, Venmo, or even old-fashioned checks are often auto-categorized by Monarch as “Transfers.” This is an error, and it can be detrimental to your financial reports.

Why this is a problem:

Transactions categorized as transfers do not show up in your budget or your cash flow reports. They are essentially hidden from your analysis. Let’s say you Zelle a friend $1,000 for rent. If this transaction is labeled as a transfer, it will not be counted as an expense. Your cash flow report will show that you have $1,000 more in savings than you actually do, giving you a completely inaccurate picture of your spending for the month.

How to Fix It:

• Filter and Review: Go to your transactions and filter by the “Transfers” category. Be prepared to see a lot of them.
• Correctly Re-categorize: Look at each transaction and ask yourself: “Did this money go to someone else, or did I move it between my own accounts?”
  • If it went to someone else (a Zelle payment to a friend, a Venmo payment, a check to a contractor), change the category to an appropriate expense category (e.g., “Personal,” “Home Improvement,” “Reimbursements”).
  • If it was a movement between your own accounts (checking to savings, checking to an investment account), it should stay as a transfer.
• Understand the “Why”: The goal of correctly categorizing transfers is to ensure your cash flow report—the report that shows your income minus your expenses—is as accurate as possible. An accurate cash flow report is the only way to truly understand your financial health and make informed decisions.

Mistake #3: Hiding Transactions

Monarch Money gives you the option to “hide” a transaction. This can be tempting, especially when a large, one-off expense throws off your monthly budget and makes your cash flow report look “ugly.” Things like a large tax bill, an annual insurance payment, or a major medical expense are perfect examples.

Why this is a problem:

Hiding a transaction is a dangerous habit. It is essentially pretending that the expense never happened. When you look at your cash flow report, it will show that you have saved more money than you actually have. When you look at your bank account at the end of the year and wonder why you don’t have as much money as your reports said you should, it’s because you’ve been hiding those large expenses from your analysis. This leads to confusion, frustration, and a very misleading view of your finances.

How to Fix It:

• Avoid Hiding: There are very, very few situations where hiding a transaction is appropriate. A transaction for which you’ve already received a refund (like a duplicate charge) might be one of the only valid reasons.
• Create a Sinking Fund: The correct way to handle large, one-off expenses is to use a “sinking fund.” A sinking fund is a savings category you set up to save for a known future expense. For example, if you know you have a $2,400 tax bill coming up next April, you can create a sinking fund category and save $200 per month. This money is then “moved” into that category as an expense, accurately reflecting your cash flow and ensuring the money is there when you need it.

Mistake #4: Labeling Reimbursements as Income

This is a common and understandable mistake. If a friend Venmos you $20 for lunch, it feels like income. If you return an item to Target and get $50 back, it feels like income. However, in the context of accurate financial tracking, these are not income.

Why this is a problem:

Your income is money you have earned from work, investments, or other third-party sources. When you look at your cash flow report at the end of the year, you want the income number to reflect your true earnings. If you label every reimbursement as income, that number will be artificially inflated and will not be an accurate measure of your financial earnings.

How to Fix It:

• Categorize as the Original Expense: The best practice is to categorize the reimbursement as the same category as the original expense. If you paid for lunch for a friend, that was an expense in your “Dining Out” category. When they pay you back, categorize that incoming transaction as “Dining Out” as well. This will cancel out the expense in your reports, giving you a true picture of how much you spent on that category.
• Create a Specific Reimbursement Category (As an Expense): If you prefer, you can create a specific expense category called “Reimbursements” or “Returns.” However, be careful with this approach, as it’s often more confusing than simply canceling out the original expense. The key is to ensure the category is an expense category, not an income category.

Mistake #5: Setting a Credit Card Goal When You Don’t Need One

Monarch Money has a great feature for paying off credit card debt, but it’s only for those who are carrying a balance.

Why this is a problem:

If you are a credit card “transactor”—someone who pays off their balance in full every single statement—you do not need to set up a credit card goal. In fact, doing so can create more confusion in your account. The goal feature is specifically for those who are carrying a revolving balance and are actively working to pay down that debt.

How to Fix It:

• Don’t Create the Goal: If you pay your credit card off every month, simply let the transactions flow through your account and be categorized as normal expenses. The total of your credit card payments will show up as a transfer to your credit card account, accurately reflecting the movement of money within your “sphere of control.”
• Use the Goal for Debt Payoff: If you are carrying a balance and want to aggressively pay it down, then a credit card goal is an excellent tool to help you track your progress and stay motivated.

Conclusion

Mastering a tool like Monarch Money is about more than just linking your accounts. It’s about understanding the foundational principles of personal finance and how they translate into the software. By avoiding the common mistakes of a cluttered category list, mislabeled transfers, hidden transactions, incorrect reimbursement categorization, and unnecessary credit card goals, you can turn your Monarch account from a source of confusion into a powerful engine for financial clarity.

An accurate financial picture is the first and most crucial step toward financial freedom. It allows you to make informed decisions, track your progress toward goals, and live with confidence, knowing exactly where you stand. The journey to a healthier financial life is one of understanding and intention, and a well-maintained Monarch Money account can be your most trusted companion.

Ready to take your financial management to the next level? Sometimes, a little outside help can make all the difference. Discover how Evolving Money can empower you on your financial journey. We offer personalized coaching to help you with everything from setting up your Monarch account to creating a budget that actually works, and from building a debt payoff plan to defining your long-term financial goals.