I know that Dave Ramsey says to use cash instead of credit cards. I haven't been able to make the switch, though. Don't get me wrong - I don't have credit card debt. I have cards with no annual fee, and I pay them off every month. I use the envelope system, but it is through Mvelopes online. If I switched to cash, I would no longer know where every penny went. Sure, I would use physical envelopes instead of the electronic version, but there wouldn't be any way to see what stores I went to without digging through receipts. I would also be giving up my cash back rewards, which are normally around $30/month. I apply these to my credit card balance before I make my payment, and it really helps.
Another thing I worry about is how to allocate the money between my husband and myself. I do the majority of the grocery shopping for the family, but he does pick up milk, bread and bananas when he gets gas sometimes. He also does a monthly - or so - stop at Cub for food to stock his fridge and cupboard at work for lunches and snacks. I never know he is going to make this trip until I see it in Mvelopes. I don't think he ever knows he is going to go do that trip until he has a day where he doesn't want to go to the gym at lunch, so he decides to take care of that instead. I guess we could give him his own envelope for his groceries and for his sporadic stops at the gas station, but from month to month, the amount he does changes so much, I don't know how to plan for it.
My next concern is about losing cash. When we do have cash around, we tend to lose track of where we spent it - that or else we lose it. I think I would do pretty well with it. I have a coupon binder, and it has a zipper pouch inside that would hold several envelopes, and I think I could easily start using cash out of envelopes and stick the receipts into the envelopes. But my husband does not have a coupon binder. He has a money clip. I don't think he would want to start carrying around his planner all the time. He says he would like to try going to cash, but I am pretty sure he would want some cash in his clip, and there would be little categorizing or saving of receipts. Sure, they could go in his pocket, but then they could either end up on his desk at work or in the laundry at home.
I understand the concept that if you only have the cash that you take to the store with you, that is all you spend, so you save by not impulse buying. But what about when you see a great deal on something that you would like to stock up on, but can't because you didn't know about the temporary price reduction or clearance and don't have the money with you? For example, when I find my favorite spaghetti sauce for $1 per can, I buy a dozen cans of it. Is the trade-off of not having the money with you for times like those worth the money you save?
I have a weekly grocery budget. I am sticking to it fairly well. Not perfectly, but fairly well. Dining out used to be a category that we struggled with, but we are doing better since we started focusing on it. The only category that consistently is over budget is the home maintenance category. Something is always breaking around here, and we really can't wait to have the money in that envelope all the time, so we transfer from another envelope to cover it. Will switching to cash really make a difference? Or will I miss out on my cash back rewards and great sales and spend extra gas going to the bank for cash and risk losing my cash and not see a benefit?
I want to know what has worked for you. What struggles did you have with using cash? Did you just transfer money from other cash envelopes when you wanted to go over budget? Was it the envelope system that really made the difference, or was it using cash that did it, or a combination of the two? How did you work with a spouse on it? Do you both have to be committed to using envelopes in order for it to work?
Thursday, May 24, 2012
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I have started just using my debit card and I have liked that because I really have to think about it. I do carry little cash for little things during the week and that helps because then I know I am not over spending. I want to hear more about your mvelopes.
ReplyDeleteFor me I stick mainly with cash. I have a problem with over spending if I know we have extra in the bank. I have tried the envelope system where money is allocated to different areas, but I found I was struggling with the same issues you brought up. Now, I just take out the amount we budgeted for but if I decide not to go grocery shopping that week and we need something else, I spend it on that. I think what you do is great. Having the envelopes online. I don't really see you benefiting much from switching to cash in envelopes. I think the whole idea behind cash is to keep you from over spending which it doesn't sound like you do!
ReplyDeleteAmy
Mvelopes is an online service for personal finances. You can find it at www.mvelopes.com. Like Quicken or MS Money, you enter your bank information and it downloads it all automatically. You categorize the money you have into envelopes, just like the old-fashioned envelope system. You set up each envelope with an amount to fund it each month. I fund all mine monthly, so a little bit of our income goes to each envelope each month. That way, when the property tax bill or insurance payments come due, the money is there. Envelopes like that where I save up all month keep the money in them until I pay the bills. Other envelopes, like the one for groceries or dining out, get funded each month. But at the end of the month, if anything is left over, you can sweep the money into a savings envelope or debt envelope. That accelerates the rate at which you can save or get out of debt. Of course, you also set up savings envelopes. And, if you have credit cards, every time you make a purchase on a credit card, the money from the spending envelope is automatically allocated to the credit card payment envelope. You should try it out. There is a one month free trial, I believe. Go for it.
ReplyDeleteI get what you're saying about the complexity of cash. We use our debit card for gas purchases, but try to do cash for most other things. Dave quotes the studies that show the "pain" center of your brain isn't activated when you use plastic, whatever the type. Cash, it lights up all over the place. (The study says you on AVERAGE spend 25% more with plastic. At McDonalds, they started taking cards for ALL purchases, because people spent and average 40% more per transaction than with cash)
ReplyDeleteI PERSONALLY, am MUCH more frugal when I am pulling cash out. Just makes it that much more real for me. (And our CHILDREN) It very much helps keep me disciplined. We DO transfer between envelopes as needed, but NOT OFTEN now that we have it pretty worked out what our expenses will be. So I kind of have "built in" monies for the great deals I will come across. We DO transfer between envelopes as needed, but that's gotten to be less often as we've gotten better. We've also had to learn to say "NO" to ourselves because we literally don't have enough cash in the envelope. If we weren't using cash, we would very likely buy it anyway.
Unique to our budget lifestyle from our past life, is the fact that I HAVE bought the smallest size of something to make it through till the next pay cycle, even if I know it's not the better value. It's just a discipline thing I need to do. It is too easy to justify some things for me, and justification is what got us in trouble in the first place.
We have never "lost" cash. I was afraid we would, but it's funny how close you hang on to it when you know that's "it". I am pretty vigilant about writing down where what was spent (tracking receipts on the envelope) every day or two. BUT IF I WASN'T NEEDING TO TRACK MY SPENDING SO CAREFULLY(because I'm dealing with "real" cash), I WOULD LET THEM PILE UP! So if I go to target and buy clothes, groceries, and school supplies, I put items on the belt in those categories, so my receipt sorts them that way, and it is easy to subtract from the correct envelopes once I get home. I think you very likely are much more disciplined and less spontaneous with purchases than I tend to be. I just need the LITERAL reminder, and for us, that's cold hard cash.
Oh, and I don't really worry about theft, because 1)nobody expects anybody to ever have cash anymore, and 2)they're going to get a lot more mileage from my stolen credit card
I HATE HATE HATE credit card companies, and I don't give a diddly squat about any kind of "rewards". I hate numbers and paying bills, and doing the credit card dance adds a layer of complexity to my life I don't miss one bit. WAAAAAY more risk with plastic than cash. But if you are super disciplined, and don't mind the "dance" of the credit card companies "terms", you may opt to do it. We stunk at it. They won, several years and several thousand dollars of our lives, as well as hassle we didn't need and didn't deserve. (because even if you do nothing wrong, you can be "guilty until proven innocent" with a CC company, we learned the hard way. It took months to clear up something that was an error we had nothing to do with. I'M DONE WITH THEM FOREVER!!! :)
It has been the SINGLE BIGGEST THING we've done to help us actually LIVE on a budget, rather than add it all up later and wonder what happened.
As far as Aaron's trips to the store, may give him an mvelope amount, and you cash? Then I'm sure after tracking his spending that way a few months, you would definitely spot a trend.
But, we need the "budgeting for dummies" type program, which I think you are far past! :)
Tiffany,
ReplyDeleteI see what you mean about credit cards being complicated. Back when we had credit card debt, it was a hassle. But I think our situation is a little different now, as we haven't carried a balance on a credit card since 2002. I just have the Discover and Target cards (yeah, I like that 5% discount at Target - I forgot to mention that earlier) set up with autopay to pay the bills in full each month from our checking account, and Mvelopes always has that amount sitting in the credit card payment envelope, so I don't have to worry about coming up short or missing a payment. But I do wonder if the psychological aspect of spending cash would help us lower our budget. Maybe it is worth a try. We could do it for one month and see how it works. Of course, right now is not the right time to start, as summer is here and my grocery habits will completely change. During the school year, a lot of my budget is consumed with buying healthy single-serve items for school lunches. In the summer, the budget should go down naturally. Maybe I'll try it in August, as I will have a couple of months to compare it to then. I wonder how reasonable it is to believe I can lower my grocery bill (defined as food, cleaners, personal care items, medicine, pull-ups, etc. - no clothing, housewares or gifts included) to under $180 per week? How much per person in your family do you all budget for on a weekly basis?