Friday, November 2, 2007

Will that be Cash or Debit?

There are generally two schools of thought for controlling your spending. The first is a cash envelope system, where your monthly budgeted amount for every category is placed in an envelope with the category written on it. The second is to use the debit card for everything and track it using money management software.

Strangely enough, I like to use both. Better than that, I have to use both. I have tried to go all one way or the other, and it just doesn't work.

Our fun money has to be in cash. If I use the debit card for my fun money, I overspend my budget. Without fail. When I have cash only for fun money, I can keep it in check. The sooner I go to the ATM and take out my fun money, the better off my month is budget-wise. (Which reminds me, I need to get November's fun money.)

Everything else - gas, groceries, household expenses - are all on the debt card. I can't imagine carrying that much cash around, not to mention that my husband needs to spend some of that money as well and it's not practical to split that money. We just make sure that the totals don't surpass out budget. Plus, I can track when we spend the money rather than how much we have remaining.

So this is what works for us. It's a little unorthodox, but a lot of what we're doing now is irregular. How do you keep track of your spending - cash or debit? (Presumably, if you're reading this, you don't use credit unless it's for the points.)


Elizabeth said...

Great post. I love your blog.

I'm a lot different from the norm in that, with the rare exception, I put everything on a credit card. I have one card for groceries and food, an Amex for Costco, and everything else goes on my third card. This is how I've run my household for the last 14+ years. Each card is paid off in full every month. This system works for us because I'm buying every day necessities, not luxuries, so there's never really an issue of overspending. Also, it's in my nature to never spend more than $50 (other than on groceries) without doing a lot of comparison shopping and consumer research and, of course, discussing the purchase with my spouse beforehand.

I keep track of my spending my entering each purchase into my budget on the day I make it. I have no trouble understanding that once the purchase is made, that money is spent.

I really don't think it's the form of payment one uses so much as it's a question of the pyschology involved. Personally, I think harder about plastic purchases. Cash runs through my fingers like water and I never have a paper trail. We found joint checking accounts to be too complicated to maintain and cumbersome to use. I don't think debit cards were as available back when we developed our system.

My mom's the type of person who simply cannot stop herself from running a card up to its limit. I've never come anywhere close to approaching the limit on even one of my cards, much less all three.

[P.S. - hope you don't mind but I tagged you for a Crazy 8's meme.]

wealthy_1 said...

I don't think it matters whether a system is unorthodox or not. If it works, then do it. I like using cash too. I use my debit card, but I feel I have more control when I use cash. I get paid every two weeks. So I make a big grocery shopping on payday and then the next Friday I just get the bare essentials that will get us to payday. Anyway, I use cash during that second week for the groceries. It's amazing how much more in control I feel when I do that.

Wow! That really sounds like someone who is bound by the shackles of debt, doesn't it?