I love personal finance. My first financial mentor was John Commuta, and am currently tutored by Dave Ramsey 3 mornings a week as I deliver the paper. I also read fivecentnickel and get some good stuff from him. Stephanie and I are around 1/4 million in debt. We aren't good targets for identity thieves. A couple months ago I worked out a very detailed and disciplined plan to be completely debt free in less than 11 years "on just the money we already make". (Commuta uses that phrase in his ads all the time) Hopefully, our income will increase and that number will shrink.
The problem is that my plan depends on Stephanie and I sticking to our budget. It is tight but realistic. Our dedication vacillates constantly because there are always special circumstances that justify fudging the budget just a bit. Those little exceptions in multiple budget categories really add up. According to our budget we are supposed to have around $800 to add to our smallest debt every month (up from $400 because we paid off the Honda! YES!). This month we barely paid our bills.
We were out of credit card debt quite a few months ago, but we funnel everything we can through our discover card in order to maximize our cashback bonus. We have not carried a balance in months. But, Ramsey confronts this mindset often on his show and insists that statistics show that people spend more when they use a credit card than they do with with cash or debit. Although I could not deny the stat, I have insisted that we budget well enough and track our expenses well enough that the credit card does not influence the amount we spend. Today, I publicly confess that I was wrong.
So, with hardly any resistance Stephanie agreed to the change. Today, my friend Walter passively convinced me to go the extra mile and convert to an all cash system. The aforementioned statistic further states that people spend even less with cash than they do with debit. So, I just emailed Stephanie and informed her that I want to switch to the envelope system. I remember my brother and his wife reading Larry Burkett and using this system as a result in their early married life. Here is how it works.
For all expenditures that are discretionary like groceries, entertainment, recreation, clothing, hobbies, dining out, and even gasoline, we take the budgeted amount of money at the beginning of the month and place it in appropriate envelopes. Throughout the month when we want something, we go to the envelope and use the cash for ALL purchases. When the cash is gone, guess what-- you are done. The system is beautifully simple, but certainly the best way for all but the extremely disciplined.
I am nervous but excited, because I know that the end result will be totally worth it.
Good for you, Ryan. We waffle back and forth between all cash (which to be quite frank, is highly inconvenient) and using our check/credit card. One thing that is nice about the card is that you can easily track all of your purchases and organize them into categories instead of wondering where all your cash went. I'd suggest keeping a slip of paper in the envelope to keep track of what you take the $ out for. Also, we find it difficult to separate $ out for purchases of different categories from the same place. For example, you visit WalMart and buy groceries, a prescription, some clothes, and laundry detergent, and a set of new sheets. That's an envelope system nightmare! We've recently begun taking out half of our total amount of cash for the month on the first and the other half on the 15th. We don't divide it up into categories except on paper for our budget to determine how much we withdraw. We aren't very good at keeping track of how it is spent, but it seems to work for us. Of course, there are always those "surprise" purchases that so easily go on the check card. You've motivated me to buckle down...Dana will be extremely thankful :o)
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