Budget Bootcamp Week Six: Spending Methods

After 3 days of no laptop access, I'm finally back in business! Jason determined there is a short in the charger and a new one was ordered immediately on Amazon. Gotta love that Prime Shipping! So here's your super delayed week six post.

Yes, the goal of this series is to create better savings habits and reign in our spending. Since we will inevitably be spending money each month, it's important to talk about different spending methods. What works for one person or household might not work for the next. Knowing your own strengths, weaknesses and tendencies is crucial. If you are needing to reduce spending, better manage your money or get out of debt, you probably are going to have to make some changes in order for that to happen. This saying is true for so many areas of life, including finance: if you change nothing, nothing will change. Let me elaborate.

For example sake, we are going to talk about the two types of payment that are used most frequently. Cash and Cards. Some people prefer using cash for various reasons, and mainly because it's a cut and dry, accepted everywhere method. For most people, a cash budget is easiest to stick to because when its gone, its gone. You can't spend cash that's not in your wallet, right? There are also a select group of people out there that cash simply burns a hole in their pocket. My husband falls in this category. Cash in his wallet vanishes very quickly, and often with very little recollection of where it vanished to. It's like it is just begging to be spent, and because it's cash it doesn't come with a paper trail automatically. Yes, he's used to my need for receipts after 6 plus years of budgeting together, but if he doesn't bring home a receipt for a cash purchase, there's no telling where that money went. So while for some cash is a definitive limit, for others its a joy ride without witnesses.

Source: Google

With a credit or debit purchase, our online banking automatically indicates how much was spent, where and when. In Jason's case, he knows I'll notice and question purchases that are out of the norm, excessive or didn't get mentioned. Time out: I want to be really clear here that we work together when it comes to our finances. I am in no way bashing Jason or saying that he doesn't manage money well. We discuss almost every dollar spent, and usually beforehand. This isn't me being obsessive and controlling, and it isn't because he's constantly blowing money. Its because we respect one another and treat our money as that: our money, not his and hers. Now we can resume. So in Jason's case, he is less likely to spend on unnecessary items if it involves swiping the card. For others, this is the exact opposite. Some people have a very difficult time not overspending when using a credit card, because it doesn't have the same immediate visual impact as forking over cash and watching your wallet dwindle. This can be a slippery slope and before you know it you're out hundreds or thousands of dollars and reality is a hard pill to swallow. 

Do either of these scenarios sound familiar? Not all of us struggle the same way. If you do see yourself struggling with control over a certain form of payment, now is the time to address it. Take a look at your habits and your needs, and determine which style of spending will best support your financial goals. Maybe the answer is clearly one or the other, maybe you can appreciate both. If you realize you are better suited for a cash budget, consider Dave Ramsey's Envelope Method. This write up by The Budget Mom does a great job explaining the whole process. If the credit card approach is feasible to you, consider what you're getting from your credit card company. 

We use the Bank of America Cash Rewards Credit Card. We rack up cash back on every purchase we make so for us, it made sense to earn money on things we would be buying regardless. We earn 3% back on gas, 2% back on groceries and wholesale clubs (such as Costco or Sams), and 1% back on everything else. Each month there are about 20-30 additional offers that we can take advantage of, such as 10% back at PetSmart, 5% back at Starbucks, etc. We allow our rewards to accumulate to a balance of at least $100 per card before redeeming, and by doing so, they give us an extra 25% on top of what we've already earned, simply by redeeming our rewards into our checking or savings account. Let's break that down real quick here. If my grocery budget were $300/month and I spent $150 a month on gas, that's $126 ($3600 x 2% and $1800 x 3%) each year I would earn just for buying my gas and groceries with my credit card. And when I redeem that balance of $100+ to my checking or savings account, I get the 25% bonus, which here is and additional $31.50. FREE MONEY for purchases I was already making. Here's the catch though... spending money on things you don't need just to earn rewards will never be a good idea. 10% back on a $20 trip to a store you didn't need something from to begin with doesn't mean you "earned" $2, it means you spent $18. Feel me? Also, the thing to always remember with credit cards is to understand your fee structure. We pay each of our cards off in full, on time, every single month. If we didn't, we would be paying interest charges and late fees, in which case we would be better off sticking to cash to keep things under control. 

Financial balance is all about finding what works for you. Its about knowing your temptations, your goals, your strengths and your weaknesses. Make your money work for you. After all, you had to work for it.