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Plugging the Holes in Your Budget

by The Happy Rock on June 3, 2010

The following is a guest post by a dear friend Ed(@ed_bruner) who is just months away from finally getting out from under $40,000+ in debt.

Use cash to plug up the holes

I assume every family budget has holes in it.  Ours did.  The holes were mostly unaccounted spending or personal spending…a trip to a retail store, a lunch out, snacks, etc.  These “little”spending events can destroy a budget or even derail your debt reduction if they are not kept in check.

The way we handle this issue is by allowing ourselves weekly spending cash. The rest of the income is for bills & savings.  All significant purchases are planned and discussed.  Once the personal cash is gone, the spending stops.  With the change to cash I’ve found that I pay more attention to the cost of things I’m buying.  If I want to buy something, then I need to save for it. It really is as simple as it sounds and it works.

I’m sure you are familiar with the statistics regarding credit cards specifically that we are likely to spend up to 15% more when shopping with plastic.  Dave Ramsey says that a McDonald’s study showed a 47% increase with plastic.  Cash is finite, credit (and debit) have overdrafts and outrageous credit limits, which entice you to be less concerned about price.  The minimum payment is only a small fraction of the debt amount.

We do use debit cards but have stopped all spending on credit.  When we use debit, it is subtracted from weekly cash allowance.

Its much more enjoyable to manage money, than manage debt.

{ 8 comments… read them below or add one }

Happiness and Wisdom June 8, 2010 at 9:29 pm

I appreciate your focus on managing money vs. eliminating debt. The former focuses on good stewardship of our resources. The latter, a focus on lack and scarcity. I think that a focus on scarcity simply brings with it more scarcity, either psychologically or metaphysically (pick whichever one feels most comfortable!) Thank you for what you’re doing here.

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Jessica.S June 9, 2010 at 7:49 am

Small purchases can truly damage a budget, even if at the time it doesn’t seem so. Eating out in my case is the worse, this includes eating at work. I’ve tried bringing a launch box and my budget situation has really improved.

Apart from the budget i’m also eating healthier :)

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Lauren June 10, 2010 at 3:21 pm

My husband and I have also found the giving ourselves an allowance works out great. However, we shop using only our credit card (but pay it off monthly) because it’s easier for us to keep track of our purchases that way. For some reason the second we get cash, it’s gone. Poof.

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Melanie June 18, 2010 at 7:21 am

Yes, I know what Lauren means. I am torn between using the cards so I can track things and using cash so I spend less! In the olden days, I know it was common for people to keep a written record of every penny they spent. I keep telling myself to do this but haven’t been disciplined enough to try. Lately I have been thinking what a helpful habit that would be to establish with my children while they are young.

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garrett @ debt eagle June 25, 2010 at 4:02 pm

i was recently talking about this on my site. there really is no need to use credit cards as frequently as we all do. people could get buy just as easily only using their debit cards. We only need plastic for the convenience factor and debit cards work just as well as traditional credit cards.

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ed July 8, 2010 at 10:45 am

An additional benefit was: using cash not only helped to control spending, but it helped us decide what an appropriate budget was for us.

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Jonathan@Friends&Money September 19, 2010 at 2:42 pm

Got to be honest but if i can’t afford something I save up rather than using a credit card, it’s wasted money otherwise, because of high interest payments. All it takes is a few months to get into the habit of not spending what you can’t afford

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Violet January 4, 2011 at 3:17 pm

Good methods here. It’s pretty much the same as how I handle my finances but I keep two checking accounts. My entire check is direct deposited into one. I transfer my “weekly” spending into another checking account and my discretionary spending is done from that card. I write checks out of the other account and also have it set up with my bank to automatically withdraw $60 from that account each week and deposit it into my savings.

Just my two cents :)

Pun intended.

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