Concrete Money Management
So much of our money is electronic in nature. When we go to a store and use a credit card, there is no physical exchange of dollar bills. Instead, an electronic signal goes through a maze of computer networks from the store to your bank and back and you get a charge to your account.
Certainly electronic money management is a convenience. But there is one major problem with it: since you don’t see the money you are spending, you may have no idea how much you are spending. You might find yourself at home, trying to remember what you put on the credit card at the grocery and having no idea. You just swiped the card and signed without looking.
If you are in debt and having trouble paying your credit cards, then money needs to come away from the abstract and into the concrete. Time for paper and metal; you need the envelope method of budgeting.
When you get your pay check, cash it. Or, withdraw that money in cash after your company has made the electronic transfer to your account. Be sure you get the cash in relatively small bills because you are going to divide everything out.
Now, you need an envelope for each major bill you pay: rent or mortgage, various utilities, automobile payment, credit card payments, etc. Put the appropriate amount of money in each envelope. If you get paid twice a month, then put half of your electric bill from each paycheck in the envelope. Take your entire heating bill for a year and divide it by twelve. That’s what needs to go in the envelope each month. During the summer you’ll save up for the bigger bills during the winter.
The last envelope is for discretionary spending. That’s what you get to dine out with, to buy the latest gadget with, and so forth. This is the most important envelope. It may be possible for you to budget for the mortgage and the bills without the actual physical envelopes, but your play money should be in cash. When the cash is gone, no more play money. Probably your grocery money should be in cash, too, so that you don’t go wild and throw everything into the cart.
When you look into an envelope or your wallet and realize your cash is about gone, you will make a lot better decisions than if you simply pull out the plastic and swipe it. After you have gotten used to what it feels like to keep track of your spending, you may be able to go back to all electronic budget managing. But the cash option can be a great reminder to avoid spending money you don’t actually have.
Related posts:
- Avoiding Avoidable Financial Surprises
- Taking the Do It Yourself Approach to Debt Management
- Fun with Money
- Money Management Basics for Forex Traders
- A Couple’s Guide to Following a Budget
- Money for the Long Run
- Saving Money by Reducing Mortgage Expenses
- Warning Signs Concerning Debt
- Tracking Debit Card Transactions