If you’ve been around here long, you know we are pretty big proponents of using cash to help maintain discipline in your finances. We use the good old-fashioned cash envelope system, and have since we got married. For some reason, many of you think using cash is strange because we live in a plastic society (interpret that in a few ways if you like), so Stacy even did a video about our actual cash envelopes back in March to try to help you see how we make it work.
But what about those of you who refuse to use cash? Maybe you’re scared of having more than a few bucks on hand because they’ll burn a hole in your pocket. Maybe you’re convinced you’ll be mugged if you bring out a $50 bill to pay for groceries. Whatever the reason, many of you haven’t bought into the idea of using cash envelopes for certain budget categories and want to know if there’s an alternative. Well…yes.
There is nothing wrong with using your debit card for budgeted expenses. I do this all the time. Unfortunately, this isn’t easier. In fact, I think it is harder…and worse, you have to do math – YIKES! But today I want to walk you through how you can instill discipline in your finances and stay on budget when you want to use your debit card instead of cash.
First, you don’t get a bye on doing a budget or using the envelope system. You still need to do a budget EVERY MONTH (imagine me giving you my serious, authoritarian look) and use envelopes for those budget categories where you struggle with overspending. For the Myers household, there are five such categories: groceries, gifts, entertainment, clothing, and misc. household (toilet paper, cleaners, etc.). You may have totally different categories and that’s just fine. The point is to use one envelope per category where you find yourself overspending every month.
The difference when using your debit card is that instead of putting cash in the envelopes and spending the cash until you run out of money or month, you’ll simply put a piece of paper in the envelope with an amount on top and keep record of your transactions. As you go to buy something from that category, pull out your debit card and the slip of paper from that envelope and immediately (do not leave the checkout counter until you do this) write how much you spent on the paper and subtract it from your balance in that envelope.
Pros:
- Helps keep close watch on those categories where you usually struggle
- No cash on hand for those who are concerned about it
- Provides fraud purchase protection (when card is run as a credit instead of a debit)
Cons:
- Requires additional discipline to keep track of the information
- You have to do the math instead of just counting remaining cash
- No cash in envelope = no money to spend; $0 on piece of paper won’t keep you from swiping the card
I’m still a fan of cash for those slippery categories and probably won’t be convinced to change anytime soon. However, hopefully those of you who don’t like the cash envelope idea now have a workable alternative. What do you think? Will this method change how you budget?
Oh.my.goodness. Why didn’t I think of this???!!!
For years my hubby and I used the envelope system, but about 10 years ago we foster/adopted some children with sticky fingers. It took us awhile to figure out where the money was going but when we did we switched to cards only (rough transition). We tried several apps and have settled on YNAB with a Dave Ramsey twist.
Thanks for this, Barry. After an unfortunate incident in Disney World when I was in high school, and lost over $75 in cash. Since then, I’ve been very wary of carrying cash with me, and always relied on my debit card for security reasons.
I am doing better with carrying cash, though. Thanks for the FPU class I am taking again, I’m slowly getting through my fear of carrying paper money to pay for things. I’m just afraid that I will look in my purse one day just to see my cash is gone. At least with my debit I have the security that I can call the bank and cancel the card if it’s stolen or lost; with cash, I’d just be out of luck.
This is a valid point, and one which I really can’t refute. The sickening feeling of losing money, cards, or ANYTHING is terrible. I lost a favorite (and expensive) pocket knife in 2007 and I STILL wish I could find it. How silly is that?!
We use YNAB – which is basically a cash envelope system, as you tell it how to budget your income and you then subtract transactions from those categories and instantly see how much is left. But you’re right – it’s not as easy as cash in that you can still swipe those cards, but we’re learning. It’s rough sometimes! But thankfully YNAB also helped us get to where all the income we bring in “this” month is all we have to spend “next” month – much easier to stay on budget than to add up income & outcome on a single month, see you overspent and just say “oh well.”
Another con, and the most important, is when your debit card info is stolen you don’t have protection from your bank account being wiped out. Sure maybe eventually it may be replaced, but do you have months to wait? How will you pay your bills in the meantime? Credit cards have fraud protection: we’ve never had a problem there.
When used as a credit, your debit card has the same protections as a credit card. That said, my comparison is cash vs debit card, not debit card vs credit card. We don’t do credit cards around here.
This is basically what I did when I was single. I kept a second checkbook register that all of my purchases went into by category and then entered them into the master budget when I got home. This way they were recorded no matter what form of payment was used (I use a credit card that I get rewards on for some recurring monthly expenses). It is much harder when you are keeping track of two people though. I often carry cash, but my husband uses the card and just keeps receipts for me. How do you make the envelope system work with two people? Maybe we need a clearer division of labor around here 🙂
One person has to be the keeper of the funds. In one home that is Stacy. If I make a purchase we “settle up” as soon as I get home.
How do you manage the grocery budget when you purchase items from online sources?
If you normally use cash for groceries but end up buying some things online you need to ‘reimburse checking’ as we call it around our house. Stacy will give me the cash so I can put it back in checking or have it for next month if things aren’t tight enough that a deposit is required.
This has been a frustration for my grocery envelope since I added more online purchases. I had had about 3 years of Really noticing a difference on my spending totals while using my envelopes and cash, and I do see how not having so much exposure to aisles and unplanned purchase possibilities is Really good for me… but not having the cash leave my envelope is a loss. :0( I’m Very visual and was basically doing the Snoopy happy dance at the end of months when I had cash left over, because it was an obvious & immediate “you can in under budget for the month girl” moment.
I like your list per envelope. I think I’ll try that-starting w/ my November purchases combined with my getting full cash budget totals for my envelopes and then pulling the cash out of the envelope even for online purchases. My previous variations have not worked, and I’m missing my Snoopy dance opportunities.
Working towards our debt-free scream. :0) Have a wonderful day!
Instead of writing it down on paper and doing the math yourself, there are multiple apps that function in this way as well. We like the Easy Envelope Budget App because its free and easy, but there are many others as well, and some that link to your accounts to automatically categorize for you.
Yes, many ways to do this but all have the same root purpose. Track expenses in a given category and tell you when to stop spending. Paper or digital is all about preference.
I like your thoughts and ideas… The only thing I do differently is, I use a credit card (and keep a running tally) and pay it off each month. This way I am able to earn points which I cash in for gift cards to use as Christmas presents. Free Gifts!
While this is common practice, we don’t do debt period so I even stopped using credit cards. I worked foe a cad company for 6 years and saw all the bad vs the little good.
Thank you for posting this! Let me say up front that I am a budget nerd! I LOVE to budget and we try to be very careful stewards of the resources God has provided. That said, while I was raised by die-hard envelope parents, but my husband and I fall more into the “Now what did I spend that other $20 on?” people with cash so debit cards work much better for us! We tried to do things the “right” way for years, using cash only but it never worked out for us! We now use our debit cards basically the way you suggest but we use budgeting software that also has a smartphone app so we can enter purchases immediately since receipts end up lost around here. Debit cards can work for some people as long as you remember that they are the same thing as cash. I finally read your book this past weekend too, and it gave me some ideas how to revamp a few things that look like they will help with this new season in our life (1 in college and another who starts next year)
🙂 thanks!
What a great idea! I try to (notice, *try*) to get it onto a spreadsheet soon after purchase. But I don’t carry that spreadsheet with me. So it’s a lot of calculating in my head and assuming my memory is right 🙂 This is a great idea. I have the Dave Ramsey wallet and enjoy the envelop system, however, my bank is an online bank only. So it isn’t easy to get cash and get the right amount of small bills. It can be done, but it is a lot of work. AND I live 25 minutes out of town – from any bank. So this is a great alternative for me! Thanks Barry 🙂
Barry, I always look forward to the financial posts. A young friend is just starting to budget. She wants to try envelopes like Stacey, so I’ll refer her to the video. Shoot, I may try it, too!
I am ine of those who has had troubke going to the cash envelopes system ao I like your idea about keeping the paper in envelope. Another possibility is keeping a notebook like you have shown and use tabbies for their budget categories?
This works. As long as you stay ‘honest’ with your spending and categories.