Monday, April 18, 2011
A Twist on the envelope system
I know that credit cards is an area we need to do some work on...we are good about paying them off every month, unless they are on a limited time interest free plan (for those we plan out how much to pay each month so they are paid off before the no interest period ends). But, I know that we spend more using the cards than we would if we used the "envelope" system, as evidenced by the fact that we dip into our savings more often than I'd like to pay them off each month. I'm thankful that we've pretty much always been able to maintain a reasonable amount in savings each month (though admittedly not the 9 months living expenses that is now recommended!) so that we've never been forced to live paycheck to paycheck, but at the same time the danger in that is that I especially sometimes use that cushion as an excuse to spend when I shouldn't.
We did the envelope system early on in our marraige when we were living in an apartment and saving for our first home...it was amazing how quickly our savings grew when we had a goal set and limited ourselves to spending only what was in each envelope (now we did sometimes take money from one category to spend more in another, but we stuck to the rule of not taking more money out of the bank than our pre-set amount). It wasn't long before we were moving into our first home!
Here's the thing...the reason we use the credit cards is to take advantage of annual reward checks and earned points which we redeem for cash cards. Besides charging things like food, gas, etc., we also have some of our bills automatically charged on the card to get the most out of the reward programs. We use two main cards (we do have a couple of store specific cards but only use those to get extra sales or interest free months for bigger purchases and again they get paid off before we pay any interest). Our Costco/American Express card, which actually yields two annual checks (one from Costco that always covers our executive membership fee plus provides extra money to spend there, the other from American Express to spend at Costco...did you know that you can cash the American Express check at Costco intead of spending it there?...did you also know that records of all purchases at Costco are maintained on their computer system so you don't need your receipt to make a return and if an item goes on coupon a bit after you purchased it, you can just go in and give them your card and ask for the coupon amount to be credited to your card...this recently paid off big time for me when tires we'd purchased 6 weeks prior ended up having a $70 off coupon). Our other card is a Visa that offers points that we cash in for Visa Gift Cards that we can then spend anywhere (I like this one too because its pretty easy & straight forward with little/no restrictions). I get a special satisfaction in knowing that while most people are being ripped off by credit cards, they are actually paying us to use them, but like I said I know that the danger in using them is that its easier to spend more when you aren't handing over cash for a purchase which is what inspired me to try a variation of the envelope system.
So, here's my plan as a compromise of the two systems...I've purchased a coupon holder which will be labeled with budget categories. Inside each section will be an index card with the monthly allowance written for that category. Wherever possible I'll purchase gift cards/gift certificates with my credit cards for each category. I'll keep a pen & calculator in one section. Before spending in a category, I'll review what I have available & then make a note of what was spent so I know what's left. The exception here will be gasoline...we'll keep nearly all our month's allowance for that expense in cash in its section since nearly all gas stations now charge more for credit (though when we make our monthly shopping trip to Costco in the city, we'll use our Amex since you can't pay cash & they don't charge any extra for using the card). And of course online purchases are another category that will require using a credit card...this is something I do more than perhaps those who live in larger cities for the simple fact that we don't have a lot of shopping options here in our small community and I can often score better deals and save time (and aggravation of dragging 3 kids from store to store) by shopping around and using coupon codes. On a sidenote, before you make a purchase online, always do a search for coupon codes...some stores even let you use more than one code and many more are starting to do free shipping, some with no minimum purchase. Another section that will typically contain cash is a vehicle maintenance section...I'll pick a specific amount to place in their each month and it will continue to grow so that we have something to help take care of/offset vehicle maintenance and unplanned repairs. One other nice thing about the coupon holder will be that I can put money made from selling our organic eggs in there to then utilize for buying chicken feed.
I think this system will work as long as I force myself to stick to the rules. Using the coupon holder will also help me keep the receipts better organized which will help me when I evaluate where the money went and also can provide a spot for me to hold coupons/notes about specials in the corresponding categories. I'm looking at starting this new plan hopefully by June 1st...I'll need at least a month of feeding/caring for our new goats to see how it effects our budget (money spent on food/routine supplies vs. money saved on dairy products). I'll let you know how it works.