About 2 months ago, Linda and I decided to go back on the envelope system for all of the parts of our budget that we aren’t able to automate.
The reason we’re doing this is because we’ve been consistently over budget when we do all of our spending on our credit cards.
The reason we switched back to using our credit cards is because it’s a royal pain in the butt to always make sure we’re carrying enough cash for groceries and gas and date night and fundraisers and cover charges, etc.
It’s still a royal pain in the butt, and we still suck at it.
But one of our envelopes is labeled “This went on a credit card” and is used for those times we forgot to grab cash before heading to the store.
In the last two weeks, that’s $500 that we forgot to bring with us.
Cash sucks.
I’m tempted to go back to using the credit card for our primary spending. Yes, we are consistently over budget, but it’s not terrible….for some odd definition of “not terrible”.
We generally seem to have about $1000 left on the card after making our last monthly payment every month. Every month. The overall balance never grows, it’s just hanging out $1000 over what we have budgeted to be paid automatically on the card.
That’s a bad thing, but….
Since I make a payment every couple of weeks, the interest is never assessed on that balance. In the last year, we’ve paid exactly $0 in interest, without any funny balance transfer deals.
By my calculations, that means our credit card has given us $1000 for free.
If we pay that off and get strict about using cash, won’t that mean our free $1000 would have to evaporate?
I like free money.
That also means that the total interest we paid in 2014 is $672.91, all to our mortgage. Even if we have a small balance we carry, we’re not paying interest on that debt, and–worst case–we could raid our savings to make it vanish tomorrow. I’m tempted to make that happen, but our savings goals are more important to me that paying back the free money.
My solution to the envelope system is to have an account just for my everyday spending expenses. I use my debit card for purchases and it gives me a record of where my money vanished to. Every paycheck I transfer my spending money (gas, groceries, entertainment) to this account. I carry very little cash and like the convenience of using my debit card as a credit card. When I have cash in my pocket I tend to spend it and then not know where it went. “Oh look! I have $20, lets grab lunch in the coffee shop.”