Dirty Germy Cash; 6 Reasons I Love Using It Now

I used to put everything on the credit card and pay it off in full every month. Then I took Dave Ramsey’s Financial Peace University course. Now I use cash envelopes. All of the benefits of cash envelopes did not become clear to us until my wife and I used them for about three months. My life has improved so significantly from this change, that I wrote this to share with you why I made the switch and to detail the six reasons I’m happy to continue using cash envelopes.

A Quicken Nerd’s Perfect Budget

I was the kind of person who kept receipts for everything. I entered them all into Quicken so I could make pretty line graphs and pie charts. I liked to look back at my spending habits, and I used actual annual spending averages to create my budget. Although I do things differently now, I am still that kind of nerd.

However, each month I would go about my usual (relatively frugal) spending habits, with no regard for this “perfect” budget until the end of the month. Then I would add up my receipts and see where I overspent and underspent. I would tell myself, “Okay, I need to go out to eat less” or “This was a big month for clothes (because I actually bought something), but annually I haven’t overspent.”

I was looking back at my spending, but looking back isn’t control. My budget wasn’t a plan. It was just a feedback tool for my habits. It was a reactive way of managing my money. First I would spend my money, then I would look back to see if I should have spent it differently. Does this sound familiar?

I Don’t Want to Touch Dirty Germy Cash

Cash is dirty, filthy, germy, and gross. I hated touching it. I preferred my cleaner credit card. I liked the rewards points, too. So what would make me want to use something I consider unsanitary?

I wanted me and my wife to take Dave Ramsey’s Financial Peace University (FPU) so we’d be on the same page financially, and so if something happened to me she would know where our money was and what bills needed to be paid. Taking the course accomplished this mission, but it also revolutionized the way I manage money.

Dirty Germy CashSwitching to cash envelopes was a leap of faith that I decided to take because of other benefits from the FPU class. My wife and I were working on our zero-based budget. Having taken care of the “four walls” (home, food, clothing, and transportation), we were deciding where we were going to spend the other part of our income. We made a list of all the things we wanted, which was, of course, longer than our money was.

We had to prioritize, so we compared categories like dining, gift giving, gym memberships, and “garage sale” money. My wife suggested to me that we cancel cable. I was astonished. I had asked her about cancelling cable in months prior, and she made it clear that having cable was a big deal for her. I wasn’t even going to bring it up, but now she was suggesting to me that we should cancel cable. Why did she change her mind?

My wife noticed we could use the money from cable to fund three other categories instead. The opportunity cost of cable was too high. Opportunity cost means that if you spend money on one thing, those dollars cannot be spent on something else. Plus we had Netflix and the Internet, so we weren’t doing anything crazy like giving up TV completely. Our zero-based budget helped my wife see the opportunity cost of cable, so she decided to cancel it. Since the practices taught in FPU could accomplished what seemed to me to be impossible, I was willing to try dirty, filthy, germy cash.

We Learned How to Use Cash

Many of our bills were automatic transfers and withdrawals. Everything else was put into cash envelopes, in the amounts my wife and I had decided to allocate in our FPU zero-based budget. It was like learning to ride a bike. We didn’t do everything perfectly the first couple of months. By the third month it became quick, easy, and natural to use cash envelopes.

Two years later, my wife and I are still using cash envelopes. We still make changes to our budget and envelope system, as our needs and wants continue to change. If you follow my example, expect some mistakes as you climb the learning curve. However, keep an open and flexible mind as you go through the process.

Benefit #1: I am the General of My Army

The first and greatest benefit of cash envelopes was that I, for the first time in my nerdy-budgeting life, truly felt like the captain of my ship. My money was like an army and I was the general, telling it where to go and what to do. The process of budgeting was no longer reactive. Instead, my wife and I decided what was important beforehand and allocated our resources (cash) to it. We were directly in control of our money, instead of indirectly controlling our spending by trying to exert discipline over our habits.

Instead of evaluating our spending decisions after they happened, we were pushing our money toward categories that were important to us in the amounts we deemed appropriate.

Benefit #2: No Overspending Worries

I don’t need to look back at our budget to figure out if we were overspending. It is right there in the envelopes. If we have cash in the envelope, then there is money to spend in that category. If we spent all the cash, then we’d have to consider other options (a topic worthy of its own article). This is the reality of living with finite financial resources.

There is no cheating or fudging with cash envelopes. If we want to be big spenders today and get appetizers and drinks and desserts, then we are choosing not to spend that money on something else, such as clothes, cars, or other dinners out. We can’t throw it on the credit card and hope it all smooths out in the long run. We cannot take “Option A” and use DEBT to get “Option B” as well.

Benefit #3: I Make Spending Decisions Like a Mature Adult

The opportunity cost of our spending speaks loud and clear when I am handing over Benjamin Franklin to a cashier. My wife and I may still decide to do some big spending, but we will do it knowing full well that we chose that as a priority over the other options we could have pursued with that money.

A mature adult does not hide from the consequence of his or her actions. He or she does not pretend consequences don’t exist. A mature adult does not ignore them and hope these monsters will go away. Choices are ours to make and to live with, as are the resulting consequences (good or bad).

Contrast adult maturity to how a child behaves. Spending is based on insistent “I want it,” and perhaps some pouty foot-stomping. The buying decisions of a child (or immature adult) are dictated by how he or she feels at the time. Priorities, financial goals, and opportunity costs don’t factor into immature spending decision. This kind of emotional spending, by the way, easily falls prey to savvy sales tactics.

Benefit #4: I can Relax and Enjoy My Spending

My emotional reaction to spending changed. Instead of wondering if a transaction was going to become part of another month of overspending, I knew that I could not go over budget. I don’t have to worry about overspending, because when the cash runs out the spending stops.

My budget is now a source of peace, confidence, and enjoyment instead of a straight-jacket of guilt or hand-slap of shame. The money I was spending was put in that envelope specifically for the purpose of being spent on this item. There is no guilt or worry. I can spend it joyfully and be confident that we are living within our means.

Benefit #5: We Spend Significantly Less.

Since we started using cash envelopes, I’ve noticed that the amount of cash I withdraw from our account to put in the envelopes is significantly less than any of our monthly credit card statements were. My wife and I don’t know what it is we are no longer buying, but whatever it is, we aren’t missing it. Our monthly cash requirements are 30% less than what we used to consider a small credit card statement, and 45% less than a “normal” month’s credit card bill.

I am amazed at how using a credit card was causing an unconscious increase in spending. In FPU, Dave Ramsey talks about how using plastic doesn’t have the same neurological response as spending cash. Plastic doesn’t trigger the pain centers like giving up cash does. For this reason, Dave reports that using plastic results in 12-18% more spending than if you use cash.

My wife and I have always considered ourselves frugal. I didn’t think we could reduce our spending by 12-18%. The change was so subtle, I didn’t realize we had reduced our spending so much until the third or fourth month’s cash withdrawal. Since I have experienced this first-hand, I’m a believer.

Benefit #6: My Son Is Rich – for a 1 ½ Year Old

Cash envelopes are contributing to my son’s financial education. Coins don’t fit well in envelopes, so the change from every transaction goes into my son’s piggy bank. About once a month we deposit this money into his savings account. He will someday use this money to pay for college or a house.

My son enjoys putting the coins into the slot of his piggy bank. He gets applauded for saving, even though I know he doesn’t understand money. He also gets to wash his hands right after handling the coins, which he also enjoys. I let him carry the coin container to the teller. He loves to lift stuff and show how strong he is.

I know he has no idea what a bank is, but he’s participating in the act of saving and handling money at an early age. He is learning and practicing habits that he will carry into his adult life.

Now Go Into The World… and Take Some Cash

I encourage you to stop looking back at your spending in an effort to control it. Put your discretionary funds into cash envelopes. Tell your money where to go proactively instead of wondering why you overspend. Be prepared to deal with the reality of finite resources. Don’t try to hide from the truth! As you spend out of those envelopes, do it joyfully and confidently. Enjoy yourself and have peace knowing that you are living within your means. Tell your inner nerd, “The budget is okay!”

May we all learn to be the best stewards we can of the resources (not just money) that God entrusts with us. As we learn and grow, know that He always has more to give. We will be presented with these gifts when we are ready and able to handle them.

I wish you all health and happiness,

Joseph K.

Contact me by email at joseph@beatingbroke.com



How a Drop in Income Turned Out to Be a Good Thing

Over the last few months, my husband and I have lost some income.  Not a little drop in income.  About 20 to 25% of our monthly income.  And let me tell you, we weren’t earning more than the median income for a family of five to begin with.

Our budget was already tight, so when the drop in income happened a few months ago, I’ll admit, I panicked a bit.  I felt a little bit desperate.  I’m sure those of you who’ve been in a similar situation know the feeling.

And then I took a deep breath, and told myself we’d be alright.  And we are alright.  We’re actually better than alright.

Taking Stock of the Positive

The first thing I did, after I calmed down a bit, was to look at the positive side.  We had already paid off half of our debt, so we don’t have several debts to pay monthly.  We’re only left with one student loan payment every month, so that is a relief.  (When we started our debt repayment over two years ago, we had five monthly debt repayments that totaled almost $1,000 a month.  Now, we only need to pay $315 a month.)

drop in income a good thingSecondly, we’re used to living on a tight budget because we’ve been doing so as we try to pay down debt.  Our income drop, though not slight, was not going to throw us into a completely different style of living that we weren’t accustomed to.  I’m used to buying my clothes second hand.  I’m used to cooking all of our meals from scratch and not going out to eat.  The only adjustment we had to make was buckling down even more.

Why Our Income Drop Turned Out to Be a Good Thing

While our budget is lean, we still had some fat there.  We subscribe to Netflix for both streaming movies and DVD home delivery.  After the income drop, I decided the home delivery at $11.99 a month could go.  I had been thinking this for awhile, but I was afraid we’d miss the service.  Guess what?  We don’t.  I can borrow most of the movies for free from the library.

In addition, I think much more carefully about purchases now.  Buying something on a whim is no longer a possibility.  I have to think carefully before making a purchase, which has made me realize I don’t need many of the things I’ve been thinking of buying.

I also took other frugal steps that I’d been to lazy to take previously.  I had always read that making your own laundry detergent can be a big money saver.  A year ago, I bought all the supplies that I needed, but I never got around to making it.  Well, I finally did a few weeks ago, and it works great.  Sometimes it takes circumstances to prod me into changes I should have made a long time ago.

Of course, we don’t want to live with such a tight budget indefinitely.  But now I know that there are many cost cutting measures I’ve implemented that aren’t difficult.  When we make more money, that just means I’ll have room for greater savings and paying off that last student loan.

Have you ever experienced a tight budget?  If so, did you find it to be a good thing as I have?

Keeping Up With the Smiths

Keeping up with the Joneses is bad.  We know that.  From a financial perspective, we spend a great deal of our time overcoming the green monster called envy in order to keep our lives in some semblance of financial order.  We know the Joneses down the street with their big, fancy new SUV.  We see them going on long family vacations.  And we know the guy that mows their lawn.  But, we also know that there’s a pretty high probability that they still owe a ton of money on that SUV.  That that family vacation likely was financed through a credit card.  Their entire financial life depends on them keeping their well-paying jobs.

Forget the Joneses

I’d like to talk about another family.  The Smiths.  You don’t know them.  We don’t talk about them like we do the Joneses.  Why don’t we?  Because, outwardly, their lives are nothing to be envious of.  They don’t own a big house on a double lot.  They don’t drive a brand new Escalade.  Their family vacations consist of weekend trips to state parks or trips to visit family a couple of counties over.  Outwardly, they may even seem a bit downtrodden.  They may seem (GASP!) a bit poor.

Sometimes they are.  Sometimes, they are truly victims of their circumstance, or their poor financial choices along the way.  But, for every one of those families, there’s at least two that aren’t poor.  They have well paying jobs.  They have money in the bank.  And they occasionally barbeque a steak on the cheap grill they have on their back deck.  It’s those Smiths I’d like to talk about.

It’s the Quiet Ones You Have to Watch Out For

Why don’t we know the Smiths?  Because we live in a society that is enamored of our celebrity.  We hang on every word that that famous athlete, or famous actress says.  We try and model our lives after theirs.  They live a glamorous life, full of flashing photography, red carpets, and any number of endorsement deals.

Keeping up with the Smiths

Who wouldn’t want to be like that?  Short of being famous, we decide that we’ll see how close we can get.  The bank doesn’t turn us down for that big house, big car, or vacation to the same beach that the celebrities hang out on.  Maybe we’ll even get to see one of them!

But, it’s the Smiths we should know.  We should know people who live their lives responsibly within their means.  We should know people who live for more than having our fellow neighbors think about how rich we are, and how rich our lives must be.  We should be the Smiths.  We should be the people who drive the reliable older car without the flashy rims and booming sound system.  We should be the people who live in the smaller house that we try and repair ourselves.

Society may push us towards that Joneses sort of lifestyle.  After all, what would become of some of the companies if we stopped trying to keep up with the Joneses and stopped buying all their luxury goods?  What would the news and tabloids cover if we weren’t constantly buying their rags in order to find out what sort of clothes the princes and princesses of some foreign country were wearing this spring?

Shiny Facades, Crumbling Foundations

All around us, there are Smiths.  We don’t notice them, and we rarely get to know them.  We’re surrounded by the Joneses, and the shiny facades of businesses and economies that are driven by their reckless spending.  But, under those shiny facades is a crumbling foundation.  The economy of the world is on shaky ground.  We saw just how shaky it really was in 2008.  When the housing market crashed, it very nearly brought the entire world economy with it.  Luckily, the economy was strong enough at the time to take a beating.  It wasn’t strong enough to bounce right back.  It’s been a long slog back to where we were.  We aren’t even back there yet.  There are still parts of the world that are hurting economically.

Imagine, for a moment, if we rebuilt that economy, not on the sands of bailouts and extended unemployment benefits, and instead built it on the bedrock of hard work and frugality that got us where we were in the first place.  Imagine if we had seen the folly of our loose spending ways and tightened our belts, stuck to our budgets, and started building an economy that doesn’t shake and quiver at the smallest rise in unemployment, or the slightest miss in an earnings report?

What if, instead of running around willy-nilly chasing the lifestyle of the Joneses, we were calmly working ourselves into the stable economy of the Smiths?  What if we all didn’t have wait for our next paycheck to buy gas because our last paycheck went to our mortgage and car payments?  What if we were able to fill a tank of gas from the cash in our bank account and know that we still had our emergency funds to help us along should a real emergency come along?

We can.  We can bring our spending in line with our earning.  We can sell the fancy car that we don’t need.  We can downsize our house to something that we can afford.  Sure, the dependable used car you buy might not have as much chrome as the fancy one.  It might not have the same heated seats.  And the house you downsize to might not have a walk-in closet, or a jacuzzi bath tub.  I’ll let you in on a little secret.  You don’t need them.  They’re luxuries.  You only think that it’s normal to have those things because the Joneses told you it was.

We should be keeping up with the Smiths.

We can be the Smiths.