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Old 10-28-2008, 06:04 PM   #1
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Default Budgeting - Envelope system

Am I the only one in this country that thinks a budget is a useful tool and tries to stick to it? I use the envelope system for most discretionary spending (Groceries, restaurant, entertainment, clothing, fun money etc.) and I pay my bills mostly online.

When I go to the bank to take out the month's budget I get weird looks and all sorts of questions, plus they constantly encourage me to use my debit/credit card to purchase things. They say how much money I could get in cash back rewards etc.

I'm not an economics major but I think "No such thing as a free lunch" applies to those cash backs as well. When I use a credit card at a retailer the retailer is charged by the credit card company (In this case Chase and Mastercard/Visa) and thus the retailer needs to jack up their prices to cover that 3-5% that the card company charges. Then I get back 1% of that in a cash back offer. Meaning I am, in the end, paying more for my products so that the credit card company can line its pockets.

She then mentioned how I could get this or that credit card in case I needed the money for a down payment on a car etc. I tried to explain that I don't need a credit card for a down payment if I think ahead and save for my new car instead! I just think the whole idea of saving for something is completely foreign to today's Americans.

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Old 10-28-2008, 06:13 PM   #2
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Originally Posted by conpewter View Post
Am I the only one in this country that thinks a budget is a useful tool and tries to stick to it? I use the envelope system for most discretionary spending (Groceries, restaurant, entertainment, clothing, fun money etc.) and I pay my bills mostly online.

When I go to the bank to take out the month's budget I get weird looks and all sorts of questions, plus they constantly encourage me to use my debit/credit card to purchase things. They say how much money I could get in cash back rewards etc.

I'm not an economics major but I think "No such thing as a free lunch" applies to those cash backs as well. When I use a credit card at a retailer the retailer is charged by the credit card company (In this case Chase and Mastercard/Visa) and thus the retailer needs to jack up their prices to cover that 3-5% that the card company charges. Then I get back 1% of that in a cash back offer. Meaning I am, in the end, paying more for my products so that the credit card company can line its pockets.

She then mentioned how I could get this or that credit card in case I needed the money for a down payment on a car etc. I tried to explain that I don't need a credit card for a down payment if I think ahead and save for my new car instead! I just think the whole idea of saving for something is completely foreign to today's Americans.
Sounds like "Dave Ramsey's" system. It's true that in order to get/be/stay debt free you need a budget and stick to it. I apply a few of his ideas to my life but I'm too weak still to do the envelope system It's like those "Feed the Pig" commercials. Do you really need it? If it's a "want" then save for it. As far as the credit/debt card, you still pay the same price for the product if you pay cash (except for gas at some places) and for emergencies I like knowing I have a backup.
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Old 10-28-2008, 06:14 PM   #3
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Whatever can you mean??? The current state of American economics shows there is no need for such conservative thinking.

I also use a budget, I do use my check card for it though. I spend cash way too easily. It burns holes in my pockets and I somehow can't steer straight home but must stop at my LHBS to spend the cash....

I have an excel sheet that auto divides my deposits and takes money from the correct budget area. Kind of like a poor man's Quicken.

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Old 10-28-2008, 06:16 PM   #4
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I agree; my wife and I have been using the envelope system ever since we got married 6 years ago. When we stick to it, it works like a charm and we never get overdrawn and we spend less $$. The problem is that it's so much easier and convenient just to swipe that card!

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Old 10-28-2008, 06:21 PM   #5
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It is based on Dave Ramsey as well as some other people's ideas I've talked with. Basically for me it is much easier to swipe a card than it is to shell over actual cash, so I guess it is how you prefer to work.

Oh and we do use a shell credit card for gas and always have it for a backup (as well as the debit card) but cash helps us see how much money we really are spending, and helps us save up for something we want.

The whole economics of credit card use was more of a rant than a "you will save money if", I was speaking more from a macroeconomics standpoint.

Edit: oh and I am such a lucky guy that I married a woman who is just as thrifty as I am.

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Old 10-28-2008, 06:24 PM   #6
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I have three credit cards. One for gas, one for food and one for spending. I set the limits on the cards and keep track of purchases and pay them off twice per month (every paycheck). I have never paid a cent in interest.

I'd prefer to use someone else's cash rather than my own. I have actually saved money using this method as I don't pull money out of checking for frivolous purchases and I don't risk overdrafting my account.

Remember that the first rule of business is to never run out of cash!

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Old 10-28-2008, 06:26 PM   #7
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We use a budget, but we don't take the money out of the bank to separate it out, we leave it IN the bank, where it earns interest, and we simply keep track on paper how much is in each "envelope", and how much NEEDS to be in the "envelope"

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Old 10-28-2008, 06:35 PM   #8
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Well I am glad to see that there are several people with budgets. I understand that leaving it in the bank will get me earnings in interest, but generally I'm willing to spend that $2.00 a month to have the money in my hands and not have to keep track on paper how much I have left in that budget to spend that month (I'm lazy...) But I understand if you have a good way that works for you then great!

I really agree with the risks of overdrafting a checking account, greatly reduced when you use a budget and track what you have. I need to set up our emergency fund in something other than a checking account (money market perhaps)

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Old 10-28-2008, 06:42 PM   #9
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Originally Posted by rabidgerbil View Post
We use a budget, but we don't take the money out of the bank to separate it out, we leave it IN the bank, where it earns interest, and we simply keep track on paper how much is in each "envelope", and how much NEEDS to be in the "envelope"
Ditto, I'd rather earn 3% or more in my HSBC online checking account and get airline miles and hotel points using my credit card rather than having cash sit in an envelope. And what happens if you misplace or lose and envelope? Do you not eat for the month? With a credit card you just call them and they'll send you a new one.

If you're not disciplined, then I can see how the envelope is a good idea, but otherwise, I don't see how the point. How is it different if you have an envelope with $100 in it instead of telling yourself "Don't charge more than $100 at the grocery store today"?

Also, if you don't use credit cards, it's going to be really hard to qualify for a mortgage because you'll probably have a low credit score (unless you've taken out loans for a lot of cars).

Just because they give you a $10k limit on your credit card doesn't mean you should charge $10k.
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Old 10-28-2008, 06:43 PM   #10
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I take a lazy and safe approach. I charge most things (I always pay cash at local businesses, though. Shop your values!) so I've got a pretty good idea of what my Visa bill will look like. My mortgage is a constant and so are my gas, electric, and cable (in a general sense). I follow a rule of thumb to have ~1.5 months of living expenses in my account at any given time. I also fairly strictly regulate my purchases to needs (I know this doesn't work for everyone, but I've always been this way. As a child I'd put my allowance in a tupperware instead of spending it.). From there I let my savings balloon until I see something I really want and either blow the "extra" $ or start saving in earnest.

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