Til Debt Do us Part

[skyvue]

I watch this show plus Dave Ramsey every night and Suze Orman every Saturday night. I long ago gave up on credit cards and carry no debt other than my mortgage but I still enjoy watching the shows. As others have said, I get some sort of sick pleasure out of seeing how poorly others are doing compared to me when it comes to money.

I use Dave Ramsey's envelope system and pay cash for everything except gasoline for my car and the occasional things I buy on the internet (used debit card for those). I take $280 cash out of the ATM each Monday morning and put into one of 6 envelopes.

Mine is distributed like this:
$60 groceries,
$35 parking/haircuts/dry cleaning,
$60 vacation,
$20 gifts for others,
$25 shopping (clothes or other consumer goods),
$80 entertainment/all else (eating out, drinking, movies, sodas, snacks, etc....).


I am amazed at how clueless the people on these shows are about money. Although I have friends and family just like them. I even recently broke up with a girl friend primarily because she had debt and showed no ability to control her spending (and expected me to pay for all entertainment).

[Danmar]

We use our credit cards for as much as we can. Objective is to collect frequent flier miles. Just booked 2 business class tickets to far east for virtually free. Get at least 6-10 flights per year this way. Key of course is to always and I mean ALWAYS pay the balance each month. Hardly ever use debit card. We view credit card interest as a tax on the weak and stupid. By using frequent flier points this way we divert some of this tax to us. Life is good.

[Onward]

Quote:

Originally Posted by Danmar We use our credit cards for as much as we can.

I do the same thing, for the convenience and the rewards. I do wonder whether the convenience of it encourages me to spend a bit more than I would on a strictly cash basis, though. I find this is a really hard thing to measure.

[skyvue]

Quote:

Originally Posted by Onward I do the same thing, for the convenience and the rewards. I do wonder whether the convenience of it encourages me to spend a bit more than I would on a strictly cash basis, though. I find this is a really hard thing to measure.

Even if you pay off your bill each month, study after study have proven that people spend more money when using a credit card instead of cash. Most studies show you spend 10-20% more using plastic.

[accountingsucks]

I do enjoy this show. I live in Caanda so have seen many more episodes than what has aired on CNBC. I am amazed that people are just so stupid about their money. Putting money into jars....LOL. Use Excel or simple pen and paper and simply track everything for a few months and then cut where you can. The IQ of these morons will never allow them to manage their money properly.

[Onward]

I have a feeling I have a more extreme LBYM attitude than the average person in those studies, though. And then there are issues like gas + wear & tear spent to get the ATM to withdraw the cash you need to stay on a strictly cash basis. There are debit cards, but now you're back to plastic. Hmmmm.

[Meadbh]

Quote:

Originally Posted by Danmar We use our credit cards for as much as we can. Objective is to collect frequent flier miles. Just booked 2 business class tickets to far east for virtually free. Get at least 6-10 flights per year this way. Key of course is to always and I mean ALWAYS pay the balance each month. Hardly ever use debit card. We view credit card interest as a tax on the weak and stupid. By using frequent flier points this way we divert some of this tax to us. Life is good.

Ditto! But I don't get 6-10 flights per year, maybe 2-4.

[tmm99]

I've been using the same type of envelope system for the last few years (pearbudget.com), but I do use credit cards. I carefully enter all spendings in the spreadsheet every day. Whether the money spent comes from the credit card or from cash in my purse, it gets entered into my spreadsheet to keep track of the spending. It's been working for me well. I can see where my money is going and I know how much money I have left in each category (envelope). I do a lot of online (price comparitive) shopping for items I can get cheaper online than at local shops, plus it is less time consuming to search online than hunting down locally (driving from one store to another, for example) for the things I am looking for. (I seem to be able to get skincare products much cheaper on ebay, for example, than locally.)

[SecondCor521]

Quote:

Originally Posted by skyvue Even if you pay off your bill each month, study after study have proven that people spend more money when using a credit card instead of cash. Most studies show you spend 10-20% more using plastic.

I'm probably the most *ahem* particular person about budgeting ever...I use Quicken daily and religiously, and balance my accounts to the penny. I save a large percentage of my gross income. I'm on track to retire around age 45.

That having been said, I have a few comments about the above studies:

1. If you go looking for the studies, there actually are only a few. That having been said, those few do show what skyvue describes.
2. I would be one person who you would think would be impervious to the effect of spending on a credit card versus a debit card versus cash.
3. I am in fact affected by this phenomenon. I have recently taken my PenFed Visa out of my wallet and have noticed a drop in the number of $4.50 work lunches at the cafeteria that I have bought. Other variable expenditures have also decreased, just not by much because I don't spend that much to begin with.

2Cor521

[Danmar]

OK. Couple of points. 1) Accountingsucks-watch that superior Canadian attitude. Could get you in trouble on this site. 2) I am sure people who use credit cards spend more but that doesn't prove anything. People who have better credit scores spend more too (but they make more). People who have more tend to have more credit cards and tend to spend more. If we didn't use credit cards we would spend less no doubt-but I don't want to spend less. Life is too short and we can afford our current level of spending. The issue is really the extent of misused credit cards-big problem I agree.

[Meadbh]

Quote:

Originally Posted by Danmar OK. Couple of points. 1) Accountingsucks-watch that superior Canadian attitude. Could get you in trouble on this site. 2) I am sure people who use credit cards spend more but that doesn't prove anything. People who have better credit scores spend more too (but they make more). People who have more tend to have more credit cards and tend to spend more. If we didn't use credit cards we would spend less no doubt-but I don't want to spend less. Life is too short and we can afford our current level of spending. The issue is really the extent of misused credit cards-big problem I agree.

Good for you Danmar, but as I recall you are particularly well funded. Your situation is anything but typical. Most of us (including me, a physician) have to make discretionary spending /saving decisions on a daily basis, and do, in order to achieve our long term goals.

[WhoDaresWins]

I use a credit card for almost all purchases, and I am certain that in the past I spent more using a card than if I had been spending cash. Have been trying to be more cognizant of my spending in preparation for retirement(and just in general principle) and I know I am spending a bit less. I do spend a lot at the grocery for one person but I like stuff like out of season berries, pomegranate juice, prosciutto ham, jumbo shrimp, fancy cheese, grass fed meats, etc. I have totally cut out the spending on clothes and stuff for the house. I have enough of the latter to last me two lifetimes.

[Danmar]

Meadbh-I didn't mean to suggest our funding is unlimited-of course it isn't. We have a budget too and need to make spending decisions on an ongoing basis. It's just that we seem to be able to do so while using credit cards. Hard to imagine being able to live without them while travelling for instance.

[Onward]

Quote:

Originally Posted by SecondCor521 I am in fact affected by this phenomenon. I have recently taken my PenFed Visa out of my wallet and have noticed a drop in the number of $4.50 work lunches at the cafeteria that I have bought. Other variable expenditures have also decreased, just not by much because I don't spend that much to begin with.

That's good info, especially since you and I seem to have a similar profile. I'm still using cc's, but I may try going all cash.

[KB]

I have been trying to use mostly cash this year and I have also found that it has reduced my spending. I was very surprised to find that. I still use my card, but very sparingly.

[mews]

I went almost all cash a couple of years ago.

This, combined with recording every last penny I spend, really slowed down my spending.

I hadn't been spending a lot, but the little leaks stopped, and therefore my retirement savings went up. Yay!

ta,
mew

[Onward]

Wow. That's a lot of votes for all-cash as a way to cut spending. Are you all using currency or debit cards? If currency, how often do you have to hit the ATM?

[KB]

I get a months worth of cash out of the ATM at the end of each month. I break it into 4 envelopes, just so my wallet isn't stuffed full of cash and get one out every Monday. I just started this at the beginning of January, and already I have 2 envelopes that I don't need. I'll just carry them over to March if they are still surplus at the end of the month.

Even though I am retired, I am still in the accumulation phase. I'm holding off on starting my pensions as long as possible. So I am purposely underspending and using this as a savings method. My income won't be fixed for a number of years, so I'm living below my means now.

Some of you with fixed incomes probably don't need to watch your money so closely.

[W2R]

Quote:

Originally Posted by Onward Wow. That's a lot of votes for all-cash as a way to cut spending. Are you all using currency or debit cards? If currency, how often do you have to hit the ATM?

I don't really avoid credit cards to save money. After using credit cards for many years, I developed a burning hatred of credit card companies for a variety of reasons not relevant to this thread. I get a cheap thrill from indulging in the luxury of telling them, by my non-participation, to pound sand. Oddly, I do spend less and I welcome that, but that is not the fundamental reason why I have no credit cards.

That said, I use either currency, debit card, or write a check. I hit the ATM once or twice a month. I use my debit card for any purchases over about $40, or that I would want a record of buying. Otherwise I would pay cash. I don't use jars but I check my bank account every day. Alarm bells go off in my mind if I hit the ATM more than twice a month, and the same is true for using my debit card for non-essentials. I wrote a check when buying my Venza "in cash".

[SecondCor521]

Quote:

Originally Posted by Onward Wow. That's a lot of votes for all-cash as a way to cut spending. Are you all using currency or debit cards? If currency, how often do you have to hit the ATM?

Before last week, I had two debit cards in my wallet, my PenFed Visa, and cash. I rarely had cash and tried to use my PenFed card for everything (thinking along the lines of "I'm getting 1.25%/2%/5% cash back").

My new approach is to take the debit cards and the PenFed card out of my wallet and leave them in the coin box in my car. If I do spend money, this one step makes it slightly inconvenient for me...I have to deliberately grab one of the cards.

The second part of my approach is to use the debit cards for most purchases. For my mental framework, using the debit card hurts more than the Visa for two reasons: (1) I know the money is actually leaving my account in the next day or two instead of the end of next month when my credit card payment occurs, and (2) My bank accounts to which my debit cards are attached have a finite amount of money in them (usually a few hundred to a few thousand -- the rest I sweep into savings or investments); my credit card has, for all intents and purposes no upper limit (my credit limit is $50K, which is about 35 times the max balance I've ever had on that card). Both of these points inhibit the amount I spend.

For example, my team at work goes out for birthday lunches once a month. Before, when I used my credit card, I'd be more generous with what I ordered and with the tip. Now I am more reasonable on both items. I spend $10 instead of $13. That $3 doesn't seem like a lot, but it's a 30% difference in spending; if I do that with every purchase I've reduced that portion of my budget by 30%, which can add up to decent amounts of money.

It may be for me that spending actual cash would be more mentally painful than using my debit card and thus save me even more money. But in my case I don't consider the hassle of going to the bank and the risk of theft and loss to be worth it.

I actually still use my PenFed card for gas. It gives me 5% off, and I am fairly convinced that I don't buy more gas with my credit card than I would with a debit card; I just fill up whenever I need to.

2Cor521