After going through the Dave Ramsey course and having my own budget framework for years I’ve come to some solid conclusions about how to budget. Let me say if you haven’t gone through Financial Peace University you should definitely do that before you start making any additional tweaks. Also, finding a local organization that is teaching the course provides some camaraderie as you go through this difficult process. FPU It is a great primer on the changes necessary and the thought process that you have to live in a way different than the ever present marketing machine suggests. I like a lot of what Dave Ramsey has to say and many of his thoughts are what we have built into our budget however there are some difficult pills to swallow that make living in today’s world challenging if you do it completely Dave’s way.
The biggest one of these issues is going cash only. We do use the envelope system and I’m all about not charging anything on to revolving accounts that is going to cost me more than it would to pay cash. But the reality of getting the best deal sometimes requires that you use something other than cash. Debit cards are great but if they were hacked then you’re on the hook for that cash until your bank figures it out. While that may not be a worry to you I know for me losing all of the money out of my main bank account would cause significant problems almost immediately. So here are two easy tweaks that can help with that:
1. Don’t have a debit card on your main checking or savings accounts. Set up a separate account where you’re spending money that you’re going to use on your debit card will go. Thanks to my dad’s military service during the Vietnam conflict we were able to set up with USAA which is a great bank that allows for almost immediate deposit some checks into their accounts. We send money to that account that we plan to spend during the month as well as savings that is for things like Christmas and Birthdays. We have found that setting a budget item for those events helps as we plan through the year. If you know that you have to drive from New Mexico to Missouri and purchase gifts for two families along with food gas and any other activities you can take a projected amount and break it down into monthly saving amount. This is different from your emergency or long-term savings which we leave at our traditional brick and mortar bank. Having this money set-aside into an account that is easily accessible for us from anywhere in the country as USAA waves all ATM fees is important. Additionally it provides another layer of security as there are no debit cards on our primary checking or savings accounts. American Express offers a similar banking set up for those that are not from a military family.
2. Use Charge Cards. In reality you have to use a credit card or charge card in today’s society. Maybe will argue against me and that’s fine but the reality is that it will cost you more with some of the issues that are related to debit cards and other steps if you don’t have something you can use. Now our credit cards are only in payback mode there are no new charges going on those and the debt snowball is working against those balances. But one of the interesting new changes in the way credit scores or calculated is the charge cards like American Express are not counted against your credit score. So having a charge card provides two positive things. First year of the protection of using a credit card, with travel benefits, points and things of that nature. But most importantly with the charge card, you must pay off the balance in the next 30 days from the closing of the statement. The benefit to this mindset is that you’re constantly looking at the balance thinking about how you’re going to pay it. There is not a thought about paying it over time. Now they’ve come up with options to pay charge card balances over time so like everything else this requires self-control. But in reality an American Express charge card has benefited our budgeting and financial processes.
One final thought there are charges for charge cards and less you get the basic American Express card. Something to fight against is the urge to have a credit card somehow serve as a status symbol. You might think I’m crazy but American Express has several levels and most of them above the Gold Preferred Rewards don’t make sense. The Platinum card could be useful if you travel in charge travel on that card, But for most of us the $550 annual fee is ridiculous. And if you want to talk about completely ridiculous how about the Centurion Black Card that comes with the first year cost of $10,000 and an ongoing cost of $2500 per year with no sign-up bonus and fewer bonus points than gold or platinum. Clearly someone brilliant of American Express said hey what if we do this… and sure enough someone bit. It’s the air of exclusivity the thought of being special when in reality it’s just money and learning how to manage it is very important or it will manage you.
Be you. Take care of the pennies and let the dollars take care of themselves.