For many people using debit cards on a daily basis has become the norm. A debit card is convenient, handy and keeps your cash safe. However, cards also tend to cause overspending.
How? Well, with cash when the last dollar is spent the shopping trip is over. With a credit or debit card you don’t really have anything to stop you from continuing to spend. Of course, you do have a limit (either your credit card limit or the amount in your bank account) but the temptation to spend outside of your personal spending budget is very strong.
One of the best ways to avoid overspending with cards is to use the envelope method of managing your personal finances.
What Is It?
The envelope method is just a simple and “old school” way of managing your money. Before credit and debit cards, people had to buy things using cash and checks. When you use envelopes you are reverting back to that mentality — simply withdraw cash when you get paid and divvy it up into envelopes labeled by spending category, such as food, entertainment, and gas. When the money in each envelope is spent, the spending stops. It forces you to be more fiscally responsible with your hard-earned money.
How to Do It
You can start using the envelope method starting today. First look at your budget to determine the different expenditure categories. Grab a stack of standard mailing envelopes and label one for each of those categories.
When your pay comes, take the total designated amount out of the bank and divide it up into each envelope according to your budget. Stash the envelopes away in a very safe place (think of it as a personal bank) and only go to that place when you need to make a “withdrawal” to take care of those needs.
Many people prefer to keep large amounts, such as rent and car payments in the account to pay online with an ACH draft or personal check. Also, try to find a bank that won’t charge you an expensive monthly maintenance fee for falling under a certain amount in your checking account.
Leave the Cards at Home
The next requirement of using the envelope method is that you make a personal commitment to leave all of your debit cards at home when you shop and run errands. Eliminate the temptation completely. The only time you may need your debit card is when you need to withdraw cash at an ATM for your envelopes.
The obvious downside of the envelope method is that you have to handle a lot of cash during the month. There is always a risk of losing the cash and you can’t trace or recover it the way you would trace an amount charged to a bank account. But if you are someone who has a problem with overspending with debit cards the benefit — better money management and decreased temptations to fall outside of your budget — should outweigh the potential downsides. Just keep a close eye on your money and only carry what you need for the day.
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