May 4, 2016
I recently took up a practice I’ve done before: I use cash for daily expenses, keeping the bills in dedicated envelopes in my purse or desk drawer. At the beginning of each month, I withdraw a set amount from the bank, split among 5, 10, and 20 dollar bills. At home I set out my envelopes. Each one is labelled for a different purpose: groceries, restaurant, gas, hair, and of course, Salvation Army, among others. The monthly amount is also written on the envelope to remind me as I divvy up the cash.
Talking with my mother, I learned that she had used a similar system during her short term as an unmarried working girl in Rochester. I had learned it, though, from an on-line site called Cheapskate. I was newly-divorced in the mid-nineties, slowly getting control of running a household on one income. I did not recall ever creating a budget in the couple of years between grad school and marriage. After the wedding in the late seventies, we were both working and operated as if we had unlimited income. We mistook paying bills for creating and following a budget - a common mistakes of young couples who don’t want to talk about money.
The envelope system works to keep me from spending money that might appear to be discretionary. The process requires, as any budget does, paying close attention to every expense, noting its frequency and adding up a true total for expenditures, whether on a weekly, monthly, semi-annual, annual, or irregular basis. Many finance counselors advise us to keep a log of our spending in order to encourage this sort of careful consideration. As I did so, I realized that much of my spending was with a debit card. Plastic, we all know, hides what we are actually spending, the real value of what is slipping away. Money that will be needed for semi-annual, annual, or seasonal expenses could disappear from a bank account, to be missed when the bill comes due from the fuel oil company or car insurer.
As a widow, similar to my situation as a divorced mother, I know I need to rein in day-to-day spending to match my limited income. Switching to cash makes the limits of my spending power more concrete and visible. I know I will need groceries and gasoline during the week, throughout the month, so I estimate, with evidence, what I will need and put that amount in the appropriate envelope. I also keep limited amounts for restaurants and thrift stores in my purse. In my desk at home, I save up cash for my periodic hair appointments, my seasonal firewood purchase, my dental and vision care. I have no need to continually draw on my bank account using the debit card. My account stays full, with no leaks.
As promised in the Cheapskate documents, the envelope system makes me feel rich, gives me a feeling of abundance. I don’t have to wonder whether I can afford to visit the new thrift shop on Hooper Road: I can see the cash (or lack thereof) in the appropriate envelope. If I don’t have any left for this month, that temporary set-back will only last until the next month - I don’t have to feel forever poor. More importantly, I haven’t cut into the cash I’ll need to fill the furnace with fuel oil in December or to pay the mortgage on the first of the next month and the next and the next.
I also set up many electronic payments to happen automatically, or semi-automatically, if, like the electric bill or cell phone, they vary slightly from month to month. I have greatly reduced my overall monthly expenses by eliminating some of those that used to seem necessary, like cable television or land-line telephone. I have become acutely aware of what comes in and what goes out.
I never want money, love of money, or fear of poverty, to control my life. A simple trick with cash and envelopes empowers me to control money, instead.