Money Q&A

My wife and I budget a little differently than most families. We budget with a credit card. We use a credit card for most of our purchases instead of cash or checks, and use that to monitor our family’s monthly spending.

According to a recent Gallup poll, fewer than one-third of Americans follow a detailed written budget every month. Out of those who do, not all of them strictly follow their budgets. This may be a stark indication as to why American families are in financial trouble, with shrinking savings and increasing debt.

So why do we have such a hard time sticking to a budget? Perhaps we feel our spending is often too hard to track. If that’s the case, we might need to simplify things.

Budgeting the Traditional Way With Cash and Envelopes

Many financial experts, like Dave Ramsey, recommend that families use a written monthly budget and account for every dollar they spend. Ramsey even goes so far as to suggest that families use a cash envelope system, in which there’s an envelope for every category in your budget, such as housing, entertainment, gas or groceries.

For example, if you and your family budget $100 each month for eating out, you would place $100 cash in an envelope. You spend the cash until it’s gone. When envelope is empty, your family has to stop eating out.

My wife and I found that the envelope system worked — as long as I remembered to bring her the receipts after making a purchase. But I can’t even remember to use a coupon I have in my pocket at the cash register most days, let alone track receipts.

So the envelope method of budgeting just didn’t work for us. That’s why we switched to budgeting with America’s favorite financial invention — the credit card. [click to continue…]

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