To successfully use credit cards alongside a monthly written budget, all you have to do is use your card instead of cash for regular bills and purchases you make in discretionary categories like groceries, dining out, and entertainment. You just need to be considerably more disciplined to stay on track. No matter what anyone says, you absolutely can use credit cards and stay on budget. How to apply the cash envelope system to credit cards It certainly sounds harsh, but you do get used to it. Over time, the cash envelope system intends to teach you how to be more intentional with your spending, reduce waste, and leave more money in your bank account to save and invest. Find yourself out of cash for restaurant or entertainment spending on the 25th? That means you don't get to dine out or hit the movies toward the end of the month since you spent too much at the beginning. What happens when you run out of grocery money on the 20th of the month? That could mean having to dig deeply into your pantry and freezer instead. Read more: 3 go-to strategies to make budgeting less complicated, less stressful, and easier to stick with The idea behind the cash envelope system is making sure you stay on track with the amounts you budget in each category, so you would spend the money in each envelope down until it's gone. In this case, you would take the money you needed in cash from the bank for each category at the beginning of the month and place it in a marked envelope. You take the amount of money you've set aside in discretionary spending categories like groceries, entertainment, gas, clothing, and dining out, and put the money in envelopes designated for each.įor example, let's imagine for a moment you're using a zero-sum budget and plan to spend the following amount in these categories for a specific month: The cash envelope system works exactly how it sounds like it would. Basically, treat your credit card like a debit card. When you're working to earn credit card rewards, it's important to practice financial discipline, like paying your balances off in full each month, making payments on time, and not spending more than you can afford to pay back. Keep in mind that we're focusing on the rewards and perks that make these credit cards great options, not things like interest rates and late fees, which can far outweigh the value of any rewards. In fact, you can use credit cards in conjunction with any type of budget, including one that relies on the cash envelope system. While budgeting usually works best when you switch to cash and avoid the perils of using credit cards, you don't absolutely have to steer clear of plastic. As a result of using a zero-sum budget, many people find themselves spending less on things that don't matter to them and saving a whole lot more. When you give each dollar you earn a job, you also become more intentional about the way you spend the money you've worked so hard to earn. My book, Zero Down Your Debt: Reclaim Your Income and Build a Life You'll Love, focuses on the zero-sum budgeting method, which asks you to assign a purpose to every dollar you earn each month to reduce waste. By clicking ‘Sign up’, you agree to receive marketing emails from InsiderĪs well as other partner offers and accept ourĪs the author of a book on budgeting, I have a lot of strong feelings about the best ways to get the job done.
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