Wednesday, October 04, 2006

Paying cash leads to an early clash

It's Day 4 of paying with cash instead of credit card in my household, and it's already caused a "fight."

In my September 22 post, "Three months on one income prompts a change," I told how M and I would no longer use a credit card to buy things like groceries, gifts, and household purchases, and use a cash-based approach instead. Even though we've always we paid off our credit card each month, I expect (and hope) that using the monthly cash we have—which is far less than our credit limit—will help us stay within our spending plan boundaries, and even spend less overall.

Last Sunday, October 1, I withdrew a modest amount of cash for this week's purchases. The approach tripped M and me up right from the start, but I've already learned a few things, and can see how it has the potential to have a positive impact on our spending behavior down the road.

A week’s spending in two days
We had been waiting for October 1 to arrive so M could do some grocery shopping. Our freezer had gotten so empty that it looked like we just moved into our home.

M left for the Acme immediately after church and loaded up the shopping basket from the list she'd carefully prepared. But when she got to the checkout counter, she discovered something: She'd left the cash at home. So she did what we've always done—pulled out our credit card.

She used the card again at Shop Rite for some more groceries. Later, she paid cash at Target for several other items in our monthly budget, such as socks, diapers, and toiletries. Not surprisingly, the combined total of the credit card and cash purchases exceeded the money I'd expected us to spend for the week. Let the finger-pointing and raised voices begin.

Communication is key
I thought I had told M that the cash I’d withdrawn wouldn't cover everything we wanted that week and she'd have to prioritize what to buy and when. At the time, she said she understood—but later admitted she really didn't know what I meant, or how this whole process was going to work, because I really hadn't explained it.

I'm guilty as charged. I'd spent a lot of time figuring out how we were going to do this, but not nearly enough discussing it with M. Good communication is critical to making this approach work, otherwise we risk spending too much of our cash before we have everything we need (a worry the credit card “conveniently” removed). So going forward, I think having money discussions will be more of a priority for us. We know they have to be.

More planning is required
M and I think ahead as much as we can already, but the cash approach makes it that much more important. For instance, as M found out, we have to get in the habit of making sure we have the money we need in our pocket—or at least have access to it—when we’re out.

We also have to account for every purchase we want to make as best as possible, or it has real consequences. For example, we’re going to a wedding this Friday and still need to buy the gift (which we did include in our monthly spending plan). Since we surpassed this week’s spending boundary, we’ll be paying for it out of next week’s allotment—not an ideal solution, but still better than putting it on the credit card and paying for it next month.

But a wiser way of thinking
I take two positives out of our troubles so far. First, M and I actually handled the trip-ups together pretty well. Our tensions rose quickly when discussing the shopping receipts, but we managed to walk away before things got ugly. When we revisited the topic later, the discussion started with apologies for mistakes on both sides. By the end, we felt a lot more on the same page.

Second, I see signs that this approach is going to help us be wiser, more disciplined spenders. We’re thinking a lot more about whether we really can, or need to, purchase an item before follow through. We know there is a very real limit to what we have, which always has been the case—but using a credit card, it just didn’t seem like it.

Carnival of Personal Finance is in town
Punny Money has "hit the trail"--creatively speaking--for the 68th edition of the Carnival of Personal Finance. Take a trip back through history and check it out. (At posting, it appeared Punny Money's site was down. Hopefully the situation will be corrected soon.)


Jimbo said...

Good luck with your budgeting, but so far it seems a little punitive. When you have to cut down on food in the freezer, it seems like your budget process has gone overboard. What's next: rationing bathroom privileges to save on water?

Maybe you could work on the other end of the budget equation: trying to boost your revenues, rather than just reducing your expenses.

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