Tending the Temple

Paper or Plastic?

One of the best self-care decisions I’ve ever made was to stop using a credit card.

I took Dave Ramsey’s 13-week Financial Peace University class in the spring of 2009. Our family was not in significant debt at the time, just one car payment and one small credit card balance under $1,000. But we had only one income and had just given birth to our third child, and we had no financial plan for our family and a lot of sloppy financial habits. No written budget, not much communication about who was spending what. We needed something to help us get motivated to clean it up, and the class seemed like a good idea.

I will probably reference this class in future posts, as there was a lot that I learned. But learning doesn’t mean squat unless it is translated into action. I have to admit there’s not been a whole lot of action on the budgeting/saving/paying-off-the-house front. But from the very first session, we cut up the credit cards, and except for opening up a Lowes charge account to get the 10% discount, I have not used a credit card since.

For those who are counting, that is almost three years without a credit card.

There is an oft-cited Dunn & Bradstreet study which found on average you will spend 12-18% more when making a purchase with a credit card versus cash (read about it at http://www.freemoneyfinance.com/2008/09/do-we-all-reall.html). Critiques of this study abound, so if you’re a fan of your credit card and don’t want to give it up, just do a search and you’ll find plenty of justification to continue your habit. I can only speak for my own experience – I found this study to be true for me.

When I stopped using plastic and switched to cash, I immediately noticed a large drop in our monthly expenses. Initially, I created a tight budget on paper and used Dave Ramsey’s cash envelope system to pay for expenses such as groceries, gasoline, meals out, etc.  “Credit Card Christy” may or may not have shopped with a list and would have thrown lots of impulse purchases in the cart along with the staples, but “Cash Christy” was more likely to have a short list of only necessities, and she stuck to the list.

This probably sounds a bit rigid. And it is. I found that I had to be rigid in order to change my habit and save money. The payoff is that I felt good about myself. And I was spending less money.

One of the tactics that made it easier for me to go to cash was to have what Ramsey calls a “blow” fund. Because we’re going to blow it. We’re going to have something come up that we must have. A candy bar on a particularly stressful day. An unexpected antibiotic prescription. Gas skyrocketing 50 cents per gallon in a week’s time. Fabulous shoes on sale. These things happen. The “blow” fund is an envelope with a predetermined, monthly budgeted cushion. If you have some left over at the end of the month, use it to pay down debt or put it in savings. Or blow it. Your choice.

The other thing that helped was budgeting “fun” things like a movie or dinner out. Maybe that meant I’d cut in the “groceries” area of the budget and have lots of pasta that month.

I know there are those who will read this and think, “I don’t spend any more with plastic than I would with cash.” I didn’t think so either, so I challenge you to give up the credit card just for a month and see what happens. Do you become more intentional with your spending? I did, because I actually had to plan what I would spend so I had enough cash in my envelopes to cover it when I got to the store. I can’t tell you the number of times I passed up a chance at drive-thru fast food because I didn’t have the cash or didn’t want to dip in the “blow” fund. Using cash didn’t force me to decrease my spending, but it did force me to think about my spending first.

Over time I dropped the budgeting and cash envelope habits and started using my checkbook and occasionally my debit card instead. I need to go back, however, because I’ve noticed I’m more likely to be impulsive with the checkbook and the plastic. But at least I’m not spending money I don’t have. And being self-employed, with no guarantee of what my bank account balance will look like from month to month, using credit is not a risk I’m willing to take. Even though times are really tight right now, my commitment to staying out of consumer debt for my daily living expenses helps me sleep at night. I still have a long way to go before I can say I have “financial peace,”  but I’ve been able to sustain at least one good habit that I learned from Ramsey’s class, and for that I pat myself on the back!

If you want to learn more about credit card myths, read about them on Ramsey’s site at http://www.daveramsey.com/article/the-truth-about-credit-card-debt/.

I’ll keep you updated on the cash and budgeting . . . maybe being accountable to you will help get me back on track tending that part of my temple!

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