YNAB You Need A Budget

[Jaxia]

I rarely have cash on me. I've considered switching to cash, but my biggest problem is how to haul it around. I don't currently carry a purse; everything I need is easily in my pockets. (Cell phone, credit card, DL). While I could put cash in my pockets, I'm sure I'd lose some eventually.

So, how do I develop the "purse" habit? Ha!

[litterbug]

I rarely have cash on me. I've considered switching to cash, but my biggest problem is how to haul it around. I don't currently carry a purse; everything I need is easily in my pockets. (Cell phone, credit card, DL). While I could put cash in my pockets, I'm sure I'd lose some eventually.

So, how do I develop the "purse" habit? Ha!

Just start thinking about all the things you need to carry around!! Let's see--keys, checkbook, insurance/Costco/FSA/business/etc. cards, eyeglasses, chapstick, hand lotion, a tape measure--wait a minute, how did that get in there?? And my water bottleMy cell phone lives in my pocket, except when it doesn't, in which case it lives in my bag.

The truth is that when I'm shopping I just keep my debit card and DL in a back pocket and lip balm in a front pocket. But the bag gets put in the trunk so I still have all that junk with me. , Sometimes I don't have any pockets at all, which is awkward because I have to walk around with the debit card in my hand (!!)

[Jaxia]

Yeah, I nearly always have pockets. I've actually developed this routine to lightly touch each pocket to make sure I have everything -- chapstick in left front pocket, cell phone in left back pocket, DL/CC in right back pocket, and if I drove somewhere, my keys are in my right front pocket. Most everything that you mentioned, I keep in my glove box or the console of my car.

A tape measure is a great thing to have handy

[litterbug]

I've actually developed this routine to lightly touch each pocket to make sure I have everything -- chapstick in left front pocket, cell phone in left back pocket, DL/CC in right back pocket, and if I drove somewhere, my keys are in my right front pocket.

I keep my key card in my pocket at work, and have forgotten it when I've gone to the bathroom enough times that every time I walk out of the door, I tap my butt to make sure it's in there. I'm sure some think I'm pretty strange! I use the same method to make sure I have my keys every time I leave the apartment building's front door because I was locked out twice in the first few weeks I lived there, and I touch my back pocket when I get out of the car to shop to make sure my debit card is in there.

A tape measure is a great thing to have handy

I couldn't agree more!

[Darx]

I use my CC to get cashback rewards and am trying to decide whether I'll keep doing so now that I'm on the YNAB train or whether once I hit my next reward milestone (in about $2K of spending, but who's counting?) I will just switch to using my debit card. I haven't been doing this YNAB thing long enough to know if I can trust myself. I think I am doing good so far only looking at category balances and not bank balance, but it's only been a couple weeks. I was surprised just now when I went to my bank web site to see how long until my next reward milestone-- I noticed how high my checking balance is at the moment, but I am definitely aware that none of it is there to spend save what's left in my categories this month (precious little). But I know that I'm new and still need to be careful not to slip into old habits with using the CC mindlessly and just letting FutureDarx worry about how to deal with it. Taking care of FutureDarx is my biggest priority, so I will have to see how CCs fit into that.

That said, sounds like others have way better CC rewards than I currently am getting and much more practice at the self-restraint to use them to their best advantage, and I say good for them!

[gregdo]

I use my cash back CC's for almost everything. I have all my utility bills automatically paid on my CC. The only time I don't use my CC is when I'm somewhere they don't take CC's. I get $700 or more cash back every year. Mind you I pay the CC off in full every month. I never carry a balance.

[Scipiana]

I'm about to make myself unpopular by saying credit cards for me, and really anything that allows you to spend money you don't have, are the spawn of saton. Though I am intrigued by the idea of the paid in full credit card, I am definitely not at a stage where I would trust myself to use it that way. I grew up watching my parents use credit cards very, VERY badly and I'm not sure whether that makes me more likely to use them wisely or to follow my parents down a debt spiral of doom...

[YYC27]

My credit card earns me $200-$300 / year, and greatly simplifies my cashflow. I use if for everything I can.

[litterbug]

I got a rewards REI Visa a month ago, and now I get 1% on everything I buy with it, and 15% on everything I buy at REI (5% on sale items), in the form of a dividend in January. Of course it's issued as a store credit I can't convert into cash until July, but I spend enough money there that the offset will be very nice. I'm buying a bike sometime in August, and maybe some skis in December, and that plus my normal spending on sports gear will probably net me around $300! And that's not even counting whatever it is that I've spent the first half of this year.

That being said, I only did this because after a year of using YNAB I'm confident in my ability to spend by my category balances. I don't even think of it as a credit card, because it feels just like using my debit card, which was an excellent way for me to track my spending.

[Darx]

litterbug, thank you for mentioning that you can cash out REI dividends. I did not know that! I have a small one and could use the extra funds. Thanks for that tip!

Edited for spelling.

[Patzer]

Late to the thread, and my behavior has changed in the past year or so.

Philosophically, it shouldn't make a difference whether I spend with a card or with cash. The key word is "shouldn't." Whether it actually does make a difference is harder to track. I've looked at the cash vs. credit card payment decision for longer than I've had YNAB.

First the studies that show people spend more when using plastic (including debit cards) than when using cash. A grain of salt is required, as the studies are sponsored by the credit transaction processing companies. They are used, with some success, to try to sell businesses on doing more with plastic. One would suspect a bias toward overstating any impact card use has on spending.

The studies are simply a look at averages. Any individual shouldn't care what the average consumer does. He should care what he specifically does. A few anecdotes on the topic:

I have a sister who can squeeze a nickel so hard it bleeds. She noticed that she spent more freely using a debit card than paying by check, even though she was recording the purchase in the check register at the point of sale in either case. So she put her debit card away and went to cash or check. This was several years ago; she might have changed since then.

Pre-YNAB, I would periodically notice myself buying more stuff on grocery trips with credit. So I'd go to using cash, and train myself to shop more conservatively. Once that habit was ingrained, I could go back to using credit for the cash back.

Also pre-YNAB, I found myself spending more to get that Discover card over the $1500 threshold so the cash back percentage would go up. That's exactly what the cash back tiered incentive wants me to do, and it's not the best thing for my finances. My solution to that, once I noticed it, was to get a card with a straight 1% cash back from the first dollar and no tiers. Fancy programs with 5% back for different types of purchases came later, which is when I noticed that it was cheaper to get milk at Sam's Club for 0.25% back on Discover than milk at the grocery store for 5% back on MasterCard. (At the time, Sam's wasn't taking MasterCard.)

Cash back is nice. I grab it when I can. But 5% is inflated, and a 5% discount or 5% cash back usually means the base price is higher than I ought to be paying. Paying cash for milk at $1.89 per gallon is better than getting 5% cash back on milk at $2.05 per gallon. The real money is in controlling how much I spend, not in the cash back. That's where YNAB shines.

So where am I today? I use two cash back cards. The Citi MasterCard pays 1% cash back, with rotating 5% BS categories every quarter that I rarely spend anything on. The Fidelity Amex pays 2% back (expressed in points) deposited to my brokerage account when $50 builds up. I use the Amex on local purchases where I can. I use the MasterCard where Amex isn't accepted, and for online purchases. The Citi MC wins for online purchases because being able to create a virtual card number with a credit limit equal to my purchase amount feels better than giving a merchant my full credit line and having the possibility that the merchant decide I clicked somewhere to add something I didn't intend to buy. That, and if Amazon is hacked all those old virtual numbers won't do the hacker any good.

But even with the cards, I'm spending more in cash than I did a year ago. The reason is Aldi. Aldi is very price competitive on what they sell, and has taken most of my grocery business away from Walmart and Sam's Club. But Aldi doesn't take credit cards. They take debit or cash. I dislike debit purchases because they lack the security of credit card purchases, so it's all cash at Aldi. And Aldi's prices are enough cheaper that I don't miss the cash back from the cards.

I do like my credit cards. They give me perhaps $100 cash back per year. But if they changed T&C tomorrow to eliminate both the cash back and the grace period for free float, it wouldn't be the end of the world. I'd just pay the final bill and stop using them. Which is what I did with the last three credit cards that changed T&C in ways I didn't like.

Patzer

[robynleigh]

I personally love my CC as well. Right now, I get a couple hundred in cash back because I use two different cards to maximize point accrual. I personally know that I don't spend more using my CC because I have a budget and I stick to it (plus always pay it off). I could see it happening to people who don't use a budget though...

[SR41]

Up until recently, I'd always been cashless. I used cc for business expenses and debit card for personal. Then I liked getting the cash back so went to all cc purchases. I cashed in my last rewards and, instead of buying the Bose noise canceling headphones I had intended to buy with the money, I had it credited to my cc account because I had way overspent. Although I paid it off each month, I was living on next month's money - not even on this month's, let alone last month's. And I certainly wasn't budgeting for the purchases. It became a buy now, think about how to pay for it later. I bet I spent a lot more than the $250 cash back I got on things I never would have bought if I wasn't using the cc.

Then I came across YNAB and decided the most important thing was to build the buffer. First I had to get caught up to living off the current month's income which I, personally, couldn't do while I was still using the cc. So I decided to start using cash and I have to say, I'm quite liking it. My spending has gone way down and, while I could attribute that to being determined to build the buffer and so stick to the budget, I think not using the cc takes away the temptation to say to myself "Oh, it's only $10/20/50/100"

I get a receipt for everything and enter it into the register just as I would a cc or dc purchase and I don't have to wait for it to clear the bank. I like to shop locally and at small businesses as much as I can and they are always appreciative of cash so I feel like I'm doing my bit for them too.

Once I'm in the buff, I might go back to using a cc but I'm liking the simpler way with cash and I don't feel stressed out about paying the bill next month. It will depend on how well I've disciplined myself to resist impulse purchases when that time comes.

I've enjoyed this thread. Good reading and lots of cc information.

[ollyoxenfree]

I do this with groceries, restaurants and gasoline. I have a Discover card that gives 5% cash-back on gasoline up to $250/mo and 2% on everything else. It's a PIF-card and the rewards are tremendous. I redeem them for Apple iTunes credits that I can send to anyone I want, so this is a great way to get birthday / event gifts for friends and family without spending "extra" money.

[flutingaround]

I have a question to those of you that use the credit cards for rewards. Do you ever worry that the credit card company will suddenly change the terms, interest rates, monthly due dates, yearly fees, etc? It seems like you would have to keep a close eye on all that mail they send you for changes in terms-- which would drive me crazy personally. To me, it's not worth the effort for a couple hundred of dollars.

Additionally, I have a problem with the way credit card companies lure college students in. I personally was a victim of that, and I'm only now getting out of consumer debt it as I turn 40. I have vowed to never use credit cards because I don't want to support some of their nefarious business practices.