The threat of another government shutdown and paycheck disruption looms. Since I’m writing this introduction to the Military Spouse Money Mini-series on Monday, Sept. 30, it remains to be seen whether Congress can reach an agreement that would keep the government open. My initial thought was to craft two different introductions, so I’d be ready to introduce this discussion of important personal finance habits and ideas – no matter what happens in Washington, D.C. And then I got to thinking …
Have you ever had one of those experiences where you feel like your heart drops into your stomach as you narrowly avoid a catastrophe? Maybe you were banging out an irrelevant text message and looked up just in time to avoid rear-ending a mom with a car full of kids? That could have been all it took to end your ill-advised texting-and-driving habit. I know you’ve got a story; I certainly have a few. The current situation with the government is quite similar. We’re in the midst of the fourth potential paycheck reduction scenario we’ve seen in the past couple of years. But have you made any changes to avoid a heart-dropping disaster?
If you’re anything like the people I’ve been talking to lately, your answer to the question may be the same: “Not really.” Being a lemons-to-lemonade guy, my belief is that no money problem is too large to overcome, regardless of the decision in Washington. You can take ideas shared here and turn them into real life-changers. So, whether you’re motivated by fear or just a desire to be frugal, if you start spending less than you earn and putting money into savings at the same time, that’s a win – even in situations where imagining success seems impossible.
Forward by J.J. Montanaro, CFP, USAA
Views and opinions expressed by members are for informational purposes only and should not be deemed as an endorsement by USAA.
Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License #0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer.
Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
Lately, financial insecurity has been at the forefront of our national attention, and with good reason. But truthfully, who isn’t worried about finances in the day to day, regardless of what’s happening on Capitol Hill? My husband and I decided to take control of our spending a few months ago by trying something new, something radical: a cash-based system. And the results? New and radical. Here’s what we’ve learned on our journey with cash.
Build a budget
Date night! It’s not the sexiest date of all time, but it’s necessary. Take the time to discuss your spending, you’ll be amazed at what you’ll learn about your financial habits. Take your latest credit card bill, along with any other pertinent bills, and study them: where does most of your spending occur? To create your budget, allot money based on your income, and then set your financial goals. Put pen to paper, write it down! Commit to this process, in writing, together.
First, subtract all your “must-pays” (rent/mortgage, car loan, insurance, student loans, credit card bills, etc.) from your monthly salary. Then, allot money for discretionary spending (food, clothes, eating-out money, gas, toiletries, etc.) using your credit card bill (if applicable) as a guide. When you are ready to begin your cash-only journey, go to the bank and take out only what you’ve budgeted. Keep the money in separate envelopes, in different places in your purse or wallet, or just keep a cheat-sheet copy of your budget with your money, tracking as you go, to be sure you’re spending only what you’ve budgeted.
Track your spending
After your first week of cash-only, sit down with your spouse for another exciting date night! This time, pull out your receipts or however else you’ve decided to track your spending and review–how accurate was your budget? Do you need to move some cash to a different category? Great! You can! Just remember that it comes out of your budget, so you will have to cut spending somewhere else, say, clothes, or eating-out money. Decide what areas are the least important and start there. And remember, the best way to track your cash spending is the amount of cash you have left. It’s pretty simple with cash–when the money is gone, you’re done spending!
You will be the odd man out
When my husband and I first began the cash-only system, I have to admit, I was a little embarrassed. There’s something really easy and (ironically) freeing about just swiping a credit card, paying little heed to the amount on the register. But at the end of every month, I would dread the amount of money we’d racked up on our bill, never knowing what the amount would be, and each month we’d vow to change. The only problem? The credit card was still in play, still our primary method of payment. Something had to change.
When I left the credit card at home and only had cash on hand, a pretty amazing thing happened…I could only spend what I brought with me. There was no safety net! It meant, sometimes, putting things back after the register wrung up an amount that I couldn’t afford. It meant feeling a little ashamed that I wouldn’t buy my kids their favorite “treat” at the grocery store because we didn’t have the money for it. It meant feeling really, really different. Until I started to realize that I was actually being incredibly responsible. I began to realize that it was, for me, the best way to stick to my budget. I was teaching my kids about responsible spending and only buying what we had the money to pay for. It also taught them that “treats” are exactly that, treats, and really special. Now, instead of feeling ashamed, I feel very proud. I am the weird one at the store who counts out her change to the exact cent, but I can account for every single penny.
Studies have shown that there is a physical and emotional reaction that occurs with the act of physically forking over your cash. Your brain hesitates to give it up. These same studies have shown that that reaction does not occur when handing over a credit card, making it so easy to overspend. Let this separation anxiety work to your advantage. When you have the cash in your hands and a budget to adhere to, suddenly that insignificant amount of money becomes significant and the money just doesn’t seem to want to leave your hot little hands. It’s simple: when money is tangible, you will want to hold on to it. So put the credit card away, stick it in the back of the freezer, hide it a drawer, or simply vow to use for emergencies only. Your wallet will fatten up in no time because breaking up is hard to do!
Keep sight of the long term goals
This is your money. You and your spouse have worked hard for it! And it needs to work for you. Remember what your long terms goals are–it can be as simple as creating financial stability by setting aside a small portion of your paycheck for savings (a great idea), a college fund for your kids, a rainy day fund, whatever. As the current economy and political environment have shown, at the end of the day, the only person who cares about your money is you. So protect yourself by protecting your cash; grow it, save it, respect it. Ditch the credit card, follow your budget, track your spending and carry cash. You will be amazed to find that different is good, and money truly is power–and you will be very hesitant to give that power up to just anyone (or anything).