Why I Don’t Use Cash Envelopes for Budgeting

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If you’re in the community of people focused on paying down their debt, or focused on budgeting and personal finance, you’ve almost certainly heard about the Cash Envelope Method of budgeting. Popularized by Dave Ramsey, the cash envelope method is a process where at each paycheck, you take out a specified amount of money and place it into a series of envelopes, one envelope for each budgeted category (ie, restaurants, groceries, entertainment, mortgage, etc). The reason this method works so well is because many studies have shown that people spend less when buying with cash than when they buy with credit. A study on sporting event tickets, showed people were willing to pay 82% more if they could pay with credit card. Another study showed people leave up to 13% more in a tip at a restaurant when paying with a card vs. cash. The cash envelope is a very visual reminder of how much money you have left to pay from each category and you can stay on track. You can learn more about the method here.

So why don’t I use this method myself? For one, I personally end up spending more in cash than I do on my card. If I have cash on me I just want to make it rain on the cashier at Target (in the most respectful way possible). Secondly, and more importantly, I take full advantage of my credit card rewards. This works for me because I don’t carry a balance on my credit cards, so I’m not paying any interest. Yep, no credit card debt over here (granted I still have a ton of student loan debt). I grew up watching my parents load up their credit cards, rack up interest when they were paying the minimum payments, and they’d find themselves claiming bankruptcy and spending years rebuilding their credit score. I was so nervous to ever have a credit card because of that. I thought credit cards were evil and I’d lose control of my spending and find myself going into default on my cards. I thought that bad financial habits were genetic and couldn’t avoid my fate of credit card debt, so I just avoided it at all costs.

It wasn’t until we started our “Side Hustle Challenge” that I noticed my boyfriend was applying his credit card cash back as a portion of his $100 monthly requirement. And I asked “how are you getting this money back from PNC every month?” Turns out he just used his credit card rewards to make extra money each month. Then he thought I was crazy for not using my credit cards at all. He told me that if I just pay off my balance every month, I can spend on my cards just like I would cash or debit, but I’d get rewards back. I spend on each card to get the particular rewards unique to each account. And now I make my money work harder for me. It also turns out that poor financial habits are not hereditary. So what cards do I use? My list is below of what I have and why I have it:

Credit CardRewards/PerksMy Feedback & Notes
Target5% off all purchases. Free shipping on everything from their website. $0 annual fee.I use this card when I go to Target, but I rarely go anymore because that home section with the Joanna Gaines décor and the Chrissy Teigen kitchen items are so hard for me to avoid. Everything is too damn cute, right? There is no annual fee on this card, so I hold onto it and I occasionally buy a new rug, a new TV, or other household items because they’re 5% off and they ship free. My mom recently moved into a new house and I shipped her a headboard and a coffee table for her new space. I took advantage of a great furniture sale, plus 5% off, and free shipping!
Ulta Credit Card$0 annual fee. 2 points for every $1 spent at Ulta.This is where I get my hair done. I love their salon services! Alina at the San Marcos, CA location sees me walk in looking like a witch and she has me walking out looking like a sun-kissed goddess. And then I pay with my credit card, and I use the rewards to buy my foundation and eyebrow cream-gel. I also get coupons for 20% off prestige brands which I can use on top of my rewards points.
Southwest Airlines$149 annual fee (for Priority). 7,500 anniversary points to use on flights. Dining Rewards Program. 20% off in-flight purchases. Rewards Points = Free Flights!This card is AMAZING! First of all, Southwest has the best customer service in the game.  Secondly, you always get 2 free checked bags on Southwest so I can over pack without a care in the world. I have redeemed points for so many flights. My family is in Chicago and we live in Southern California, so as you can imagine, we’re flying home pretty regularly. If you sign up with this link Earn 40,000 points with any Southwest® personal Credit Card and business owners can earn 60,000 points with the Premier Business Credit Card or earn 70,000 points with the Performance Business Credit Card. If you apply through this link you get 40,000 points after you spend $1,000. (I also get 10,000 points, if I haven’t already hit my referral limit). One-way flights are as low as 2,468 points! That’s over 16 one way flights FOR FREE! I can also fly round trip to and from Cancun for under 20,000 points, just for reference (and I have). And when you’re in Cancun, you can enjoy no foreign transaction fees.
United Airlines$0 intro annual fee, then $95/year. 2 free United Club passes annually. Free first checked bag. No blackout dates on reward travel. Priority boarding. $100I also use this card for airline miles. Can you tell that I love to travel but hate paying to travel? It’s true. If you apply through this link you get 40,000 points when you spend $2000 in 3 months. (I also get 10,000 points, if I haven’t already hit my referral limit). Domestic flights in the US (within the contiguous US) are 12,500 points each way. So you get just over 3 one-way flights FOR FREE! They also pay $100 towards your Global Entry or TSA-Pre fee. Free flights and less time in security?! Yep! And for the United Club passes alone, this is a great card! That United Club with free food and free drinks got me through some long layovers and weather delays.

Ok so now you know I use credit cards over cash almost 100% of the time. So then how am I staying on budget? I use the Mint app. Mint is powered by Intuit, the same people who make TurboTax. They are a very secure company so you have nothing to worry about when connecting your credit cards. I connect my SoFi loan account, my credit cards, my bank account, etc. It tracks when my bills are due, tracks my monthly income vs expenditures and it even lets me set up virtual “cash envelopes”. Each of those categories gets a budgeted amount of money, and when I go over, it alerts me. I can adjust my budgets on the fly, I receive alerts for spending that falls outside of my normal habits, and I regularly check my credit score. I check the app daily to make sure I’m still on budget and I still get to earn all of those credit card perks! It’s a win-win for me.

Example screenshot from the Mint app

In addition to the rewards I get from my credit cards, there is also a huge advantage to making regular on-time payments and carrying a low balance on open accounts. Your credit score improves drastically when you do this, which will get you lower interest rates on a mortgage or an auto loan. That on its own will save you a lot of money over the life of those loans. Having an excellent credit score was a huge reason why I was able to buy and sell my first home before I turned 30, even while holding this student loan debt.

A lot of people have seen amazing success with cash envelopes. It really is a great system and has helped a lot of people pay down their debt. But for me, with my spending habits, and in my current financial position, I prefer to use credit cards in a way that makes my money work harder for me. I personally use my credit cards for free makeup and free flights, but if cash-back is what you want, there’s plenty of cards for that too. Www.nerdwallet.com is a great resource for comparing credit cards side by side. You can filter your search by the annual fee, the types of rewards, consumer ratings, etc so you can make an educated decision for yourself.

I’d love to hear your success stories with cash envelopes, how you use your credit card rewards, and your own feedback on the Mint app! Let me know in the comments below.

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