Sorry, Dave Ramsey: I Still Use Credit Cards

“You’ve got to try it,” I overheard one friend gushing to another at a recent get together at our church. “It’s absolutely changed my life.”

Well, my interest was piqued. Was she talking about a new type of beauty product? Or maybe a new brand of wine? Either way, I knew I wanted in.

“What are you talking about?” I asked casually as I sauntered over.

“Dave Ramsey’s envelope system,” my friend replied. (Insert shocked face here.) Obviously, a financial overhaul wasn’t exactly the life-changing event I’d had in mind during my eavesdropping session.

My friend went on to say how the envelope system, which uses a series of cash-filled envelopes to monitor your monthly spending habits, had helped her and her husband cut down on their expenses. In just a few short months, she’d managed to pare down her monthly grocery budget by several hundred dollars and slash her family’s dining out budget in half. We’d just come off the Christmas shopping season – one during which I’d gone more than a tad over budget – so I figured why not?

The Plan

Ramsey’s plan suggests labeling the envelopes for different categories that fit your lifestyle: classifications like food, gas, entertainment, and clothing. I used my credit card company’s spending allocation tool to see how I’d spent most of my money over the past 12 months, then used that information to come up with my personalized system:

• Envelope 1: Groceries. Over the past year, I’d spent an average of $350/month at the supermarket. Hoping to slash my budget, I put $300 into this first envelope.
• Envelope 2: Gas. Our average monthly cost for gas was $250 over the previous year. Not wanting to find myself stranded and unable to pay for gas in the event of a petroleum emergency, I fully funded this envelope with $250 – no budget-trimming here.
• Envelope 3: Children’s Expenses. Whether it be the monthly $150 tuition for my daughter’s preschool or a $8 onesie for my son, I spend a considerable amount of our monthly budget on the kids. I put $300 into this envelope, knowing it would take a wing and a prayer not to find it empty by the 15th of the month.
• Envelope 4: Eating Out. This is one of the only luxuries my husband and I make room for in our budget. I hate to cook, he loves to eat. We tend to eat out once or twice a week, spending about $200 a month. Knowing how expensive a habit this was, I put $100 into the envelope… then I realized that I’d also slashed my grocery budget, so I went back to Envelope #1 and put an extra $50 in it to offset the cost of making four to eight additional meals a month at home.
• Envelope 5: Miscellaneous. These were the expenses I couldn’t really put my finger on, but that had a place in our budget nonetheless. This included things like my dog’s monthly grooming appointments (lay off, she’s a bichon; have you ever tried to bathe one? Then don’t judge…) and new socks for my husband. Like eating out, this portion of our budget had been largely unnecessary – and unchecked – over the previous months. Again hoping to slash the budget here, I put in $100 and vowed to use it only in case of emergencies with the first three envelopes.

The Execution

The month got off to a good start. With my $350 monthly grocery budget in mind, I took only $80 in cash with me to my first trip to the supermarket. Despite my best planning, the register rang up at $82.87, forcing me to put back the orange juice I’d purchased as I turned a deep shade of red. Embarrassment aside, I managed to stay on target.

My gas spending was going fine as well… except for one thing. I’d gotten so used to paying at the pump with credit cards that I’d entirely forgotten that you actually had to go into the convenience store when paying with cash. I didn’t remember that simple fact until the first time I rolled up to the pump to fill my tank – with both my children in the backseat. I felt like the worst mother in the world as I locked the car doors and dashed inside the store to slap $40 down on the counter for pump 7.

Things were going well… until both kids came down with double ear infections. While I’d budgeted for my daughter’s preschool, my son’s swim lessons, and my daughter’s dance classes when placing money in envelope #3, I hadn’t planned for medical emergencies. Two $25 co-pays and $15 in anti-biotics later, I was out $65. As I’d feared, I was forced to dip into our emergency-only “Miscellaneous” envelope on the 17th of the month to pay for the follow-up visit to the pediatrician’s office.

The Final Verdict

Dave Ramsey has built his envelope system of budgeting on the theory that people overspend when they use their credit cards. He points to the fact that the average American family carries $8,000 in credit card debt as proof that we are unable to control our spending habits when we have plastic in hand.

But you know what? I’m not the average American.

Neither I nor my husband have ever carried a balance on our credit cards. NOT. ONE. CENT. We only buy what we can afford, and we always pay it off – in full – as soon as the bill comes in. In fact, sometimes I pay off my balance before the bill even arrives in my inbox. I’m that on top of my finances. (Some might call it OCD, but I call it financial empowerment.) I’d also pared down my budget to just about the bare minimum over a year ago, when I left my full-time job for the dicey world of freelance writing; in other words, there wasn’t a whole lot of fat to trim in the first place.

At the end of the month, I’d spent every penny I’d placed into the envelopes 31 days prior. Total expenses? $1100. Not bad, I thought to myself at first glance.

Then I went back and looked at my credit card statement from the previous January. That month, most likely propelled by the urge to cut back after another extravagant holiday season, I’d only charged $968.12 in expenses – and that was before the birth of my son in May forced our family’s budget to swell. A simple month-to-month comparison proved I’d spent $131.88 more using the envelope system instead of credit cards. On top of that, I’d missed out on the chance to get five percent cash back from my credit card on all gas station purchases, as well as one percent on everything else – a grand total of $21 that wasn’t in my pocket. It’s not a lot, but factored in over the course of a year, and you’re talking about a couple hundred bucks.

Ultimately, I determined a cash only lifestyle isn’t for me. I learned that if I have the cold, hard cash in my house, I’ll most likely spend it. On the other hand, if I use credit cards, I’m more likely to pinch pennies and stop spending once I’ve purchased everything I need, a trait which – some months – leads to a budget surplus.

What are your thoughts on monthly budgeting? Have you ever tried the envelope system? Did it work for you – why or why not?