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November – Living our First Dave Ramsey Cash Flow Plan
Hopefully you’ve noticed that my wife and I have been attending Dave Ramsey’s Financial Peace University over the past few months. One of the major tenets of his FPU plan is to create a workable budget and then actually live according to it.
Well, November marks the official start of our latest attempt at budgeting. I have had a fairly detailed budget for the past few months but we were not proactively living according to it (what is the point of that?). This month, however, spurred on by the FPU class, we are going to give this whole budget thing another try. Let me say that I really want to live by a budget. I want to feel like I am controlling my money and not just sitting around wondering what happened to it at the end of each month. Just in setting up our latest budget, I’ve found some areas where money just seems to be disappearing. That both encourages and frustrates me….but hopefully this will be the start of something good!
The way I see it, there are two overarching keys to being able to convert your budget from a purely academic exercise to a useful tool:
- It has to be realistic – You are not going to be able to go an entire month spending only $25 on groceries for your family of 5 (ok, maybe if you have a huge “victory garden” and a chicken, and maybe a cow). If you set up a completely unrealistic budget, you will be completely frustrated by the 2nd week of the month and then be completely off your budget. So, be accurate when you set it up, even if what you are seeing is ugly. Get used to living a budget, then in following months you can actually live on your budget and tweak your spending to get it where it needs to be.
- It has to be easy to administer – Do you really think you will keep up with your 324 line spreadsheet past the 2nd week of the month? Your plan must be simple to monitor and administer or else you will neither administer nor monitor it. Again, the point is to reduce or eliminate all sources of frustration so that you can keep up and keep on your budget. That is why the cash envelope system is so powerful – there’s basically no administration. Look in envelope, if there is money, you can spend it; if not, then you can’t spend it. No spreadsheets, no budgeting software, no piles of receipts to itemize each weekend (just writing about all of that is frustrating).
Our plan for November
We haven’t made any major changes to how we’re living. After discussing it quite a bit, we have decided to keep using a credit card for our bigger purchases. We will start using the cash-based system for some expenses – this month that will be our dining out category. In order to take a more proactive attempt at tracking our spending during the month, we are going to simply collect all of our receipts and put those in various envelopes. We’ll then periodically chart our spending to make sure we are on track and be mindful of how much more we can spend that month. To be honest with you, I am a bit nervous about this plan since I feel it might violate key #2 I mentioned above – keeping receipts, tracking spending from multiple sources….yuck.
To alleviate that concern a bit, I’m in the process of searching for a simple budget tracking tool that will help us to monitor how we are doing throughout the month. The one I am starting the month off with is SimpleD Budget. It is very basic but very simple too – so we’ll see how that goes this month.
Not completely dropping the credit cards yet
As I mentioned, we’ve gone back and forth on the credit card thing. I know Dave Ramsey is a huge proponent of cutting them up and never using them. I’m somewhat up in the air on them while my wife does not think it is a good idea to use cash for everything. She is open to trying to use our debit card, but I’m not sure I see a significant difference between using a debit card and a credit card that you pay off each month. As such, it’s a work in progress, but this is what we’re trying this month. I will keep you updated on our progress this month and any changes we make for next month’s plan. Wish us luck!
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4 Responses to “November – Living our First Dave Ramsey Cash Flow Plan”
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Getting rid of the “credit card crutch” was a big step forward in my family’s life. As soon as we vowed not to use credit cards again and only spend money that is in our checking account, our budget became that much easier.
Honestly, it hurts when you have to spend money out of your checking account as opposed to putting it on a credit card to pay later. It also forces me to look closer at a purchase I’m making and I find myself looking for the best deal.
For example, I need tires for my car last month. In the past I would’ve just found a convenient place to get it done and pay without shopping around. However when I budged x amount for tires, in cash, I found myself shopping around for the best deal I could find. That’s because the less money I spent, the more that could go back in the budget. I ended up saving about $60 by shopping around and not going to the first 2 places I checked.
I would suggest trying to live without credit cards for one monthly budget cycle. If it doesn’t work, you can always go back to using them. But, my guess is that you’ll notice the difference right away.
@Michael – Thanks for the comment. It is very encouraging to hear about the good results you’ve had (especially the part about the budget becoming much easier after you stopped using credit cards). I think I might have to take your suggestion to stop using them completely for at least one month as a trial. I was kinda going at it from the other direction of using cash only for one or two categories to start and see how that works. But it probably would be a better exercise to drop credit cards entirely for a month and see how that goes. Do you use cash only or do you also use a debit card for bigger purchases?
We still use the debit cards for bigger purchases (and in some cases smaller puchases). I used the debit card for the tires. However, I found that I’m much more sloppy using a debit card as opposed to cash.
A couple dollars here and a couple dollars there and I find myself spending a lot of time trying to balance the budget with the checkbook. Cash gets rid of all that. The only downside is actually having to go to the bank to get the cash.
The good news is that when I’m using the debit card, I’m actually spending money have as opposed to using credit. It’s a win-win. Just a little sloppy.
My wife and I decided to use cash for Christmas this year. We’re putting the money in an envelope, so that we can both keep track of how much we have left.
One of the best things about not using credit cards is that you have one less bill to worry about. You don’t have to take the time to pay that bill, nor do you have to worry about missing the dreaded due date and getting slammed with a late fee. I hate credit cards, they have been the worst thing in my life. Why use them?