For the month of February, I switched from spending primarily with credit cards, to cash.
I used the envelope budgeting system, where I inserted a pre-determined amount of cash into an envelope, designated to a different spending category. Every time I made a purchase, I took money directly from the designated envelope. Typically, I put everything on a credit card and pay the entire balance off at the end of the month.
After switching to cash for one month, here’s the two most important lessons I learned.
Lesson # 1 – The Envelope System Is The Best Way To Stick to Budget
The envelope system is a foolproof method for setting and sticking to a budget. If you follow the basic rules of the envelope system, I have no doubt that you will save money.
The only downside I found, was that the accounting can get a little confusing. For example, when I went out to Chicago for a wedding, I just grabbed $60 from the entertainment envelope. By the end of the weekend I had spent money at the bar, on cab fares, on parking, and on breakfast.
It was a little confusing trying to sort this all out afterwords.
Lesson # 2 – Spending Is A Habit
It’s very easy to spend without thinking.
You go out to breakfast, stop by Home Depot, get your groceries for the week, and all of sudden you just spent $150.
What I loved about going to cash only, is it became painful every time I had to dig into the envelope. If I were just swiping plastic all day, I wouldn’t be as aware of these purchases.
Closing on February Challenge
Even though I don’t plan on making a permanent switch to a life without credit cards, I’m glad I attempted this method. The most rewarding aspect was I found that I increased my awareness of where money was going out.
As of right now, I’m planning on returning to cash only once or twice a year. I found that switching methods, is a great way to keep you aware of how you are spending. This way, I can easily identify any bad spending habits I have.
March Challenge – Passive Income
The goal for the month of March is to acquire or create an asset that will provide $100 of passive income a month.
As you saw in the video on the crossover point, my long-term financial plan involves having enough passive and investment income to live off of by the time I’m 35.
I haven’t determined what this asset will be, but I will find a way to make it work.