Control Spending with Cash-In-The-Wallet System

Spending and Budgeting Control

Over at the No Credit Needed Blog a recent post discussed using the $100-a-day rule to prevent [tag]impulse buying[/tag]. The system works like this: If you want to buy something for $400 then you have to wait 4 days to buy it. You use this time to see if you really want it and maybe research a better deal.

Wallet with CashMany people I know have the opposite issue. When it comes to big purchases they are very careful, but they seem to burn through tons of [tag]money[/tag] on the little stuff. This happens usually when you have a pretty good income. That $4 doesn’t look like much by itself, but add it up with all the other “only $4” stuff and it can eat at your money.

Part of the problem is what I call the casino affect. Casinos use plastic chips instead of money. One reason is that it makes it easier and faster, but another reason is that people are much more willing to gamble little plastic chips than money. How many times have you been in a casino with 3 $20 chips left and kept playing because “I only have 3 chips left.” Imagine you had 3 $20 bills instead. Things might be different. “Well I’m not going to go cash in my last $60.” Credit and debit cards can cause the same affect. Reaching over at the cash register and grabbing a Powerbar before handing over your credit card doesn’t require any realization of the money you just spent.

Use The Cash

Now, some people are cash burners. That is, if they have [tag]cash[/tag] in their pocket they will spend it. If you are one of them, this system is not for you. Other people tend to hold onto their cash (real money) but not think much about using cards. If this is you, try this system.

Each week (or month) put a certain amount of cash in your wallet. This amount should represent the amount you are willing to spend for the week (or month) on your daily on-going or extra expenses. When you run out of cash, you can’t spend any more on those things. If you have cash left over, then it becomes your “free money.” You can do anything you want with it. I put my free money in a lock box in the basement. Whatever is in there is what I get to take to Vegas (yes, I’m a financial planner who loves going to Las Vegas. Consider it my “character flaw”.) If you pick something that is fun for you, it will be motivation to not spend through your cash. Instead of buying that extra something because it’s only $2, you’ll find yourself calculating how to get your lunch for less. (“I don’t really need chips and a drink with that sandwich”).

Free to Try

Try it for 60 days. If your wallet is always empty, it’s time to evaluate how realistic your number is. This is enlightening for your [tag]budget[/tag] purposes. If you always have extra cash left over, watch that savings build up and you can use it to buy those things you always wanted but never considered worthy enough of your pocketbook. Since it’s your free cash, you can even skip the $100 a day waiting period, but I wouldn’t recommend it.

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