The Envelope System

We decided to use an envelope system, somewhat like the Dave Ramsey method; or, if you are April, you call him Damn Ramsey.  That is how I feel about the envelopes too, they are not my favorite thing.  Those envelopes though, they do save you money.  The idea, if you aren’t familiar, is keeping your allotted cash in an envelope so you can’t go over budget like you could with a credit or debit card.  I have been fighting putting our grocery money into an envelope for a long time. That was always an item that we “budgeted,” but it was not an envelope.  I liked the ability of using a card and being able to buy groceries whenever I wanted.  It has something to do with how I was raised!  I also like being able to stock up on things that are on sale.  Now we have too large of a stockpile and a habit of overusing our grocery budget.

(Stock.XCHNG photo)

Matt and I finally decided to switch to cash.  This is a huge decision (it probably doesn’t seem like it, unless you use the system) that I am finally somewhat comfortable with.  This should curb my excess spending (no, we don’t NEED cereal bars) and keep us within our budget limits.  Hopefully I can come back in a few months and say, “Wow, that was such a smooth transition, why didn’t I do that years ago?”  I know this will make my shopping trips take twice as long, because I need to calculate out how much everything costs, but it should be worth it.

Have I left you wondering how much do we spend on groceries?  I think this is a number that varies depending on many factors, like family size, where you live, etc.  However, we “budget” $350 to $400 a month on groceries.  I am beginning to think this is excessive, even though my husband still eats like a teenage boy.  We are putting $80 a week or $320 a month into our envelope.  This might be one that we replenish every two weeks instead of on the first of the month.  Hopefully I do not go crazy with the budget, as there is no overspending when you run out of cash!

Do you use the envelope system?  How does it work for you?

In college, a close friend of mine had her identity stolen. She had never been late on any payment, yet someone had applied for credit cards and opened cell phone accounts in her name. Sadly, it took about a year to be fixed. It scared me enough to learn more about credit and be proactive with my finances.

(Source)

Recently, I found out about CreditKarma.com. With positive reviews from the Wall Street Journal and USA Today, and after doing some extra research, I thought I would give them a try and get my credit score. It has you enter various information and gives you a score along with a “report card” that gives you an A to an F in seven categories.

My report wasn’t much of a surprise, except that I got an F in “total accounts.” Say what?! They recommend having at least 41 credit accounts in order to get an A!  They say, in general, more accounts equals better creditworthiness. While not as weighty as paying on time, this bugged me enough to investigate.

My research didn’t support that extreme of a number, so take a sigh of relief you overachievers. Here’s what I am taking away from it:

• Have as many accounts as you can handle

• Have a variety of cards, but most should be from major issuers (Visa, AmEx, etc.)

• Retail accounts don’t really improve credit, but if you have to have them, they should be limited and only where you frequently shop

• Opening several accounts just to increase a score will likely hurt, not help

Overall, Credit Karma seems like a good resource, but shouldn’t be the only source. Don’t forget to monitor your score through AnnualCreditReport.com (not the site with the annoying commercials) at least once a year.

As for me, I’m sticking with my habits (maintaining low balances on high-limit cards, paying them off on time and in full every month, etc.) and don’t plan to open about 30 new accounts. Do they even make wallets that big? Maybe fanny packs would have to come back in style.