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Cash vs. Debit: What’s in Your Wallet?

content ballDuring our Compass Catholic Bible Studies, we review a variety of ways to manage discretionary spending used for categories such as gas, groceries, clothing and entertainment. Some of the suggestions include envelopes, which requires allocating cash into envelopes with the name of the category listed on the front. Other people may be more comfortable using electronic systems such as Mvelopes, or an app available from your bank, which are basically electronic versions of the paper envelope system.

So which is better for managing discretionary income—manual or electronic? Is one method better than the other? Like the methods of tracking spending, whether you use paper and pencil system or an electronic spreadsheet, it might take some time to figure out which system is right for you. Let’s take a closer look at the money in envelope vs. electronic systems to help you determine which one might be right for your family.

Using money in an envelope involves taking a trip to an ATM or cashing a check at the bank to obtain the amount of money you need for discretionary spending categories. Then you need to put the cash in separate envelopes for use at the grocery store, gas station, and so on. If you are a married couple and you each need an envelope for separate trips to the store and gas station, then the money gets divided up accordingly. When my husband and I used this system, his grocery envelope had a relatively small amount compared to mine because I do the majority of the grocery shopping. However, his gas envelope had much more money than mine because he does far more driving than I do.

It might take a few tries to fine-tune your envelopes, especially when the prices of certain items can fluctuate. However, if you track your monthly spending and use that as your basis you should be pretty close on the amount of money needed. The drawback to this system is running out of money when you still need that tank of gas or that gallon of milk. Is it cheating to move the money between the envelopes to make everything even out? Provided that you are making a concerted effort to stay within your budget, it is always better to evaluate the remaining funds in the envelopes and reallocate what is left rather than pulling out the credit card. You can learn from that experience and try to plan better next month.

Mvelopes and Mint or apps available from you bank are electronic systems which allow you to set up your own categories, input bank account information, and set goals for spending in categories you establish. When you are at risk of going over the budgeted amount, you can receive an alert, which will let you know how much you have left. These systems are also good at reminding us of the goals we set at the beginning of the month. The cons to this method are that you won’t be tracking your cash transactions so if you spend cash at any point, you have to have a way of tracking that separately or entering it manually.

No system is fool-proof, of course. Whether you use a cash-only system or debit-only or a combination of both, the key is staying disciplined and focusing on your goals. Budgets frequently change so it is important to pay attention to what is working and what isn’t in order to stay on track, always trusting in God to provide.