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The War On Debt: Spending Blindly With Plastic

The war on debt: spending blindly with plasticWhen I was newly married in the nineties, we used a cash envelope system to control our weekly spending. We’d guess how much we needed for groceries, gas, entertainment, personal items, etc.

Each time we spent money, we replaced it with a receipt. And when the money was gone…

We had no more to spend until next pay.

Being a visual person, I liked this method. But as debit technology grew, my husband gravitated to it quickly. Because he thought cash was too easy to fritter away.

Little did we know how easy it is to fritter money away by debit, too.

Invisible Money

The forward trend toward a cashless society means that 20-odd years later, I struggle to carry enough money for the downtown parking meters. Let alone to do the weekly shopping.

It took us 10 years to use up our final box of cheques (since these days we pay most bills online).

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Would it be better to go back to cash for regular weekly purchases?

Maybe. I’m tempted to overspend more with debit than with cash. Especially if I’m unaware of my husband’s purchases. And it’s led to being overdrawn more than once…

Little numbers do add up.

I don’t have quite the same issue with my credit card. Gone are the days of my careless youth when my VISA burned in my wallet and represented magic money—until the end of the month, that is. In the last several years, our credit card has stood in place of our emergency fund, rather than impulse buys. This has brought its own kind of stress. More on the credit card issue in a subsequent blog.

But I do wonder about my debit card. Does it make my money invisible? Does it create extra temptation to spend?

Does a debit card make your money invisible? Does it create extra temptation to spend?

“Absolutely,” says Kathy Nutter, a former personal banking officer with Scotiabank and a current mortgage broker with The Mortgage Center. “We don’t think twice about it before we use our card. I always carry a little bit of cash with me, so that I can see what I’m spending.”

Instead of using just one or the other, Kathy employs a hybrid strategy. She says she plans all her purchases and uses cash or debit based on the cost of the item. “With smaller purchases like clothes, or [going out for] coffee, I use cash for those things. With larger items, [like furniture or an appliance], I’ll use debit.”

Whether money is spent via debit or cash, it all comes back to awareness, she adds.

“I read a book once a long time ago called The Automatic Millionaire,” she explained. “It recommended that for two or three weeks, you monitor every single cent you spend, down to the penny. Back then I was going to Tim Horton’s I think, five times a day. I never thought about it much until I added it all up and saw it on paper. So I limited myself to two a day, and saved what I would have spent on the other three in a savings account.”

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Instant Information, Instant Everything

In 2016, Moneris, a Canadian debt and credit processing company, predicted that by 2030, cash will represent only 10% of transactions made in Canada.

Tap cards are even more attractive these days for their speed and ease of use. And as “mobile wallet” technology matures (digitized credit or debit card information on your preferred mobile device), Moneris expects people ages 18-34 to embrace it with the most enthusiasm.

Since people naturally gravitate toward convenience, the market has responded by developing mobile apps like Mint, or YNAB (You Need A Budget), which sync with your bank accounts to track your spending.

These apps make Kathy cautious. “I would be hesitant to use those,” she says, shrugging the idea away over the phone. “I know what is in my account at all times and I would be concerned about a third party having access to my data.”

Still, you are only giving permission to the bank to send a log of transactions to a company which categorizes those transactions for you, and proposes a budget, based on your goals. But they can’t transfer funds or do any banking with those apps. It’s a one-way transaction. We take a similar risk when we make online purchases with a credit card—and that trend is here to stay.

It’s prudent to remember that we already share a lot of information with third parties. For example, if you are a heavy user of Air Miles or any other store-specific rewards card or credit card, they have much more information about you than you realize.

Related: Get Max Value for Your Air Miles

They not only know where you bought things and how much you spent. But they have an exact list of your purchases. And can probably predict not only when you’re going to run out of toilet paper, but what brand you’ll buy.

Data-mining is everywhere.

Security issues notwithstanding, I talked to three New Brunswickers who love these apps. Amy Pattison of Moncton, highly recommends Mint. “I use it on my computer and have the app on my phone. There are goal-setting options which can send you email reminders/updates about your goal, which has been helpful. Another feature I like is that you can customize it to fit your needs by creating your own categories for expenses.”

Duane Collicott, an empty-nester from Fredericton, agrees. “Mint has definitely made it easier for me to see where we're spending. It's more visual and much easier than papers here and there. The budgeting tools are great for keeping on track too.”

Younger folks embrace its potential, but it doesn’t stop them from combining it with old methods.

“I also love that it is so readily accessible across multiple devices,” says Bethany Wheaton, from Sussex. “Whether I am at home, at the computer or in the middle of the grocery store with my smartphone, I can quickly see what is budgeted and available in each envelope. No stopping to count cash.”

Bethany is an enthusiastic YNAB user, who loves the technology, but eschews debit purchases in favour of the old-style cash envelope system.

I must admit, I can see the appeal.

I like that it’s visual and does the organizing for me. Anything that helps me stay on this financial diet is a plus. While we continue to weigh the pros and cons, I asked Kathy if she has any other tips to keep from overspending with my debit card:

4 Tips for the Overspender

1. Is it a need or a want?

It requires some discipline to walk away from the temptation of an unplanned purchase—also known as the Impulse Buy—but it will pay back dividends.

2. Use cash for everyday purchases.

Using cash to pay for everyday purchases such as coffee, transit, lunch and magazines makes the expenditure tangible. You don’t get the same message when you haul out plastic.

3. Allot a weekly cash allowance for entertainment and everyday expenses.

Tracking these purchases will give you a good idea of how much you’re spending. And once the money in your wallet is gone…it’s time to brown-bag it.

4. Do not attach your debit card to your savings account.

‘Nuff said, right?

Failure to Plan is a Plan to Fail

For those who are already savvy spenders, I doubt any of this is news. I suspect my problem is not with the method of expenditure, but with my (lack of) preparation and planning for it.

It always comes back to that, doesn’t it?

And I suppose, if all else fails, I can bring just enough cash to make my purchase—and leave my debit card at home.

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Michelle 's picture

Thank-you for this post. I agree with it, & I've never stopped using cash. I do use my debit card sometimes, but I try not to if at all possible. I don't use the envelope system, but I do have my own system for dividing up my cash into what I need for rent. I pay my rent by cash, & so I always make sure I have what I need for that. I pay my phone (prepaid, which is best for me) online, & I use debit for my car insurance & PO Box. This summer, I'll be able to go back to my insurance coming out of my account each month.

With using cash, it's so easy for me to keep track of what I actually have to spend, & it makes me think a lot more before I shop. When I use debit, it's far too easy for me to be out of control on payday. Then I'm caught with very little for anything

Simce October 2006, I've really struggled financial due to low paying jobs or unemployment. It's been a huge eye opener & teachable time for me that's been good for me, hard as it's been. It'll help me a lot now, though, as I head into the next phase of my life with a brand new job that pays well. Yay!

May 04, 2017 @ 12:00 pm
DebtDispatcher's picture

Congratulations on the new job, Michelle. I hope you are back to a comfortable solvency very soon. I'm glad that your hard times have made you wiser, though. Best of luck.

May 04, 2017 @ 2:43 pm
Cheryl's picture

Gail Vaz-Oxlade uses the jar system where you put cash in each jar labeled for groceries, gas, etc. I believe it was Dave Ramsey of the Total Money Makeover who has the envelope system, at least where I first heard about it. When I was married we used the cash envelope for food, either groceries or eating out, and once it was gone, that was it, though I don't remember running it before month end. I also used the envelope for the Christmas fund, putting a set amount of cash in there each month, so when we went Christmas shopping we paid for everything in cash. Debit card was used for gas. We're pay before filling in BC, so it's easier to pay at the pump instead of going inside and standing in line for the cashier.

Credit cards were for emergencies, usually car maintenance that was over $100.

Now that I'm single, I've gone away from the cash envelopes. I use my debit card for grocery shopping and often for eating out, which I don't do that much of to save money. Credit card is still only used for car maintenance. The credit card I carry in my wallet that is. I have two others at home with much higher limits that I hang onto in case of some big emergency. To keep them from being cancelled, I'll alternate them off each month and buy something online that costs under $100 to keep them active.

The book mentioned, The Automatic Millionaire by David Bach, is an excellent choice and was recently re-released. He's also written Smart Couples Finish Rich, Start Late Finish Rich, and similar books. All with Canadian versions when it comes to differences like 401k and RRSP.

If I want to catch a bus into Vancouver it costs $5.50 - in coins. Bus meters don't take bills or plastic and only take you as far as the Sky Train station where you transfer. Now that is totally inconvenient and why I rarely go into Vancouver or drive my car instead. Returning from Vancouver you start at the Sky Train station and there are machines that take cash and plastic, so slightly more convenient that you don't need to scrape together $11 in coins before you leave the house.

Although I'd prefer to be cash only, I find debit is more convenient, but if I remarry I'd look at the envelope system again.

I also want to say you have to watch where you do your banking. If you use your debit card your bank account might have limit monthly transactions and then you get dinged. In that case cash would be a better option. Or look for credit unions that don't charge monthly fees and have unlimited free transactions.

It sounds like it would be smart for you to incorporate that envelope system again. Good luck.

May 04, 2017 @ 12:45 pm
DebtDispatcher's picture

Hello, Cheryl: My husband prefers debit and I prefer cash, so we're still wrangling about it. The important thing is to know what I have available to spend at all times. And as you say, there are still places and times where cash is still king. Our debit transactions are included in our banking fees, but we haven't seriously looked at switching banks for many years. That is a possibility when we start shopping our mortgage around later this year.

May 04, 2017 @ 2:47 pm
Owen @ PlanEasy's picture

Personally I'm a fan of the virtual envelope method. I have three online bank accounts for my savings goals, fixed expenses and spending money.

Every two weeks my paycheck gets split between the three accounts automatically according to my budget.

Similar to the cash envelope method, once my spending account is low/gone I need to wait for the next paycheck.

May 05, 2017 @ 7:45 am
DebtDispatcher's picture

Owen: Interesting! Sounds more simple, for a Luddite like me.

May 08, 2017 @ 12:43 pm
Adriana @MoneyJourney's picture

A debit card does make your money invisible and it's indeed easier to spend it. However, to avoid that, we just go to the ATM (almost) every weekend and just take out some cash to use for the next week.

It sounds like a silly or even stingy method to save money, but knowing exactly how much cash we have available in our pockets prevents us from developing crazy-spending habits.

May 11, 2017 @ 9:52 am
DebtDispatcher's picture

Hi Adriana: Thanks for your comment. It's great to be on the same page in that respect.

May 14, 2017 @ 9:49 pm

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