Coffee heat rising

Budgeting: Back to the Envelope Method

And, for a change: back to Funny about Money’s long-defunct theme: personal finance. You’ll recall, those of you who are Dave Ramsey fans, that one strategy for keeping yourself on budget is called the “envelope method.” In that scheme, you cash out a month’s worth of dollars and fill a separate envelope with the amount designated for each budget item. So, $200 for groceries in one envelope; $100 for gasoline in another, $30 for dog food…and so on, ad ditzy nauseam.

Well, some of us have neither the patience for that kind of ditz nor the stomach for putting an entire month’s worth of funding at risk of being heisted by some enterprising burglar or dropped unnoticed on the pavement. I use credit cards and electronic payment to minimize loss from theft and incompetence.

Conveniently, though, if you happen to bank at a credit union, you have an easy route to create electronic “envelopes.” My CU allows members to add any number of savings accounts. So right now, for example, I have one to collect the constant dustfall of tiny checks from Medicare and the Medigap insuror — whenever a couple hundred bucks accrues, I fork it over to the Mayo. And one for emergency savings. And one to hold enough to cover income tax, accounting bills, property tax, homeowner’s insurance, Medigap insurance, and car insurance, all set aside at the beginning of my personal “fiscal” year, when I have to take an RMD from my 401(k).

This allows you to earmark and set aside specific amounts for specific purposes, placing them where they’re unlikely to get diddled away in day-to-day spending.

Now we have this question: in the absence of a desirable Visa credit card, how — really — am I going to continue to shop at Costco? I haven’t cut up the credit card or closed the account — it’s never a good idea to close a credit account in good standing — but because I don’t do business with outfits that treat me like sh!t, I will never use the card again.

I do have a debit card. But for a variety of reasons, I prefer not to use it. For one thing, there’s not a chance on God’s Green Earth I’m gonna put the thing in a gas station pump — certainly not at the Costco where I shop, which is flanked to the south and the west by dangerous slums and a park that has been taken over by bums. But I do prefer to buy Costco gas, because it’s the cheapest deal in the city. And there’s always an attendant — invariably a large, imposing male — standing around that Costco gas station, so I don’t feel so much at risk as I do at the rip-off QTs within reasonable driving distance of the ‘hood.

So. Here’s my plan:

Create a new savings account to hold money budgeted to spend at Costco. That would be an entire year’s worth of money budgeted for Costco ventures: shopping and gasoline, combined. So let’s say on average I spend, maybe…what? $340 on food, clothing, household goods, dog treats, personal products, impulse buys, and gasoline. When the 2019 RMD comes in — which will be about in September — I set aside $4,080 (= $340 x 12 months) in this account.

Then I trot in to Costco and buy a cash card for the amount I imagine I’ll spend at Costco, both inside the store and at the pumps, over a month. That would be around $340. That is what I carry to the store to make purchases. Each month I pay for it out of the Costco Envelope savings account.

I spend no more than that in any given month. Run out of money: quit shopping at Costco. How hard is that?

If money is left over at the end of the month, the next month’s cash card is loaded with accordingly fewer dollars. So, say, in March I spend $250, leaving $90 unspent; the April card has $340 − $90 on it: $250. Thus whenever I spend less than $340 over a month, the overage stays in the bank account.

So at any given time, the Costco cash card never has more than a month’s budget on it. If I don’t spend the entire budgeted amount, then whatever is not diddled away stays in that savings account.

I figure at the end of the year, anything that’s left can be transferred to the Emergency Savings account, and the Costco Budget account can start over from zero at the start of the new “fiscal year.”

When you know there’s an upper limit on what you can spend, you find yourself feeling a lot more cautious about your spending.

Therein lies the threat of Costco, the Mother of All Impulse Buy Hells. When the budget is open-ended — in your mind you think you have plenty to live on (which you do, if you don’t run amok) — you go “oh, it’s only $20…no problem, I can afford that.” And you could, if you just didn’t keep doing it over and over…

But if you’re thinking, “Helles Belles, I’ve only got x number of dollars to spend today,” then you realize the $20 doo-dad is not a life-or-death purchase. The beauty of the Envelope Method is that it sets a limit on what you’re willing to diddle away.

So, what started out as an annoyance — yet another stupid faceless bureaucratic hassle — may work out to my advantage. Not so much to Costco’s advantage, but certainly to mine: by getting the Costco spending under control, this new, enforced budgeting strategy will let me stay within the annual RMD for another year or two, despite soaring health insurance and property tax rates.

After that, it’s anyone’s guess. I may have to think more seriously about moving out of the country, to some venue where I can stay in the middle class on the retirement income. But we’ll cross that bridge when we come to it…

6 thoughts on “Budgeting: Back to the Envelope Method”

  1. A couple thoughts on the plan based on me experience working at a large financial institution:
    1. By law/regulation savings accounts are limited to six transactions per month total (e.g. 2 deposits, 3 transfers to/from checking/a different savings account, and 2 withdrawals is 7 transactions). Some institutions allow customers to setup what appear to be separate savings accounts, but are actually sub-accounts of one master savings account. The six transaction rule would apply at the master account level (though sub-account to sub-account transactions would not count because the funds never left the master account).
    2. Assuming the institution does create separate savings accounts, be cognizant of how much shuffling of funds occurs between accounts so as to not hit the six transaction limit. The Costco plan as described does not appear to be a problem, but something to keep in mind if generalizing the plan to all facets.
    3. For transactions of an undetermined amount (eg pre-paying at the gas station or swiping the card at a restaurant before signing the receipt and adding a tip), businesses will pre-authorize a standard amount to ensure the card is valid. This is not a problem for credit cards as long as the credit limit is not maxed out, but for debit and gift card purchases if the pre-authorized amount is less than the available balance the transaction will be declined. For example, you have $45 left on the Costco card and decide to fill-up with $20-worth of gas while you are there. You stick the card in the machine, and we’ll assume Costco set its pre-authorization amount to $50 so the transaction comes back declined even though you have $45 on the card and only wanted to spend $20.

    • Hmmm…. THAT is interesting!

      Yes, I believe the apparently “separate” savings accounts are sub-accounts…but (perhaps wrongly) I imagined they were subaccounts of the main checking account.

      I don’t transfer money around readily. Generally money goes to a given savings account as set-asides to cover a single annual payment. For example: $2400 for property tax goes directly to the “tax and insurance” account as soon as the annual RMD comes through. It sits there until the county sends a bill.

      There _would_ be more transfers from the proposed Costco account: one a month rather than one a year. But…hm. Let’s figure this out:

      We transfer one year’s worth of budgeted funds to cover all CC purchases (store and gas pumps): In September (RMD month): $4080 goes into that account. Let us then imagine that Medicare sends me its usual flurry of stupid little checks — they never send one check to cover all the bills that were sent to them…they apparently send one check per item in the effing bill. I accrue these until I think they’re done blitzing me, and then I send the total over to the Mayo. This month (so far) I’ve gotten five annoying, ditzy little checks, which I’ve put in the “Medical” savings account. So let’s say that’s typical: so imagine that, also in September, we get five Medicare/Medigap checks. We’re now at 6 deposits!

      I probably can get around calling those “six” deposits by physically driving to the CU (40 minutes round-trip), thereby obviating the purpose of simplifying life: if we fork over all five M/M checks at once, they might regard that as one deposit. Or not.

      A workaround, though, would simply be to wait until the first of the following month to deposit a few of the flurry. There’s no hurry to pay the Mayo…they don’t seem to get antsy very fast.

      But a bigger problem is the preauthorization you describe. So essentially they steal a chunk of dough from you every time you buy a cash card? If you can’t spend it, then effectively it’s a kind of service charge. The only workaround I can imagine offhand would be that you’d have to find out how much the preauthorization figure is and buy a card with that much more on it than you planned to spend. Say you budgeted $350 to spend in Costco and their “reserve,” as it were, was $50: you’d have to buy a card for $400.

      We have this amazing state of affairs, which held in 2014: This guy is talking about a debit card, not a Costco cash card. You’d think Costco would know exactly how much is on its cash card, because any time you ran it through a payment device it would debit your purchase from the existing balance. They normally tell you how much remains on the card when they hand it back to you.

      Before I buy one of those cards, I’ll ask them about this issue. The alternative is simply to go to a different gas station and pay with AMEX. That can mean paying a significant amount more for gasoline, though.

      • Depositing 5 checks or even 500 checks at one time is 1 transaction so that should not ding you. It’s very rare for me to need to deposit checks these days, but when I do have multiples to do through mobile deposit those are treated as one transaction. I know your electronic deposit process is a little different than mobile deposit, so you could enquire whether the CU would treat that as one transaction or multiple.

        As far as the pre-authorization, that is only when the final transaction is unknown. At a gas pump you scan the card before you have pumped gas so they get a pre-authorization. However, inside the store you scan the card after the transaction total is known so there is no need for a pre-authorization and you could spend the whole amount on the card.

      • So it sounds like I’ll be able to pull that off. I’ll ask how that would work the next time I’m at Costco….if a certain amount has to be left on the card when you go to pump gas, it would be easy enough to know, without the frustration of standing in line and then being rejected, whether it will cover a tankful. I don’t buy gas that often, so the hassle factor would be reasonably low.

        This CU has a limit on how much you can deposit in one day — a thousand bucks. I’ve run up against that several times, depositing checks to the Copyeditor’s Desk. When you think about it, that’s a little weird, because the CED checking account IS a business account for a registered corporation…and most companies earn more than a thousand bucks at a time.

  2. Hmmm….Having just had the pleasure of visiting the Costco out West with DD2 I can certainly see how someone….anyone….could get in over their head. I witnessed DD2 buy a bag of tortilla chips the size of a 16# bag of dry dog food….I was amazed…There is “temptation” all around…LOL. Perhaps it would be best that you give up the membership altogether. DW and I seem to have a problem with “over buying” and using things before they go bad and/or expire. For crying out loud we can’t even use 5 # of potatoes before they are growing eyes. So Costco would be “No Bueno” for us…..Just my 2 cents…

    • Yes, there’s an art to shopping at Costco. You REALLY have to bring a shopping list — it’s not an option. If you just walk in and start wandering around with a vague mental tally of things you think you need, you are d-o-o-o-o-o-med! And — this part is hard — you have to force yourself to stick to the list!

      Easier said than done: the place is full of products whose existence you can justify. Doesn’t everyone need a new set of underwear? And man! Those solar-powered lawn lights for the front walkway: think of how much you can save by not having to hardwire electric up the side of the walk!

      See what I mean?

Comments are closed.