Coffee heat rising

Cash Card as Budget “Envelope”

Okay, so tomorrow is the first of July, which we hereby call the first day of a new budget cycle…even though, infuriatingly, credit-card billing cycles do not coincide with the first or last of a month. Couple of weeks ago, I came up with the idea of using Costco cash cards as metaphorical budget “envelopes” to help get a grip on my spending in those Elysian realms. And just a day ago, I also had the bright idea of using my credit-union checking and savings accounts as another type of “envelope” in which to organize the annual required minimum distribution (RMD) from the 401 K and the monthly Social Security income into categories:

  • cash-flow money,
  • emergency savings, and
  • set-asides for the upcoming year’s tax and insurance bills.

Hm. Sounds plausible, doesn’t it? But…how will that work, in practice?

The RMD came in last week: a couple months early since I’m running out of cash. Forthwith, I transferred the tax-and-insurance set-aside — 8400 freaking bucks! — to savings, and I set up the checking account to automatically transfer Social Security deposits to another savings account, where the money (barring any immediate catastrophes) will accumulate to create an emergency fund.

This leaves a rather limited amount to live on over the next year: a little less than $1400 a month, about $365 less than average monthly 2018 spending.

That is going to represent a significant cut in spending. How to pull it off?

Come to me, come to meeee….

Well, the big challenge (IMHO) is Costco, lovingly known as Impulse Buy Hell. Even when I go in there with a list, I still come out with a bunch of junk (no, valuables!) I had no intention of buying. Consequently, a $300 tab is not unusual, and a cash-register bill in excess of $200 is pretty routine. To get a grip on this predicament, I had the idea of purchasing a cash card on the first of the month and using it to buy as much as it will bear, and then when it runs out…well…STOP buying at Costco for the rest of that month.

Two cash cards, actually: one for in-store shopping, and another, to the tune of about $60, for gasoline and propane.

But…how much to budget for Costco in-store spending?

Since I buy most of my groceries, all of my household goods, and much of my personal-care products at CC, $200 is probably not enough. On the other hand, presenting myself with a prepaid card for $300 may do nothing to resolve the diddle-it-all-away issue.

While studying this conundrum, I remembered the box into which I toss Costco receipts. Costco will take anything back and fork over a full refund. Often they’ll do so without a receipt (because, like Big Brother Himself, they have a detailed record of everything you’ve ever bought, and when), but it expedites things to have the receipt. Wouldn’t a fistful of these paper scraps contain a record of how much my various regular purchases cost? And with that in hand, wouldn’t I be able to calculate what any given shopping list of Costco items would cost?

Well… Yes. And yes! Rummage through a few months’ worth of yellowing receipts, and here’s what you come up with:Yea, verily…  😀

Now we have a clue to some of the things I buy all the time, some things I rarely buy, and a couple things I’ll never buy again (bear spray?). Some of these prices you can find at Costco’s website, but of course they don’t list produce prices (because they can’t, in any sane way, without updating pages about every day).

With this in my computer, now I can know about how much a given shopping list is going to cost! Woo-hoo!!

POWER!

So. On Monday, when I intend to make a run on the Costco in outer Richistan, where they carry the fancy products I crave (you can’t get pomegranate juice at the Inner City Costco down the street, for example), I will have a clue:

Tax is about 10% here. Not everything on the list is taxed at that rate; food is a little lower, but things are considered “food” in highly erratic ways. So it’s safest to assume all purchases will be taxed at 10% and then be pleasantly surprised.

I’m going to have to buy chlorine tablets for the pool, now that the water is getting tropically warm. Until recently the granulated stuff from Leslie’s was working fine (though it, too, is spectacularly expensive). But with summer definitively here, I need the tablets’ stabilizer to keep levels steady under the merry ultraviolet sunlight. At Costco, ninety bucks (plus 10% tax…) will buy you 40 pounds of the stuff. Leslie’s will sell you 35 pounds — some 12 percent less — for the same price, unless you want to fart around with finding a coupon and making an extra trip to an extra store to apply it.

My feeling about that: Hey, guys. If you think $72 (about what you can bring it down to) is a fair price for your product, then that’s the fair price, and I shouldn’t have to be jacked around with stupid coupon bullsh!t.

Truly. I do hate coupons. As I hate “membership” cards at grocery stores. Just charge everyone a fair price and quit the crap.

Where were we? Fifty pounds of chlorine tablets last exactly one year. (Hence, you could argue, if I’d had any sense I would have bought a bucket of the things when I ran out last winter, instead of stupidly waiting till the middle of the summer when the power bill is hovering in the stratosphere….) Thirty-five pounds will last less than a year, plus I’ll have to put up with marketing bullshit or let Leslie’s rip me off on the cost by about 12 percent. Conclusion: Buy the damn things at Costco.

That purchase will push this month’s bill to something around $290.

While the chlorine tablets are an “extraordinary” buy in the sense that the purchase will not appear on any other bill over the next 12 months, note that this month I’m not buying either beef (about $45 for a package) or fish (around $20 to $30, typically). Or shellfish (neither shrimp nor the beloved scallops). So in other months when I would not buy chlorine but would have to buy meat, that cost would keep the total right about where it is for this month.

That suggests that I should budget around $300 for in-store Costco purchases. At the end of a month, I reload the cash card to top it back up at $300 for the following month. So if, say, this month I really do spend only(!) $290 on food and household products, $10 should be left on the card come August 1. So next month I will only have to put $290 on the card.

Now, what about gasoline?

A glance at last month’s Visa bill shows that I spent only $30 on gasoline over the past month.

Freaking astonishing! Especially since if you’d asked me I’d’ve said I spend upwards of $60 a month on gas.

The car’s computer claims it can run another 51 miles, enough to get out to the coveted Paradise Valley Costco. As a practical matter, though, I think I will buy these cards and fill up with gas tomorrow at the Inner City Costco, which is closer to my house and whose gas prices are usually lower. Then I’ll drive to the store in PV or up in Whiteyville, where I can get the upscale products I crave and walk across the parking lot in reasonable safety.

Why did I spend so little on gas last month? Several reasons:

  • Choir season is over, so that eliminates two round trips to the church per week.
  • I stopped driving halfway to Blythe to attend monthly meetings of my favorite writer’s group.
  • And I quit attending the weekly Scottsdale Business Association meetings when they started convening at a Denny’s on the border of the Pima Reservation, halfway to freaking Tucson.
  • And I haven’t had to drive out to the Mayo this month — halfway to freaking Payson.

One or two doctor’s appointments will cause the car to soak up a fair amount more than thirty bucks worth of gas. Same would happen if I chose to drive to My Sister’s Closet or Nordstrom’s Rack in Scottsdale to shop for clothes — unlikely, but both those establishments display the best of their products in Inner Richistan. There’s hardly any point in going to either of those stores at their uptown Phoenix locations.

So I’m thinking it would be best to put $60 on the gas card. And the same will apply: if I don’t spend that much, it won’t take as many dollars the following month to top it back up.

Setting a rule that I have to quit buying when one of these cards runs out will at least stop me from spending more than $360 a month at Costco. I may just run over to Safeway to buy whatever the CC budget cannot sustain. But…maybe not. If a purchase isn’t urgent, I may just defer it to the following month.

And since the bulk of my buying occurs at Costco, that should help to keep 2018/19 spending under control.

Budget: Positive news

Well! Only six more days till the end of the current budget cycle, and an amazing $352 is left in the kitty. Not, we might add, through any extreme deprivation: I’ve gone out to eat with friends four times in the past three weeks; bought $38 worth of scrumptious wine at Costco (some of which I enjoyed last night with steak, asparagus, and a mighty tasty avocado salad); spent over $80 on gasoline; and had my hair done. Two women have even asked who does my hair! Since I cut the budget to $1,000 preparatory to canning day, having some $350 left with a less than a week to go is a very positive development, indeed.

How is this happening? Since January, on a $1,200 kitty I’ve run over budget five months out of nine. Of the four months in the black, only one of them came in with expenditures of less than $1,000; a second was close, but no cigar.

One explanation, I think, is stockpiling: at the start of this cycle, the freezer held plenty of food. Yet I’ve spent about $317 at Costco, much (but not all) of it on food. There have been no extraordinary bills (yet): no vet bills, no car repairs, no plum…oh, wait: there was a plumbing bill. Hmmm…

The big change is that I decided to abandon microbudgeting and see what would happen if I set up virtual “envelopes” for the month instead. In microbudgeting, the budgeted amount for the month is divided in four and allocated to four periods of roughly a week each. With the envelope system, you establish an amount to spend on each of several categories, and then quit spending on a given category when you reach its limit.

Presently, the result looks like this:

In this first experiment, it appears I’ve overbudgeted for Costco and underbudgeted for gasoline and hair. Since I don’t get my hair cut every month, I figured I could think of $20 as a kind of “average,” but maybe it would be better simply not to have a “hair” budget in the months when I don’t need a trim. No law says you have to have the same budget categories, month in and month out.

I hardly ever go out to eat—really, it’s a rare month when I spend as much as $50 in restaurants. For some reason, this month all my friends have been asking me to join them, and since I have precious few friends, I incline not to turn them down. At any rate, it’s covered by the savings from the pool and Cost Plus categories.

So the question is: Does a virtual “envelope” system, even when the proprietor cheats here and there, work better than microbudgeting?

Psychologically, it may: with the weekly microbudget, one feels it’s OK to spend all the way to the hilt. In fact, when the overall monthly budget gets tight, it’s difficult not to spend the entire week’s microbudget: $250 is not much to cover all one’s bills, from food and gasoline to pet care and property maintenance. One $200 run on Costco plus a tank of gas and you’re over budget…and how often can you get out of Costco for under $200?

With the envelope system, you don’t feel so constrained: you have all month in which to spend the money allocated for groceries, clothing, gasoline, and the like. One $150 trip to Costco came nowhere near running me into the red, but if I’d spent that much out of a one-week microbudget and then had to spend $35 on gas and $30 on the hairstylist, I’d have had $35 left to last the rest of the week. One trip to Safeway would have blown it. With the virtual envelopes, it’s easy to see what remains in the budget for specific purposes, making it easy to back off some expenditures as needed.

Clearly I’m going to have to reallocate allowances for some of the categories: less on Costco and more on gas, for example. But if I’m right that this approach works better than microbudgeting, the implication is huge.

Huge.

It means that next year I should easily be able to live within my much constrained means, without having to hold a fulltime job and without even having to crank any freelance work. Combined income from Social Security and part-time teaching should more than cover my needs!

$14,400 SS + $14,160 teaching – 20% tax = $22,848 net income
$565 monthly recurring costs + $1,000 discretionary budget x 12 = $18,780 routine expenses

That leaves me almost $4,070 to the good. From what I can tell, that extra amount will just cover the cost of Medicare, which should run around $300 a month, by the time I’ve cobbled together all the aspects that go to creating full coverage. It doesn’t leave anything for emergency savings, but I have $10,000 in that fund to cover 2010; in the following year I’ll be allowed to earn more money.

So, if I don’t get the Glendale Community College job, it won’t much matter: as long as I can keep discretionary spending to around $1,000 a month, I should be fine.

And in the unlikely event that I do get the job, it would make sense to stay on this budget and save all the unspent net income, thereby making it possible not only to buy a car in cash but also to replenish savings with new earnings.

Either way, the new budget is a winner!

How dumping your credit cards can keep you on budget…

…even if you’re a credit-card “deadbeat” who pays off all charges in full every month.

As I was saying yesterday, if and when my credit-card issuers try to sock me with annual fees just for carrying their plastic around in my purse, the cards will go away. Substituting cash, purchasing cards, and checks for credit cards will, on the surface, add an extra layer of complication to my bookkeeping: I’ll have to go to Costco and Safeway to buy the purchasing cards, and I’ll have to keep track of amounts spent with each of these spending tools.

Or so it seems.

In fact, though, I think a credit-card-free system might be no less involved to track than what I’m doing now: budgeting $1,200 (down from $1,500 after the furlough; an amount that will drop to $1,000 when my job ends) for all expenses other than monthly recurring charges (such as utilities), and staying on budget by trying to spend no more than 25% of that amount in any given week. To make this work, I have to enter each week’s bills against the week’s microbudget, a recurring Excel tedium.

Allocating a specific amount of monthly income to each of the three tools would work much like the “cash envelope” system favored by many frugalists. The idea is that you set aside a specific amount for each category in your budget—in cash, physically in an envelope—and when an envelope runs out of dollars, you have to stop spending on that category until you get more money. The psychological message is You’re out of money!!! Stop spending!

Well. A purchasing card with X amount of money on it is effectively the same thing as an envelope of cash. Run out of money—quit spending until you have more money. You could, in theory, regard the other two tools in exactly the same light: cash is easy; checks would be simple if you kept only enough money in your checking account to cover your monthly check-writing budget.

My plan is to have one purchasing card from Costco and one from Safeway, the merchants where I buy most of my food and household goods. Then to pay in cash for meals out, entertainment, and small incidentals, and to cover all other more-or-less discretionary expenses (such as house and pool maintenance, clothing, etc.) with checks.

In a way, this plan would be simpler than my present scheme. Instead of balancing all these expenses out of one “envelope” (the credit-card budget), each category would be strictly finite, and spending would have to stop when a given month’s limit was reached.

Right now I spend about $425 a month at Costco, about $68 a month for Costco gas (by far the cheapest source of gas in town), and about $80 a month at Safeway. Averaged out over the past nine months, I’ve spent about $48 a month on clothes at emporia other than Costco, my favorite purveyor of jeans and knit shirts; about $20 a month on haircuts; and about $68 a month on all pool care, including repair bills. Some of those costs aren’t going away after the job ends: I have to buy gas, for example. Others don’t happen every month—I get my hair styled about once every two months, and repairs on the pool happen only a couple times a year. Money set aside monthly for those categories would accrue until a need arose.

Regarded in this way, my base costs actually come to less than $1,000 a month:

Current predictable expenditures come to almost $870 a month. In the new, ascetic regime, regular expenditures (above and beyond monthly recurring costs such as utilities) will drop to around $815 or $820. Distributing these expenses among several payment tools, some of which (such as payment cards) are finite, might force me to stay within this restricted budget.

As a practical matter, of course other expenses will arise: veterinary bills and medical copays, for example, and the unending repair bills on the house. But those will just have to be paid from emergency savings, since Social Security plus teaching income won’t provide enough cash flow to cover such costs.

And also as a practical matter, some of these costs don’t happen every month: I rarely go out to eat, and when I do I certainly don’t spend fifty bucks. I don’t buy clothes often, and in any event, I obviously will have to cut expenditures there—I can’t afford to spend $600 a year on clothing.

I suppose I could take out the $190 a month—the amount to be spent by checks—for a total finite cash budget of $260. But I really dislike carrying cash around. It only took one theft from my purse to demonstrate that carrying cash is a fair way to lose it. That and the fact that cash runs through my fingers like water have always been my objection to the much-ballyhooed envelope system.

It’s an obvious idea: abandon the single, amorphous monthly credit-card budget and allocate costs to finite, tightly defined “envelopes” to be used for specific costs might limit total expenditures. The question is, with less flexibility can one stick to these straitened categories over time?