Skip to content

It’s all about the Benjamins!

May 16, 2010

L to R: Andy Long, Lil' Red, and BENJAMIN Long

I want you to think back on the last week and the purchases you made.  Out of all the things you bought, how many of them did you pay for in bills and change?  There has been a growing trend in this country as we move away from paying with cash to using credit and debit cards.  It is quite convenient – all you do is swipe a card, enter a pin number or signature, and you are ready to go.

Despite the ease, there are definite disadvantages to using cards to make all your purchases.  First, a study by Dunn and Bradstreet found that, on average, people paid 12 to 18 percent more when they used a card to make their payment as opposed to cash. 

Have you noticed in the past five to 10 years how much easier it is to use plastic at fast food restaurants?  Part of the reason is that McDonald’s did a study and found that the average transaction increased from $4.50 to $7.00 when people could use cards as opposed to just cash.  For vending machines that accept cards, the average transaction nearly doubles compared to machines that only accept cash.

These behaviors can become budget busters.  As you start to keep track of your expenses and develop a budget, you may be able to see your spending habits and how cards affect how much you spend. 

If you need to control your spending, a good budgeting tool is to use the envelope method.  The envelope method is pretty much what it sounds like.  When you get paid, you look at your budget to determine how much you want to allot for various categories such as food, entertainment, clothing, and household supplies.  Then, make an envelope with each category on the front. 

Cash your check and put the pre-determined amount of cash in each envelope.  Make purchases using the correct cash, and when the envelope is empty, you are done spending in that category until you get paid again.  This method does not allow you to go into debt, and after doing it for a couple months, it will be easier to meet your budget target.

I do not recommend using the envelope system for all your expenses.  When it comes to major monthly purchases, such as mortgage, car payments and utilities, it is still convenient to be on an automatic monthly payment system or to write a check every month. 

For items you are saving a couple of months for, you may want to move it to a money market or saving account so you are less reluctant to spend it.  Also, you do not want to get to the point where you have 10-15 different envelopes of which to keep track.

There is another benefit of using cash:  It makes you feel good.  Kathleen Vohs from the University of Minnesota conducted an experiment where she subjected college students to pain.  Some students were able to handle cash before they experienced the pain, whereas the other group did not.  The group that handled the cash did not think the experience was as painful.

If you want more control over your budget, to reduce your spending, and feel better about your financial future, now is the time to put away that card and put your hands on some cash.   As the great philosopher, Puff Daddy, (or Diddy, P. Diddy, Puffy or Sean Combs, whatever alias he takes on this week) once said, “Uhh, uh-huh, yeah, Uhh, uh-huh, yeah,  It’s all about the Benjamins baby, Uhh, uh-huh, yeah, It’s all about the Benjamins baby …”

Yeah, I have no idea what he is trying to say, either.  But I do know “Benjamins” is in reference to hundred dollar bills.  Go reap your Benjamins … become a Great Wonder … master your personal finances today.

Advertisements
No comments yet

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: