This month, you have the opportunity to create a new habit that will both save you money and improve your health. Youre going to tackle the largest discretionary spending category in your budget: groceries.
Discretionary spending encompasses all the purchases you can pay for immediately. This type of spending is different from an obligation. An obligation is an agreement or contract to pay off a debt or to make a repeat purchase over a period of time. For example, an ATV would be a discretionary purchase until a loan is taken out to buy it, then the loan becomes a monthly obligation.
The larger your discretionary spending budget can be the better. This allows you to pay cash for purchases and gives you flexibility if your income changes. Paying cash can keep you out of debt. Once you charge a purchase to a credit card, it becomes an obligation, and statistics show that when you pay with a credit card, youre likely to spend 12 to 30 percent more than when you pay cash.
The cash-envelope system will help you keep your spending under control. This system uses a series of envelopes labeled with the intended use for the money, and it is designed to prevent overspending.
You can use cash envelopes for every discretionary purchase category in your budget. Today, the focus is groceries. Were starting with groceries for several reasons:
1. Its easy to set a grocery budget.
2. The grocery store is a defined shopping destination.
3. Groceries are typically the single largest discretionary spending category.
4. Much of what we buy is neither necessary nor healthful, giving you an opportunity to reduce your overall spending.
Getting started with your grocery envelope is easy. Label it clearly, then set a spending goal be frugal, but realistic. Put your monthly allowance in cash inside the envelope.
At the beginning of the month, you will withdraw half of the total, and midway through the month you will withdraw the second half.
When you shop, make a list before you leave. At the store, keep a rough total cost for whats in your cart and pay in cash from your envelope. When you check out, you may want to put the most important groceries on the counter first, so if you do go over budget, you can put back the least important items.
More conscious spending at the grocery store not only saves you money, it can have a direct effect on your health. A study in the Journal of Consumer Research reveals that shoppers who pay with cash are less likely to buy unhealthful foods (such as cookies, candy and baked goods) than people who pay with credit or debit cards.
Next month, well bring the elements of dreams, budgets and spending together to help you keep your New Years resolution of getting your finances under control.
www.DebtFreeTribe.com Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance.