Pending Transactions or "When $16.05 costs you $86.05" Part II… Finally!

17 06 2008

Photo courtesy of TW Collins
Here it is folks! The long awaited sequel to the smash hit article “Overdraft Fees, or “When $16.05 costs you $86.05” Part I” !!
There’s an old adage that goes a lil something like this: “Cash is King!”
For years I refused to accept it while I was using my debit card to purchase everything under the sun that I both could and could not afford. But more recently I’ve come to know and love that saying in a very special way.
Dave Ramsey calls it the Envelope System, and it’s just as simple as it sounds… If you know how much you’re budgeting towards an expense, withdraw that amount in cash, place it in an envelope, and spend it…. but once it’s spent, you get no more until the next check shows up. If your budget is $100/week for food, and you eat out on Monday spending $75… then it looks like you’ll be eating PB&J for the next few days!
Yes it takes discipline to place yourself on this type of system, but not nearly as much as you would think. Now, back to that saying “cash is king”… here’s where it comes into play with the envelope system. As you spend your money out of that envelope, it allows you to instantly assess, inventory, and prioritize that next purchase. As you see that money dissolve in real-time out of your envelope, it forces you to question whether you really NEED to spend money on that next item you intend to purchase.
But what I truly love is that the envelope system is maybe the closest you can get to experiencing personal-finance-instant-gratification! There are no pending payments, no waiting for a payment to clear your account, and no getting caught up in the ODF cycle. You take the Russian out of the Roulette! And you gain a big portion of your financial control back! All by stuffing your cash in some envelopes and sticking to the script.
I’ve become somewhat of a celebrity at my local bank branch because of the envelope system. Ok, so maybe I just threw in the celebrity part, but each time I come around they know me by name. They’ve given me the nickname “Cash-man”. So what if it’s not the freshest moniker, at least they know me for something positive!
See when I walk in, I already have a very specific breakout of how I’d like to receive my cash. I know the exact number of $100’s, $20’s, $10’s, $5’s, and $1’s I’d like to withdraw. Unlike many people I don’t just let the bank give me 100’s and 20’s, if that’s not exactly what I NEED. After all if I’m banking with them, then I’m their customer, and that means that them giving me the exact amount I need is part of servicing the customer! ( WHAT A CONCEPT, eh?!)
I’m writing this as a follow up to an incident that happened to us in April (read the title of this post to get the gist) because banks are literally milking us for all we’re worth as a nation. My wife and I are sick of being caught in this vicious cycle where only the banks and oil companies are having all of the fun with this money thing!
Too many of us are living right on that line of financial ruin. If that whole Overdraft experience had happened to us before we got on Dave Ramsey’s TMM, things would’ve quickly spiraled WAY out of control. One overdraft fee would cause some other pending payment to come up short, which would cause another overdraft fee and on and on…That’s what living check to check and far beyond our means has done to us as a society. It’s the root of the credit crisis, the mortgage crisis, the stock market volatility and it just spreads like mold from there. They are making Trillions off of us because of the trap we’ve allowed them to spring on us.
I tell ya what, if this sounds a little too drastic for you to try all at once, Dave Ramsey suggests starting out with putting only your Food money under the envelope system. So this means that on payday, you decide how much you realistically want to spend on food for the week, you withdraw that money in cash, mark an envelope with the word FOOD, and ALL food purchases are made from this envelope for that pay period. If you run out of money before the next payday, tough luck! 1) It means you need to evaluate where your food money is going. 2) you should explore more cost effective ways to stretch that dollar amount. Or 3) you need to increase your Food amount but decrease some other aspect of your spending. After doing that for about 3 pay periods, you will know how much you can realistically spend out of your pay check towards food. And this knowledge will help you curb the habit of chronic overspending.
Dave Ramsey’s program is all about achieving Financial Peace. And I really must say there is a profound sense of peace in knowing how far we’ve come in just a few months of doing the program. That experience was not nearly as damaging as it could’ve been because we now envelope virtually all of the money that we budget from each check. None of the panic of worrying what check might bounce next. Why? Because we withdrew all of our expenses in cash to avoid that. Now we just have peace…
Financial peace….
To get the full impact of this follow-up article, please take a moment to go back and re-read the original post about how our bank made $55.00 in profit off of us from only $16.05 in purchases.



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