Cash is King. Frugal circles are absolutely 100% right in celebrating this fact because - hello? - it’s totally true. Paying with cash at the register lends a very real and finite quality to the act of spending money.
We’ve all heard the horror stories about folk who, through one set of circumstances or another, have ended up with multiple (and large!) credit card debt. Once you’re in that hole, it’s a long, hard slog until you can claw your way out. But here in the Lizzie’s Home family, we’ve never viewed credit cards as completely evil either. Let me explain why.
Talented Hubby and I have only ever had ONE credit card. I’ve never applied for one in my own name, and I was only added to TH’s account as a second cardholder two full years after we were married. Before that, there was no point to having a credit card under my own steam - everything we couldn’t pay cash for was either discussed between the two of us anyway (in which case if it was deemed a necessary purhase, TH would go ahead and organize payment with his card) or not bought at all.
Over the years, we’ve been offered credit limit increases - and refused. It can be fantastically tempting to see those ‘extra’ dollars down on paper, but it’s the road to destruction my friend. Rip up the bank’s letter. You won’t explode, I promise.
We cycle a lot of our household expenditure through our credit card each month, but only because our mortgage - our only major debt - is attached to our savings/offset account. Every day our dollars are kept in this account, the less interest (calculated daily and based on our total mortgage debt LESS whatever our savings/offset balance may be - for example, if we had a $100,000 home loan (we don’t) and our savings/offset account stood at $16,000 (it doesn’t) we effectively only pay interest on the remaining $84,000) we pay on our home loan overall. Even though our savings balance takes a large-ish hit at the end of the month when we pay our credit card bill, you can see why keeping the savings account average as high as we can, for as long as we can (ie, not using the ATM to withdraw small amounts of cash throughout the month, which lowers our overall balance), works for us.
We pay our card off in full every single month. Sometimes it is painful to see such a large bill at the end of the month, but we console ourselves with the fact that we never carry a balance over into the next month. I can’t stress this point enough - never, ever pay just the minimum monthly payment. You’re digging that hole deeper every single day you don’t throw an extra few bucks at the debt.
TH and I don’t have extravagant tastes. I am one of those people who own four pairs of shoes at any given time and only generally wear two pair with any regularity. Neither TH or I have expensive hobbies (although TH is a wonderful photographer and owns a few key pieces of equipment, they were bought smartly - see below). A couple of years ago I went through a phase where I seriously considered ’big time’ scrapbooking - I bought all sorts of little gadgets and papers and stickers only to discover the ongoing expense to create each album was going to be more than I was comfortable paying. Those extra items formed the basis for my last two Bloggy Giveaways. I shudder to think of the money I wasted buying those items, most of which I never used. We get takeout every third Sunday as a family and make it special (eating in at family restaurants rather than zooming through the drive-thru). Every few months when we get itchy feet we’ll spend a few days at Nana and Poppa’s house - the kids have a riot, we get to relax, and apart from the petrol and a few groceries, we’re ahead financially when comparing those same few days break to a holiday resort stay. We rent movies. I don’t own a lot of jewellery or purses. I am more than cool with that :)
We save for new household appliances and other luxury items just as though we were working from a ‘zero balance’, even if we’re not. We treat the money in our savings/offset account like a mirage - there, but not really there. Within that money we have several ‘layers’ - an emergency fund (like if we suddenly needed a brand new hot water system), kids fund, true savings, an amount equal to our expenses for a few months (including bills, food, mortgage and so on) and then a healthy buffer on top of that ‘just in case’ (there’s little point in us holding several different accounts for all of this stuff, given the above example regarding our mortgage interest). We hate to see the figure drop, though sometimes it has to. When this happens, we pare back our discretionary spending until it’s back up to the figure we deem appropriate. And we’ve not done without - we’ve bought some bigger-ticket items in the past 12 months (a big screen TV, a new gaming system, a new computer) but each time we applied the ‘zero balance’ principle and didn’t purchase the item until our savings account had increased by at least that same amount, usually more. We had the money for all of this, even to pay cash and not incur any debt, but we chose not to. And we’ve said no to just as many things as we’ve said yes to. We have a rotating list of household items to replace and tackle them in order of importance. If it can wait, it generally does. We’re so used to this way of budgeting now that before we drag out the plastic - even for the necessary stuff - we imagine that same amount being shaved off our savings account and cringe it pain. It helps to keep things in perspective folks, LOL.
We either retained, or learned from, the financial grounding our parents gave us. It helps if you got good money advice growing up. Me? I didn’t get that. We never had a lot of money around, so there wasn’t all that much to waste, but it still influenced my attitude to money in a negative way. As a teen and young adult, if I had money, I spent money. Thank goodness I met and subsequently married TH young otherwise I’d probably be up to my eyeballs in debt by now! But we’ve watched family members mismanage their finances to the point where they will never, ever be rid of credit card debt, and it’s heartbreaking. What saddens me even more is to witness their attitude of ’so what?’ To them, a $4000 credit card limit is like money in the bank, and they’ll spend right up to the limit, pay off the bare minimum, and generally live month to month without ever gaining ground.
After watching them go through all this, TH and I both agree we never want to end up in that situation. We are careful in all of the ways described above, in order that our kids can go on that school camp, can wear new school uniforms (purchased on sale of course!), can get the occasional canteen lunch as a treat, and never have to worry about whether we can afford to buy this or that (that’s our job as the parents). Whether we actually DO buy something is another matter entirely, and we’ve had many, many conversations with the kids detailing how Mummy and Daddy take care of our family’s money. I think most of it has sufficiently sunk in with them, LOL.
But here’s the point I’m trying to make:
In the right hands and used correctly, a credit card (singular!) can be made to work for you, not against.
TH and I both have very clear ideas about what’s okay and what’s not in terms of credit card spending. A general financial rule we hold - true of cash or credit - is to always, always discuss purchases before shelling out. As the homemaker I do tend to have more money filtering through my hands than TH - not only the grocery money but also money for clothing, shoes, bills etc as they crop up. Certain things would be impractical to discuss with TH beforehand, such as the $2 I sometimes have to spend replacing Moo’s school hair clips, LOL. But I would say we talk about 95% of our expenses before they occur, and it works really well for us.
And I’m blessed to have the kind of husband who leaves the nitty gritty of the household up to me and trusts that I’ll come to him - which I do - with the important stuff.
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