Getting Comfy with Your Money

Chapter 2:
How Your Money Works

When you pay for something with cash, you are using your spending money.

“Cash” in this case could be actual paper and coins or some other money media such as a:

  • check (that you write to draw from your checking account);
  • debit card (looks like a credit card, but the money is withdrawn from your checking account);
  • money order (a guaranteed payment you buy from places like Walmart or the Post Office);
  • traveler’s checks (checks issued by your bank for predetermined amounts).

The important distinction for spending money is that what you have to spend has been withdrawn from your checking account. Regardless of how you spend your spending money, using the cash should not change your checking account balance.

Spending money may seem like an unimportant part of your day-to-day finances; however, like deposits, controlling your spending money is very important. Failure to control spending money is typically the main reason that people get in trouble with their finances.

Uncontrolled Spending

When spending is not controlled, on each payday bills are paid first and what is left over becomes spending money. The amount of spending money depends on the amount paid on bills. This can have you feeling like you are on a roller coaster with the availability of spending cash fluctuating between paydays. There can be lots of spending money one payday and barely enough to buy groceries the next. When money runs short, credit cards might have to be used for essentials.

Just getting by with credit cards can mean ever-increasing debt. Growing credit card debt means ever-increasing minimum credit card payments. Higher credit card payments means less and less available for spending money. This is the debt spiral that leads to stress, sleepless nights, anxiety, and arguments.

Controlled Spending

As discussed in “Income Streams Can Be Chaotic,” a monthly or payday budget is not the answer to getting control of your spending money. What does work is what you may have experienced when growing up: a weekly allowance.

When you were given your allowance, you knew how long the money had to last and, hopefully, learned to stretch your money accordingly. The flip side of your allowance is that you knew (bad behavior notwithstanding) that you would be getting more money on the next allowance day.

That same approach to controlling spending money also works for adults. Giving yourself a weekly allowance on a weekday and an amount of your choice controls your spending. There is no need to budget your allowance, nor does it make sense to keep track of how you spend it.

The main point with an allowance is that you end each allowance period with little or no cash left over.

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