I recently received the following email (used by permission) from a reader -

Could you explain “how” you live without using credit cards – not the philosophy but the actual “process”? Do you use an envelope system, debit cards, or checks? I am just getting started and I was wondering if you could do a basic “how to” post (and I would like to know which types of accounts you use). Thanks so much, Chad

Chad, I’ll do my best to go through how I manage my money. If I leave something out of if something is unclear, feel free to leave a comment or shoot me an email, and I’ll try my best to clarify.

Creating My Budget

Every month, I sit down and I create a budget. My budgeting process is rather “simple”. My wife and I both receive our paychecks at the beginning of each month – mines arrives one week after hers. I divide my salary into three major categories – Give, Save, Spend – and then I break those categories into smaller sub-categories. For example: Give – Tithes, Offering, Charity. I then allocate, on paper, all of the funds that I receive for the month into those sub-categories. I spend every dollar, every month, on paper, before the month begins. I use YNAB Personal Budget (affiliate link) system – It’s simple to use and works with my spreadsheet program. I deposit our paychecks into my local bank – and I can move money between my local bank and my online accounts, as needed.

Making Payments And Spending Money

For any scheduled or reoccurring payments (electric bills, phone bills, automobile insurance) – I use online bill-pay from ING Direct’s Electric Orange Checking Account (affiliate link). The Electric Orange account is simple to use and I can use it to send a check to a company or an individual.

For any daily spending (groceries, gas, food) – I use cash. I use the Envelope System to manage my cash. Click here to view a video I made describing the Envelope System that I use. From time to time, I also use my debit card for these types of purchases – but I still find that I make wiser choices when I use real, old fashioned money. If you are just staring out, using the Envelope System is a great way to break yourself of the card-swiping habit.

For online purchases or for reserving a hotel – I use my debit card. Click here to read my post about using a debit card to reserve a hotel or to rent a car. (My debit card has built-in fraud protection. Ask your bank about their fraud protection policies.)

For any non-scheduled payments for which I might later need proof of payment(medical co-pays, school pictures) – I use paper checks. I write very, very few checks – maybe one or two per month.

Transferring Funds And Investing

Once a month, I transfer the amount allocated for savings from my checking account to my ING DIRECT -High Yield Savings. (affiliate link) If I need to make a contribution to a Roth IRA (or similar after-tax investment account), I simply login in to my brokerage account and initiate a transfer.

Chad, I hope this article helps to answer a few of your questions. Good luck with your debt reduction – and I hope you’ll check back in with me often and let me know how things are going.

Leave a comment if you have a suggestion for Chad – or a question for me!