Get a credit card with no annual fee (preferably one with 1% cash back). Pay absolutely everything with card (only rent/mortgage, loan payments, and utilities should be paid in a different way, and that’s only because they don’t accept credit card). Pay it off in full once every month (the same date every month, and only once a month) before the due date so you never give the credit card company anything more than the actual cost of what you bought.
This makes it incredibly easy to track your finances. Rent/mortgage and loan payments are fixed. If you make a steady monthly wage you know exactly how much money you are getting every month and exactly how much you have left for all non-loan expenditures. That number should be at least $100 more than you pay to the credit card to pay off your past month of living every month.
When you bank more than usual in a month you feel awesome. When you have to pay more than you made in a month you realize immediately and can take quick steps to curtail it.
This also gives you real-world data as to what living costs, helping you to avoid the planning fallacy.
Using a debit card gives you most of the same benefits, but has slightly different costs. If your doing this it makes sense to research which one is best for you.
In general, a credit card will be the better option.
1 cards are safer and more fraud resistant. A credit card company has to cancel a false charge if you tell them to, it’s much harder to get a bank to give you money back to too up an account.
1.5 related to one, you want to not give your bank account number out more often than needed
2 more credit cards have benefits than debit cards do.
Points against this: Money spent via card has much less immediate mental impact than spending cash. When you pay more thanyou make in a month, you realize it only at the end of the month. When you spend cash, you feel the impact on your finances directly.
The pattern I use, which I stumbled upon mainly by accident: For necessities, use a card (I use debit, but this is interchangeable with credit from this perspective). For luxuries, use cash. This insulates you from impulse purchases and has a short feedback loop discouraging you from spending too much.
Drawbacks: This doesn’t work for online purchases and may hurt somewhat in that regard.
Interestingly, I’ve been using card and online banking for so long that I seem to have internalized “money is the number stored in the bank’s computer/my mental register”. Recently I came into a steady flow of cash (long story), and I didn’t want to go to the bank every damn week to deposit it, so I started paying for groceries and restaurants with that cash. It felt like giving away play money and getting real goods and services in exchange. “You mean I can give you some colored paper slips, and you’ll just give me $100 worth of groceries? It doesn’t reduce the money I have in the bank? And I’m not going to jail for this?” It was weird.
Get a credit card with no annual fee (preferably one with 1% cash back). Pay absolutely everything with card (only rent/mortgage, loan payments, and utilities should be paid in a different way, and that’s only because they don’t accept credit card). Pay it off in full once every month (the same date every month, and only once a month) before the due date so you never give the credit card company anything more than the actual cost of what you bought.
This makes it incredibly easy to track your finances. Rent/mortgage and loan payments are fixed. If you make a steady monthly wage you know exactly how much money you are getting every month and exactly how much you have left for all non-loan expenditures. That number should be at least $100 more than you pay to the credit card to pay off your past month of living every month.
When you bank more than usual in a month you feel awesome. When you have to pay more than you made in a month you realize immediately and can take quick steps to curtail it.
This also gives you real-world data as to what living costs, helping you to avoid the planning fallacy.
Using a debit card gives you most of the same benefits, but has slightly different costs. If your doing this it makes sense to research which one is best for you.
In general, a credit card will be the better option.
1 cards are safer and more fraud resistant. A credit card company has to cancel a false charge if you tell them to, it’s much harder to get a bank to give you money back to too up an account. 1.5 related to one, you want to not give your bank account number out more often than needed
2 more credit cards have benefits than debit cards do.
Also consider mint.com. Draws awesome graphs. (It only works for US bank accounts only though...)
Points against this: Money spent via card has much less immediate mental impact than spending cash. When you pay more thanyou make in a month, you realize it only at the end of the month. When you spend cash, you feel the impact on your finances directly.
The pattern I use, which I stumbled upon mainly by accident: For necessities, use a card (I use debit, but this is interchangeable with credit from this perspective). For luxuries, use cash. This insulates you from impulse purchases and has a short feedback loop discouraging you from spending too much.
Drawbacks: This doesn’t work for online purchases and may hurt somewhat in that regard.
Interestingly, I’ve been using card and online banking for so long that I seem to have internalized “money is the number stored in the bank’s computer/my mental register”. Recently I came into a steady flow of cash (long story), and I didn’t want to go to the bank every damn week to deposit it, so I started paying for groceries and restaurants with that cash. It felt like giving away play money and getting real goods and services in exchange. “You mean I can give you some colored paper slips, and you’ll just give me $100 worth of groceries? It doesn’t reduce the money I have in the bank? And I’m not going to jail for this?” It was weird.
In the US, Mint.com can give you nice graphs of when and how you spend money, too.
My partner and I manage our finances this way. It works excellently.