Over the past two years, I've successfully trained myself to spend only the money that I currently have in the bank. I've gone from a mindset of "it's only $20, and I'm getting paid next week" to a strict "cash-only" regimen. I use quotes around cash-only because I actually use my credit card, but I pay off each purchase almost immediately from my chequing account.
The positive result of this change is that, over the same two-year period, my revolving debt has decreased by more than 50%, and my net worth is now more than nine times as high as it was in 2007. I have a small emergency fund, and I save up for planned expenses like birthday and holiday gifts, car repairs and clothing purchases. All in all, although I still have a substantial chunk of revolving debt to pay off, I feel as though my financial house is in order.
The negative result of this change is that, when I deplete my savings to cover significant, unavoidable expenses, I feel as if I'm flat-out broke.
Last week, I took our car into the mechanic for an oil change and general check-up. After various small repairs and some sizable new parts, the bill came in at $1,400. Now, my Freedom Account has a "Vehicle Repair" category, which sat at just over $700. This meant that, in order to pay the bill, I needed to move some cash from some other savings accounts. I was able to pull $180 from my Emergency Fund, and $520 from our wedding savings. We've effectively paid cash for the repairs, but our cash savings are now diminished by $1,400. Our cushion is reduced, and with some other smaller expenses over the weekend, I'm left feeling a little naked.
The funny thing is, I almost enjoy this feeling. I know exactly where we stand financially, and that's a huge change from two years ago. Back then, the repairs would have gone on the line of credit, having the same net effect on our net worth, but a vastly different psychological impact. Shelling out $1,400 from your bank account can feel a lot more painful than adding that amount to your debt, and that pain forces you to be more watchful with your spending.
We'll rebuild our wedding and emergency savings. The vehicle category in the Freedom Account will be replenished, and the line of credit will continue to shrink.
We just have to get through this lean patch first.