How to use a separate debit card for discretionary spending
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[Update: Added ghetto hand-drawn image below.]
One of my friends has been carefully watching her spending for the last few months. When she started tracking her spending, she noticed that she was spending an unbelievable amount going out every week. So she came up with a clever solution to control her discretionary spending.
She set up a separate bank account with a debit card. At the beginning of each month, she transfers, let’s say, $200, into it. When she goes out, she spends that money. And when it’s done, it’s done.
This is a nice take of the envelope system, where you decide how much you’re going to spend in each category and literally put cash in different envelopes. You can transfer from one envelope to another, but once your money runs out, that’s all you can spend for the month.
Tip: If you set up a debit account like this, call your bank and tell them you don’t want them to allow you to spend more than you have in your account. Tell them, “If I only have $30 in my account and I try to charge $35 on my debit card, I don’t want your system to let me.” Some banks can handle this request. (Schwab Checking can do this by turning off overdraft/margin protection, while Wells Fargo can’t at all because they suck and are useless.) If you don’t do this, you’ll run up tons of overdraft fees.