Budgeting using discounted gift cards

With zero-based budgeting, every dollar that's spent or saved has a name. But when do you actually spend the money? I'll explain 🙂

My wife and I went through Dave Ramsey's Financial Peace University over the past couple of months.

We needed to hear what was in the program. We're not in dire straits by any means, but we did need to tune up a few things.

Part of the process is creating a zero-based budget each month, every month. This involves giving each and every dollar that comes in a name — that is, deciding in advance what every dollar it will be used for, whether it's for the mortgage, for giving, for clothing, for food, for investing, for debt repayment, or for saving.

Budgeting with discounted gift cards

There are tons of ways to reduce expenses.

One fairly easy way is to buy gift cards either at a discount to face value, or ones that trigger a reward of some kind.

At its core, it's spending a little bit in advance to get more purchasing power at a retailer:

• For discounted gift cards, I go to a site like Cardpool and purchase a $50 Olive Garden card for, say, $45. This lets me get an extra $5 worth of dining at Olive Garden.
• Or, I can go through my daughter's swim team's scrip account, and pay full price for the gift cards there. Later, when we pay the fees for the team, we'll pay less.

Either way, though, we are buying store credit prior to when we need it.

When did we actually spend the money?

This was the big question that my wife and I debated:

When we buy a gift card, does it come out of our budget now, or does it come out when we use it?

She was taking the stance that we hit our budget immediately upon purchase of the gift card. Her reasoning was that we could no longer easily use that money, so in effect, it was spent on whatever the intended use of the card was. So, if we bought a Petco card, we would hit our “Pet” budget right then, even though we had no actual merchandise from Petco.

I was taking the stance that we hit our budget not when we bought the gift card, but instead when we bought something with the gift card. With enough cash reserves, a gift card balance is more or less the same as a single-merchant cash account. In getting the gift card, I'm just transferring the money from cash (or checking) to this new account, which can be spent later. So, even if our “Pet” budget was $30/month, we could buy a Petco gift card (like a $100 gift card) when there was a good deal, and spend no more than $30/month from it and still be completely fine on the budget.

Both are good ways to budget

A few days ago, there was a really good scrip event that had some excellent kickbacks to our swimming account. We ended up buying $460 in gift cards and got over $60 in credit.

So, I guess my wife came around and saw my way 🙂 but that's not really the point.

Both ways of looking at the expense for budgeting are good ways under different circumstances:

• If you have a decent cash cushion, then it can make good sense to buy some discounted cards at places that you'll certainly spend money at. It's getting a good deal without having to wait for a sale at the store; the discount is built into the card. Buying the cards now allows you to spend less later (in the case of our swimming credit) or simply add the amount of the “free” credit to your budget.
• If cash is tight, then, by all means, take advantage of deals, but do so within budget. Maybe get the card immediately before it's going to be spent; some merchants have electronic gift cards that can be used immediately after purchase. In this way, it's basically the same as using a debit or credit card for the purchase, but smarter.
• Either way, the purchase should be intentional. Even though we have a bit of a cash cushion, we didn't go nuts on every great deal that was available. We got a few more than we'd use immediately, but only to the extent that we'd use them soon, and only for stores that we knew for sure we'd go to.