Wondering how to start a cash budget? And why you might want to do so in the first place? You've come to the right place. But first, do not confuse a Cash Budget with living paycheck-to-paycheck. They are NOT the same thing. They're actually kind of opposites.
If you are familiar with budgeting at all, a Cash Budget takes your budgeting to the next level. Budgeting in general and using cash to budget are like husband and wife. They compliment each other and go well together. But, if the entire concept of budgeting is new to you, or you are looking for great first steps. Start here at ‘How to Budget‘ and then once you've got a good grasp on it, Move over to using cash!
How to Start a Cash Budget – follow these rules:
I am a Recovering Spender. If you consider yourself a spender, a Cash Budget needs to be your best friend. In fact, it is the main thing that allowed my husband and I to get out of debt and save for the future. Yes. It's that powerful. Using cash may be a little more hassle than swiping your debit or credit card, but let me tell you, finding you've over-spent at the end of a month is a WAY bigger hassle.
Spending cash gives you an emotional response that swiping a card just can't do. It connects you more to your money and causes you to think twice about what you're spending on. This is a healthy boundary, but it is also freeing. If you know you've already budgeted to spend cash in a category, you're free to spend it!
Here's the guarantee a Cash Budget can give you – If you stop spending when you're cash is gone, you'll NEVER go over budget. Ever.
This is an excellent place to start if you have never budgeted before, haven't in a while, or are still intimidated by it. If you're reading this, you already know how life-changing and powerful setting and maintaining a successful budget is. You have to start somewhere though. You will NOT regret it.
Certain expenses are impractical or impossible to use cash on. That's ok. Typically these categories are also impractical or impossible to overspend in. No one says, “Ya know, I think I'm gonna blow my entire paycheck on my natural gas bill!” or, “Let's get crazy and over pay our internet bill this month!”
Some people use cash to pay for gasoline, which can be great. But when I've got 4 kids in the car and I have to go in and pay, it doesn't work too well. Besides, you can't really overspend on gasoline. Once you're tank is full. That's it. It's preferable to pay with a check or debit card with regular and recurring bills.
When figuring out how to start a cash budget, deciding to use cash in areas where it is the easiest to overspend will be your greatest ally in the war against debt. Typically, the areas where it is enjoyable to spend are the areas that need a Cash Budget the most. These areas are a MUST for a Cash Budget:
You can see how each of these areas has its own spending challenges. Now again, I'm not saying don't spend on these things, rather determine your needs in these areas and use cash to help you stay within your boundaries. For instance – at the grocery store if you are $10 over budget and you're using cash, you'll automatically put back something you didn't need anyways. With food in particular, this actually forces you to make healthier choices… you wouldn't put back the apples so you could keep the Pop-Tarts, would you?
At a restaurant, you might skip an extra round of drinks or an appetizer if you are using cash. That could easily save you $30 right there. $30 here, $10 there… it all adds up to when you are trying to cut expenses, get out of debt, and save for the future.
The Miscellaneous Spending cash category is going to be your best friend. It is the secret weapon to keep you on budget. This category helps Spenders feel less constrained and gives us freedom within the safety of a budget. The Miscellaneous Spending category is the place to budget for unplanned expenses: A coffee date, a bottle of wine, a surprise ice cream cone for the kids, the school pictures you forgot about… this category is my life saver! Honestly, when used correctly, this category is one of the primary tools to keep your budget successful and maintainable month after month, and year after year.
Once you have decided your spending limit for each category of your budget, pull out cash for each of your cash categories. I have separate envelopes for each of my cash categories to help keep everything organized.
When I am heading out to run errands, I take the entire envelope I'm going to need with me and leave the debit card at home. That way, I can put the change from my purchase right back in the envelope (along with the receipt if you want to really keep track) and I'm not tempted to spend more than I budgeted. I found when I don't take the whole envelope, I just put the money in my purse and forget what it was for.
Once the envelope is empty. You're done for the month. This trains you to pay attention to what you're spending on. It also lets you know if you're budgeting too much or to little in those categories, and you can adjust as needed in future months.
But what about making purchases online? Here's how to still use a cash budget and shop online.
Part of my morning routine is spending just 5 minutes with Mark to go over any spending we have planned for the day. If he has lunch plans with friends, or I have a coffee date, or one of us needs to pick up some groceries, this check-in is where we talk about it. It keeps both of us from overspending and on budget. It also lets us know if one of us can take a cash envelope with us or if we need to divvy some out.
Even if you're single, you should still do this. It brings intentionality to your spending each day. This little check-in time is super important and valuable!!
If you're not using a cash budget. You have to start. All the cool kids are doing it. Trust me, using cash in certain categories could make all the difference in staying on budget, and maintaining a budget for years to come! You have nothing to lose… except your debt.