If you are having a hard time sticking to your budget, you may find it beneficial to switch to a cash-only system. A cash-only budget can help you stay on track because of the psychological impact of using cash as opposed to a debit or credit card to pay for something—you realize how much it really costs.
Switching to a cash-only budget is a move recommended by many financial experts. Here's how to make the change.
Choose the Categories to Switch to Cash
The first step in switching to cash is to determine the budget categories that will actually work as cash-only. You may only be able to make certain payments, such as a mortgage or your student loan, online or at least by check.
But for those categories where you are able to use cash, determine the ones in which you are consistently overspending. This may be groceries, entertainment, eating out, or clothing. Everyone has their problem areas when it comes to overspending. Once you know what yours are, you can switch them over to cash in order to curb your spending.
Stop Using Your Debit Card for These Categories
The next step is to stop using your debit card, credit card, or even your checkbook to pay for anything in those categories—no matter what.
If you are not able to do that, you may consider leaving your debit card at home for a few weeks and disconnecting any automatic payments you can access online, such as those through Paypal. This will help you break bad financial habits.
Create a System to Separate Cash and Track Receipts
When using a cash-based budget, you need a way to track your cash purchases and also keep the cash for different categories of your budget separate.
A simple way to do this is to use the envelope system. At the beginning of the month, you stash your budgeted amount of cash into envelopes labeled with each budget category. Once the cash runs out for a specific envelope, you're done spending in that category for the month. You should also put your receipts into those envelopes so you can review where you spent the money at the end of the month. Alternatively, you can keep a running ledger as you spend the money.
Set Up a Time to Take Out the Cash
In order to be successful at a cash-only budget, you need to actually get the cash and separate it into categories. This may mean a trip to the bank or the ATM on payday or another set day.
Note
You can request that the teller give you the money in the correct denominations, such as all $20s or $10s, so you can easily separate the money into the correct categories.
Plan Ahead When You Go Shopping
This type of budget requires that you learn to plan ahead. Generally, it’s not a good idea to carry huge amounts of cash around with you all of the time. So, for example, you leave your grocery money at homeunless you are going to the grocery store, and take only $20 to work if you plan on eating out that day. You get the idea. Bonus: This will also help to cut back on your impulse purchases.
Stick to Your Limits
As with any budget, this requires the self-discipline to avoid spending all the money in one category too quickly. This also means that you do not use your debit card or your credit card to cover shortfalls. You can switch money between envelopes if you find that you have overspent on your grocery budget halfway through the month. But you will have to cut spending in other areas.
Adjust Your Categories
You should adjust your budget once you have followed it for a few months. You may find that you don’t have enough planned for groceries but you always have money left over in the gas category, or you that you may need to sacrifice some of your entertainment money so that you can pay for meals.
Other Cash-Only Budgeting Tips
- Using cash may not always seem very convenient, but it is a great way to stop yourself from overspending. It makes you consciously consider your purchasing choices. This type of budget can also help you to stop using your credit cards.
- To carry your cash, consider using an expanding pocket file that fits into a purse, and keep it separated according to budget categories. However, this does mean carrying all of your cash, so it might not be the best option if that makes you nervous. Instead, you might try only carrying the cash you need for the week.
- If you are married, budgeting as a couple can be very difficult. A cash budget can help make budgeting easier. You can divide the money between your individual categories, and leave the grocery money or entertainment money where you can both access it if you need it. Just be sure you're checking in throughout the month so neither person is surprised when one envelope is empty.
Updated by Rachel Morgan Cautero.
FAQs
Opting to primarily use cash for your purchases can lessen your reliance on credit cards and accruing more debt. Cash is a powerful tool for financial accountability because it creates a higher feeling of shopper's remorse, which encourages more discipline when it comes to spending.
Is it easier to budget with cash? ›
Opting to primarily use cash for your purchases can lessen your reliance on credit cards and accruing more debt. Cash is a powerful tool for financial accountability because it creates a higher feeling of shopper's remorse, which encourages more discipline when it comes to spending.
What is the easiest budget method? ›
1. The zero-based budget. The concept of a zero-based budgeting method is simple: Income minus expenses equals zero. This budgeting method is best for people who have a set income each month or can reasonably estimate their monthly income.
What are the advantages of cash budget? ›
Benefits of Cash Budget
It furnishes information on the diverse sources of cash receipts and expenditures, offering a comprehensive view of cash flow dynamics. It provides insights into potential future cash inflows and outflows, aiding in proactive financial planning.
How do you make a cash-only budget? ›
5 tips for a cash-only budget:
- Make a cash budget.
- Use envelopes to manage your money.
- Hide your bank and credit cards.
- Plan your budget ahead of time and bring only what you need.
- Adjust your cash budget.
Using only cash has a big advantage, as Manktelow-Pimm pointed out: “When you use cash, you don't have to worry about interest charges on credit cards or loans. This can save you a lot of money in the long run.”
How do I switch to cash only? ›
6 Tips for Moving to a Cash-Only Lifestyle
- Use the "Envelope System" ...
- Don't Forget About Money Orders. ...
- Know Your Daily ATM Limit. ...
- Ask for Smaller Bills. ...
- Choose a Creative Stash in Your Home. ...
- Save Up Pocket Change for Your Bank.
There are four common types of budgets that companies use: (1) incremental, (2) activity-based, (3) value proposition, and (4) zero-based. These four budgeting methods each have their own advantages and disadvantages, which will be discussed in more detail in this guide.
What are the 3 types of budgets? ›
The three types of annual Government budgets based on estimates are Surplus Budget, Balanced Budget, and Deficit Budget. When the revenues are equal to or greater than the expenses, then it is called a balanced budget. You can read about the Highlights of the Union Budget 2021-22 for UPSC in the given link.
What is the #1 rule of budgeting? ›
The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).
Another disadvantage of using a cash-only budgeting system is that it limits your flexibility and opportunities. You may not be able to take advantage of some opportunities that require credit or debit cards, such as online shopping, travel, or emergencies.
What is the main purpose of a cash budget? ›
Often, a cash budget is made quarterly and reviewed weekly or monthly depending on how critical cash is to the organization's operations. The primary objective of a cash budget is to forecast future cash balances in order to identify potential deficits and surpluses.
What is cash budget method? ›
What Is a Cash Budget? A cash budget is an estimation of the cash flows of a business over a specific period of time. This could be for a weekly, monthly, quarterly, or annual budget. This budget is used to assess whether the entity has sufficient cash to continue operating over the given time frame.
Can you live on cash only? ›
An exclusively cash lifestyle may help you follow your budget, sidestep overspending, and avoid the high cost of overdraft, interest, and other fees that can be incurred when you pay by check, debit, and/or credit card. But going all-cash has its downsides, too.
Is it better to budget with cash or card? ›
In fact, you'll find that life is a whole lot better without credit cards. Look, we know you can't pay for everything with actual cash. But using cash when you can—and more importantly, not borrowing money—makes all the difference in helping you spend less, stay out of debt, and stick to your money goals.
Is it smarter to finance or pay cash? ›
Cash purchases can help you avoid debt, but you miss out on the potential benefits of buying now and paying later. You may consider using finance options such as credit cards, payment plans or loans when making a large purchase like a home or car, or when you need some time to pay off a purchase.
