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
With credit and debit card spending, it's often easy to lose track of how much you've spent, accumulate debt and derail your budget. Cash, on the other hand, comes with built-in guardrails — once it runs out, you can't spend any more.
Is it easier to budget with cash? ›
With credit and debit card spending, it's often easy to lose track of how much you've spent, accumulate debt and derail your budget. Cash, on the other hand, comes with built-in guardrails — once it runs out, you can't spend any more.
How to switch to 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.
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.
Should I switch to using cash? ›
Paying with cash vs. credit helps you keep your debt in check. It can be easy to get into debt, and not so easy to get out of it. In addition to paying more in total for purchases over time, you're also accumulating more debt if you don't pay your bills off from month to month.
What are 3 advantages of cash budget? ›
Preparing a cash budget has a number of benefits:
- It can identify any times where there may be a shortage of cash. ...
- It can help to regulate expenses. ...
- It will clearly show where a business has more cash than expected ( surplus.
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.
Can you live off cash? ›
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.
What does the cash budget deal only with? ›
A cash budget should take into account expected cash flows, such as revenue, as well as operational outflows due to returns, payroll, rent, utilities, supplies, and other costs of running the business.
What is the cash budget method? ›
Cash budget format. The basic format of a cash budget includes four sections: cash inflows, cash outflows, cash excess or deficiency, and details of financing activities. Companies may organize, categorize, and customize income and expenses according to their business needs.
Some people still prefer to use cash, perhaps because they like the tactile nature of physical currency or because it provides confidentiality in transactions. But digital payments, made with the swipe of a card or a few taps on a cellphone, are fast becoming the norm.
Does only using cash save money? ›
You Avoid Fees and Charges
While you may pay the same price for a product or service, whether you are paying cash or credit, with a cash only purchase, you won't have to pay the additional charges often associated with credit cards.
Why is using cash better? ›
With cash, it's easier to have a sense of what you're spending. “If you're using cash in particular, real paper greenbacks, when your purse or wallet is empty you're done, so you can limit your spending in that way,” Griffin says. For some people, being restricted to using only cash may be a better approach.
Are we going cashless? ›
The concept of a cashless society has been around for decades. But with 80% of payments in the US being made digitally in 2022, and four in ten of us ditching change altogether, research suggests that the transition from physical currency could take place sooner than we once thought.
Which banks are not going cashless? ›
All of the Big Four banks - Commonwealth Bank, Westpac, ANZ and NAB - have ruled out going cashless.
Why are banks going cashless? ›
The fear of transmission coupled with lockdowns and other restrictions led to a boom in online shopping and cashless payments globally. As consumers continue to embrace the legacy of the pandemic and a surge in finance technologies, cash payments are expected to continue to decline in the coming years.
What are the disadvantages of a cash budget? ›
One of the main drawbacks of using a cash-only budgeting system is that it can be inconvenient and risky. You have to withdraw cash frequently, which may incur fees or limit your access to your money. You also have to carry cash around, which can make you vulnerable to theft or loss.
Is it smarter to finance or pay cash? ›
Financing can help in emergencies, paying for large purchases, building your credit score, and freeing up money to invest. Cash is still king when it comes to buying non-essentials, keeping track of your monthly budget, and staying out of debt.
What is the #1 rule of budgeting? ›
Oh My Dollar! From the radio vaults, we bring you a short episode about the #1 most important thing in your budget: your values. You can't avoid looking at your budget without considering your values – no one else's budget will work for you.
