Mar 182013

Our Cash Budget

When reading about our various cash-only adventures, people sometimes asked how we budgeted our money to last the whole month.  There are many different ways to manage your money when adopting a cash-only lifestyle, but here’s the method we chose: Before we began, we created a written budget that showed all of our monthly income, and then listed all of our savings goals, monthly bills, and spending categories, as well as how much we wanted (or needed) to spend on each.

For example, we listed “Braces- $200″ as a savings goal because that was the amount of money we wanted to save each month in order for me to get braces eventually. “Gas/Electric- $300″ was listed as a monthly bill, because that’s typically what our utility company charges us. “Groceries- $350″ was listed as a spending category, because that’s the limit of what we wanted to spend each month on food.  We made sure to balance the written budget so that our savings goals, monthly bills and spending categories wouldn’t exceed our monthly income.

Every paycheck, we took three steps:

  1. We transferred all the money needed for savings goals (retirement, future travel, braces, cushion fund, etc)  into savings accounts.
  2. We withdrew enough cash to cover our shopping for the month, and separated that cash into envelopes- an envelope for grocery money, an envelope for drugstore purchases, an envelope for haircut money, etc (this is commonly called “the envelope system,” or “envelope budgeting.”
  3. The money left in our bank was used for monthly bills, which we paid using our debit card as the bills came due.

Now, this 3-step process looks pretty simple, but going cash-only was a lot harder to put into practice than we originally thought.  I’ll admit, I wasn’t fully prepared for just how hard it would be to make the switch from credit cards.

The Addiction to Credit Cards

As someone who routinely used credit cards to make purchases, I had forgotten the logistical issues inherent with using cash: the frequent trips to the ATM, the careful allocation of cash into various spending categories at the beginning of each month, the panic at the cash register wondering if I brought enough cash with me.  After switching to credit cards over a decade ago, I think I had assumed that it would be easy to switch back to cash if I wanted to, and that the only reason I didn’t was because of the benefits of cash-back credit card rewards.  After all, since I paid off the credit cards in full each month, I wasn’t dependent on them, right?  This logic reminds me of a friend of mine who smoked cigarettes and said, “I’m not addicted because I could quit any time I want to.”  The response in both cases is, “Uh-huh.  Get back to me about that after you’ve tried.”  We simply can’t know the level of our addiction until we try to kick the habit.

And credit cards are a hard habit to kick because it’s incredibly convenient to use them- you never have to worry if you have enough money in your account to cover the purchase, you have over a month to figure out how to pay for the purchase, and you don’t have to make detours to an ATM (well, except for when you find yourself at one of those lunch joints with a hand-written “cash only” sign taped on the cash register).  My husband and I loved the convenience of credit cards, but nonetheless we found ourselves embarking on a three-month cash-only challenge.  You might remember from reading Part I of my Cash-Only Challenge Series that we were initially reluctant to go “cash-only”- we were essentially forced to do it so that our credit reports reflected $0 debt for an upcoming house refinance.  But when faced with the reality that we had to temporarily wean ourselves cold-turkey from our credit cards, we did try to embrace the concept, and committed to trying out a cash-only lifestyle for a full three months.  I’d been intrigued by the case made in The Money Saving Mom’s Budget that a cash-only lifestyle leads to financial betterment, so I convinced my husband that we should give it our all and see if it was really worth it to kick the credit card habit and pay for things the old-fashioned way.

Now the three months are over and it’s time for me to report back on the ultimate question:

Was the Cash-Only Lifestyle Worth It?

Stay tuned for Part VI where I’ll answer that question and disclose whether we’ve stuck to the cash-only lifestyle!

Want more?  In Part I: The Accidental Players, I explain how we wound up in this Cash-Only Challenge despite having no interest in a cash-only lifestylePart II: Grocery Budget Jitters tracks how we weaned ourselves from credit cards and took the plunge into using cash.  Part III: The Roller Coaster, tracks my logistical acrobatics (and occasional panicked moments) as I attempt to cover all of our month’s expenses before our cash runs out. In Part IV I report on taking our Cash-Only Challenge on vacation with us.  

Interested in doing a Cash-Only Challenge yourself?  Check out Crystal Paine’s book, “The Money Saving Mom’s Budget” (which I reviewed here) and learn all about it.  In her trademark upbeat style, Paine lays out the blueprint for a cash-only lifestyle.

Viva Harris

+Viva Harris writes The Daily Citron, a fun blog about setting goals, saving money, staying organized, and enjoying life in the process. Don't want to miss any tips? Sign up for the free Daily Citron Weekly Newsletter.

  One Response to “Cash-Only Challenge Part V: Our Cash Budget System”

  1. […] cash runs out. In Part IV I report back on taking our Cash-Only Challenge on vacation with us.  Part V describes the cash-only budgeting method we used to keep our spending on track, and Part VI is the […]

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