No news to anyone who has had an ATM/credit card, you spend less when paying with cash than with a credit card. There is a disconnect with credit which allows people to not feel the “pain of paying”. So that is incorporated as part of the method that my wife and I use to budget our discretionary spending.
Anything that is not a recurring budget item is paid for with cash. We have a specific amount to spend each month on things like eating out, personal spending money, and groceries. Each month we take that much money out of our account in cash and put it in envelopes to be used through the rest of the month. When the envelope is empty it is empty and there is no more discretionary spending till the envelope gets refilled.
It works quite well for us. Sometimes we have wanted to go out to dinner but it is the last week in the month and we are out of luck, but that is the whole point of a budget right?
Anyone else use a cash based budget system???
{ 6 comments… read them below or add one }
This is my second month with the cash envelope system you describe. It absolutely works in keeping spending in check.
I am having a hard time staying disciplined enough with this. I need to get it together.
Not just you Journey. My wife and I struggle off and on using this system because there are still things that we use our debit cards for. Paying for gas with cash is a major pain in the tookus so we decided to just use our cards for that. Having your debit card in your wallet makes it easy to cheat. And some times, you just don’t have the envelope with you when you need to pick up something at the grocery store on the way home. I don’t yet have an answer on how to solve those little snags… perhaps it just involves taking the hard road and making more trips if you don’t have the cash on you at the time.
Here is how I handle those “little snags”
One, I have a separate envelope for my credit card. If I am out and need to buy something and all I have is my card (because I wasn’t planning on shopping) then I use my judgement and buy with the card, within my best memory of the limits of my budget, after asking myself if it fits in my budget or is absolutely necessary.
Then when I get home, I transfer cash from, say, the groceries envelope (since I was at the supermarket) to the VISA envelope. Voila! the money is in there to pay off the charge I accrued. And the grocery envelope has been adjusted down.
That’s how I handle the first thing.
As for the gas, I do the same thing. GAs money goes out of the gas envelope and into the visa envelope after the purchase. ]
this way you are still working the system. And I find that the habit of always going to the envelopes for the cash has pretty much broken me of thinking of the credit or debit card. It has started to feel unusual when I pull the credit or debit card out, and I like that.
I also like that I am saving money and always coming in within my budget month by month.
I have used a cash based system in the past and been successful, and just got back to using it this month. I agree that there is a disconnect with spending when you use your debit card, even if you balance your check book immediately. I’ve noticed I will think a lot of purchases over twice when I’m using this system, I do still bring my checks with me though just in case. I feel like I’m less likely to use my checks to spend since I have to take the time to write it out, and not all places take checks.
I would also like to say that I almost always have the envelopes on me. You get used to carrying the cash, it’s not a big deal really. And I’m fond of saying that, although I woudl be bummed, even if I lost a whole month’s worth of envelope cash it would be much muchh less expensive than the money I would have lost over several months of using my credit card or debit card as a primary method of payment, or the thousands and thousands of dollars of credit card debt I am still paying off from the years before I started budgeting and, in particular, before I started using cash envelopes for my most important categories of discretionary spending. Becuase I *way* overspend when using electronic payments like that, and I also tend to be more undisciplined and buy unnecessary things when paying by credit card or debit card.