Deal in Cash
I was reading a bit about budgeting while juggling my own monthly financial review and paying bills when the wild suggestion of deal only in cash popped up on my radar. At first I laughed a bit at the thought of going cash-only in 2006 but then it dawned on me that dealing in cash is the #1 way to not only get a handle on your spending but also live within your means.
While it may sound woefully old-fashioned the concept of dealing only with what you actually have when it comes to money is an age old success story. After all, have you read any good books lately on early settlers maxed out in credit card debt? They made do with what they had and bartered for what they needed when they had no “currency” to trade. While I’m not suggesting we return to the stone age, a little back to the basics approach can do wonders for your financial health and your ability to follow a budget.
Think about it — how many times have you made a credit card purchase and not even consciously thought about it at all until the bill showed up. Heck, we have so many “easy” automated payment arrangements available to us these days that we can spend our entire monthly income without even taking any action. If you’re not careful, the cumulative effect of this autopilot mode can leave you strapped for cash each month, stuck with mounting debt, and robbing your different savings accounts to transfer money from Peter to pay Paul.
Most times I’ve found myself using credit cards for convenience and floating the money in the grace period so I can pay it off in full when the bill comes. The problem is, sometimes the bills come and then I’m faced with borrowing a little from savings here and there to ensure I pay things off in full. It can become a viscious cycle of always being a month behind in paying for things if you’re not careful. Not to mention if the income suddenly dries up — lag in business, getting laid off, taking an extended sick leave, etc. — you’re suddenly faced with “reality” when you least want it.
If, however, you make the choice to get caught up on payments and then spend a month or two dealing only in cash you’ll get the true picture of your spending AND stick to your budget. After all, with the cash method, if you don’t have it, you can’t buy it.
Now a note to those of us steeped in the “e” world. You can’t use your technological sophistication as an excuse to duck the reality of the cash method. Your options for sticking to the cash method even with internet purchases and automatic payment plans are to use your debit card or a cash account within Paypal (or something similar like an e-check). Then, you get the benefit of both worlds.
Try it out for a few months. I guarantee it will allow you to accurately assess, adjust, and stick to your budget. Let me know what you discover by posting some comments…
I had to do something similar to this in order to get my hands around staying in my budget. I actually spent a couple of months with cash in different envelopes for different things (e.g. groceries, weekend fun, etc). It totally helped me get my spending under control.
It’s the sheer physicality of handling the money that makes spending more real. Using a debit card or a credit card detaches us from what is really going on.
I was toying with this idea myself, not just for getting a grip on the budget, but also because I’m so annoyed at the way my credit card company periodically “updates” our “agreement” in order to–tadaa–benefit themselves. (And yes, this bugs me even though I pay the bill in full each month.)
Anyway. What about stuff like plane tickets? It sure is convenient to buy those on-line. Could you actually take a wad of cash & buy a ticket at the downtown or airport office?
I cut up my credit cards three years ago, when I was awared a three year stipend for writing my dissertation. It took the first year to actually pay down that balance, but since then the only debt I have is student loans. It was a bit nerve-wracking in the transition from cc debt purchases to saving up for purchases, but was the best think I have done to stay within my grad student budget.
Kristin – as the article says, a debit card hooked to your bank account will count as cash only opperating when the point is to only spend money that you have.
Most people have an emergency account… they system I teach calls for a separate “Everyday Money” account– forget envelopes and categories- those kinds of budgets are hard to follow… the problem is that you spend money and pay bills out of one account and because bills are always coming in you are never sure if you are overspending.
The solution: Have two accounts- one for paying Bills and Debts, one for Everyday Money (for things like gas, groceries, etc.) Then as long as you don’t spend more than your Everyday Money you’ll always have the money to pay your bills.
And yes, use cash or a debit card… credit cards hide and delay your behaviors and can result in bad things. To this day we have never even HAD a debit card.