It wasn’t many years ago when I seemed to be hitting the single digits in my checking account each month and crossing my fingers that checks didn’t get posted before payday. Through a combination of salary raises and a focus on reducing my expenses I no longer have this (significant) source of stress in my life, but I still practice the habits that I learned the hard way in those days.
I’ve never enjoyed budgeting, and I still don’t budget like I probably should, but I do make it a point to be very aware of my expenses, and in general spend less each month than I make. Although a simple concept, it is oftentimes much harder than it sounds (unexpected car repairs, plane tickets/vacations and moving expenses easily blow through the monthly goal of spending less than you take in). I’ve tried many ways to keep tabs on my expenses, and this blog post will describe the one that I first used. We’ll call it the cash method.
Pay all your expenses in cash. At the beginning of each month, take your total budgeted monthly expenses out in cash, and that’s your entire pool of money available to you for the month. Once its gone, its gone. This forces you to visually see that you are trading your limited supply of cash for products and services. It’ll make you rethink buying that large stereo system when you start counting out the pile of $20s. And at the end of the month when you’re cash stash is getting pretty thin you’ll be forced to make hard decisions on wants versus needs.
Bonus: If you shop in mom and pop stores you can ask for a cash discount. It is in the best interest of the store to give you a small incentive to use cash because the store is saving themselves several percent off your purchase price by you not swiping a card and having the transaction go through a bank.
This method works well to get you focused on the limited supply of money available to you to create a sustainable financial future, and can catalyze your life style of financial discipline when/if you do go back to credit cards and other forms of payment. However it does have several downsides: (1) It doesn’t allow you to buy things online, which sometimes can be cheaper than buying in stores. (2) You can’t take advantage of credit card consumer protection programs (all that small print that came in the mail with your credit card that could be worth thousands of dollars in the right scenario), (3) You miss out on cash back/frequent flyer miles/other incentives of credit cards. (4) You are not contributing to increasing your credit score.
Given these downsides, I don’t recommend this for a long-term solution to tracking your expenses, but as a short term tool it is great for putting things into perspective and getting the ball rolling on your sustainable financial future.
Bottom line: Determine your target monthly expenses, then withdraw that much in cash and spend only that much each month. This will teach sustainable financial discipline.
Did you find this post interesting? If so, check out our website at www.minmylife.org. If the subject material of this blog post caught your attention, I recommend reading our post on The True Cost of Paying for Services.