How a Cash-Only Budget Can Help Your Finances

Using cash to pay for purchases

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Traditional budgets often require a lot of discipline. If you've been over-spending in most of your budget categories, that might be a sign that you should change which type of budget you use

A cash-only budget can be a great, low-maintenance way to keep your spending on track so you can work toward your many financial goals.

Here’s a quick overview of how a cash-only budget works, and how your finances can benefit from it.

How a Cash-Only Budget Works

As you might have guessed from the name, a cash-only budget involves using just cash for all of your spending needs. No credit or debit cards are allowed. Checks are out, too.

A cash-only budget is typically paired with the envelope budgeting system, where you have an envelope for each of the categories in your budget. You can only spend the money you have in those envelopes for the month. When you run out of money, you’re done.

It's a good idea to have a basic budget in place before going cash-only because it involves withdrawing just the right amount of cash and distributing it to each of your envelopes at the beginning of the month.

Using Cash Has a Positive Impact on Your Spending

The biggest benefit of using a cash-only budget is that you’re typically more motivated to stick to your budget as you start running out of money. 

There’s also something powerful about handing over cash than swiping your card. Think about it: do you enjoy seeing the number of bills you’re carrying around shrink? Probably not. It’s more painful to physically hand over cash than it is to swipe your card.

The psychology behind this budgeting method shouldn’t be ignored. It’s much more impactful than checking in with your spending via budgeting software, or manually tracking it in a spreadsheet because you're feeling the pain in the moment. The sooner you can stop yourself from spending, the better.

Helps You Accelerate Debt Payoff

A cash-only budget is fantastic for people who are in credit card debt. If you can’t seem to stop swiping your card, then sticking to cash might help you create better spending habits.

Plus, you can use the good spending habits you develop to pay off your debt faster. Sticking to your budget regularly and getting control of your spending might mean “finding” extra money, which means being able to pay off debt faster.

You’re Forced to Think Twice About Purchases

Impulse shoppers can also benefit from a cash-only budget, as having a limited amount of money forces you to question all of your purchases.

For example, say you’re nearing the end of the month, and you only have $20 left in your grocery budget. You know you need to make the most of that $20 in order to have enough food to last you the rest of the month, so you get creative with meals. Before starting a cash-only budget, you might have been tempted to throw whatever food you wanted into your cart, resulting in going over your grocery budget.

Having this built-in barrier to spending deters you from any impulse shopping you might want to do. You literally have no other option but to be smart about how you use your cash, or else you risk not having enough money for your needs.

You Figure Out Your Priorities and Budget Leaks

After using a cash-only budget for a few months, you’ll likely recognize your weak points where spending is concerned.

For example, you might realize that you’re tempted to spend more on clothes and have no problem sticking to your gas budget. Or you may realize that you use every last dollar in your dining out budget because you can't resist fast food stops. 

Under normal circumstances, you might not think twice about these budget leaks. It’s just another month where you end up spending more than you thought you would, right?

But with a cash-only budget, you might think deeper about why it is you feel the need to spend more in certain areas. Is shopping or eating out that important to you? More important than your other goals?

Carrying Some Cash Can Help You Out

A small benefit to carrying cash is that it comes in handy in certain situations. Those who never carry cash may run into these problems:

  • You need to spend a minimum amount of money in order to use a credit card at some places (usually food establishments)
  • There’s a premium for using plastic in some instances (vendors may charge an extra fee for the processing)
  • You may not be able to offer a tip (some places only take cash tips)
  • You have to find an ATM in your network. Otherwise, you face a fee for withdrawing money.

While these problems may seem small, these instances can add up. It’s always good to carry a little bit of cash on you to avoid ending up in these situations.

Developing Good Spending Habits Pays Off

Transforming your spending habits by going on a cash-only diet can pay dividends down the road. Habits are everything when it comes to your money, and once you figure out how to gain control over your spending, you’ll likely never go back to your old ways.

A cash-only budget is a great way to shed old spending habits and replace them with ones that will lead you toward a secure financial future.

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