The Importance Of A Cash Budget – This May Be The “Diet” You Need!

Some absolutely love their credit cards and do almost all of their spending on them. I am one of those people. However, I know that credit is not for everyone and that there are many out there who understand the importance of a cash budget. A cash budget is when you pay for the majority…

Michelle Schroeder-Gardner

Last Updated: March 17, 2022

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The Importance Of A Cash Budget - This May Be The “Diet” You Need!Some absolutely love their credit cards and do almost all of their spending on them.

I am one of those people.

However, I know that credit is not for everyone and that there are many out there who understand the importance of a cash budget.

A cash budget is when you pay for the majority of your purchases in cash. Of course, there are certain expenses that you may not be able to do that for or that you may not want to do that for, such as with a mortgage payment. For the most part, though, any and almost all spending is done with cash when a person is taking part in a cash diet.

You can read more about how the cash budget method works in the article Dave Ramsey’s Envelope System. There are also cash envelopes and wallets that may make it a little bit easier for you.

While only the tiniest bit of work has to be done to prepare a cash budget each month, big benefits can usually be seen.

There are many reasons for why you may want to take part in an all cash budget as well. Even if you only do it for a month or two, I’m sure you will learn a lot about your spending behaviors that can help you well into the future.

Continue reading below to read more about the importance of a cash budget.


A cash budget forces you to think about where your money is going.

Realistically, there’s only so much cash a person would want to have on them.

By only carrying what you think you will need when you go to the store, you will think about your spending a little more closely because there’s only so much money you can spend.

This situation is quite different from when you have a credit card on you because you may “reason” with yourself that more spending can be done. This is because with a credit card, your credit limit may be much higher than what you can actually afford.



A cash budget can help you save for retirement.

When you have a cash budget, you have to take out a certain amount of money at the beginning of each month in order to prepare for your monthly expenses.

At the same time you do this, you can also transfer money into your savings or retirement accounts and pay yourself first.

This is easier to do with a cash budget because you will have already calculated exactly how much cash you will need for spending and, therefore, you will know how much money you should be saving each month.

Paying yourself first has many benefits. The great thing about doing this at the beginning of the month before you do any spending is that you will be forced to save a certain amount of money. If you tend to just save whatever money you have left at the end of each month, you may find yourself saving much less.

Paying yourself first will also force you to stick to your cash diet even more since that is all you will have!


A cash budget can prevent impulse shopping and clutter.

Similar to a no spend challenge, carrying only cash can prevent impulse shopping.

This is due to the fact that with a cash budget, you only have so much money to work with each month. If you spend all of your cash, then you would have nothing else to work with for the rest of the month. Having a spending limit can help you separate your “wants” and “needs” when you are at a store.

You will have to carefully plan out each purchase, each time you go to the store, and so on when you have a cash budget.

By planning ahead, you can prevent impulse spending and clutter!


Spending money causes pain.

I recently read that people actually experience pain when they spend cash. It’s much more difficult to spend $100 or $1,000 in cash on something than it is to just swipe your credit card.

Even if you usually pay for everything with a debit card, actually paying for a purchase in cash has a psychological impact on people.

A cash budget may help you save more money for this very reason. It may also give you more of a reason to look for products that are a better value so that you can spend less cash.

Do you think sticking to a cash budget could help you save money? Why or why not?


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Michelle Schroeder-Gardner

Author: Michelle Schroeder-Gardner

Hey! I’m Michelle Schroeder-Gardner and I am the founder of Making Sense of Cents. I’m passionate about all things personal finance, side hustles, making extra money, and online businesses. I have been featured in major publications such as Forbes, CNBC, Time, and Business Insider. Learn more here.

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  1. YES!! I’ve never had a credit card and I plan to keep it that way. It’s the absolute best way to keep me in check. I highly recommend it to anyone.

  2. Mr Hairy

    Thanks for the post. I was once a cash guy, but I’ve moved back to credit / debit cards.

    I found that I tend to purchase smaller items(<$50) more frequently but spend less on larger purchases when I use cash.

    I also spent the spare change in my pocket on frivolous stuff, where if I need to pull out the card I question whether I really need that coffee …

    1. I understand what you’re saying. I’m not so good with cash either. However, it can teach you a lot about your spending behaviors if you try it out for just a week or two.

  3. A cash budget is good to have because you may see something you need to immediately purchase in the moment that’ll help you get a good ROI from later down the road. An example would be having a nice amount of cash on hand while driving somewhere and may stumble upon seeing a car you know is or getting ready to be a vintage classic selling at a dirt cheap price. Knowing you have the cash on hand will help you purchase the vehicle in the moment, fix it up later, and sell for possibly 10 times more than the purchase price.

  4. Sticking to a cash budget would definitely help me save money and it will also help me with my goal of making sure my daughter sees me using only cash. May be worth the effort to start in January when I also plan to do focus on a 21 day spending fast (only buying the essentials).

  5. Reelika @Financially Wise On Heels

    Cash budget works like a magic. I have experienced it myself and it just a great way to understand the difference of “needs” and “wants.” I do use credit cards, but reasonably and just as a tools to get other benefits (for instance build up my credit score or credit card rewards etc).

  6. I don’t think I would enjoy lugging a bunch of cash around all the time. Right now, I enjoy the convenience of credit.

    1. I’m the same way. I’m too paranoid but I know that it works very well for others.

  7. Alexander Vishnevsky

    Yes, I’m a cash budget fan! Sometimes I use my credit card, but always remember, that when I login to my bank account, the negative credit balance is always shown IN RED. Cash budget is safe, reliable, simple. It’s a powerful tool to make your life more independent and even happier. Thank you!

  8. Kalie @ Pretend to Be Poor

    We haven’t used a cash budget since we are pretty good about sticking with our budget and are naturally frugal. However, I know many friends who have benefited greatly from the cash budget and I recommend it to anyone who wants to improve their spending habits.

  9. Zascha

    This is so true! I’m always way more cautious with my money when I actually have the cash in front of me, rather than on a card!

  10. Stephanie

    I’m opposite, isn’t that weird? Now I use YNAB so it doesn’t matter, but before I got on track, I could not have cash. It would be gone so fast! Cash is like free money to me, like monopoly or something. I don’t have that painful feeling spending cash – but I do swiping my card.

    1. I’m the same way. Some are better with cash but some are better with credit.

    2. Kylie Schamens

      I have been using the cash system for like 5 years now and I am the same way. I have no painful experiences paying with cash- like monopoly money like you said. I still use the system since it’s so highly recommended but still have my struggles with credit card debt. I do know though since tracking my budget I have paid off a lot of debt and have gotten a lot of my spending under control. It’s like a 7 headed monster sometimes though, cut off one head and two more grow! However it’s a constant effort and I have gotten far.. just keep swimming, just keep swimming..

  11. Tanya @ AMindful Migration

    I’ve heard a lot of people tout cash budgets as being able to help them save money but it really has never worked out that way for me. I’m not sure why but I find the opposite and spend more freely for whatever reason. And I have a harder time remembering how much I spent and on what and tend to run out of money earlier than expected. Whereas tracking on my debit card, I see patterns better and for whatever reason track my spending better. I am also not really comfortable carrying large amounts of cash with me. When I see people at the stores pull out their pocketbook with a lot of cash inside, I notice, even though I would never do anything about it. But I also think that if I notice, then so do others who might do something.

    1. I think different things just work for different people 🙂

  12. We are working on a cash Christmas and, so far, it has totally kept us in check! We did use our Target card to get 5% off and then walked straight to customer service and paid it off! We are determined not to add debt this Christmas!

  13. Patricia Folks

    I listen to Dave Ramsey in the mornings driving to work and he seems to make a lot of sense. If I made the money some of the people on his show claims to make, I don’t think I would have as many credits cards. With that said I am trying to work on my spending, trying to cut back using credits cards and even have a set plan after the holidays to make a new. Taking some of Dave’s advice and putting them in place in my life. But I think that the cash only spending is a very good idea, made me think twice and may try that too. Just wanted to say thanks for all your hard work. I enjoy visiting your site. Great job.

  14. Jen

    I do experience pains when I pay with cash! I guess it’s the pain of watching your money physically leave you. Haha. When I can only pay with cash when I’m out of the country I do watch my spending because that is all I have to use though.

  15. I know all of the pros, I just can’t come around to the idea of carrying around all of that cash, actually walking inside a gas station, and rolling coins again…no thanks!

    1. Well, I don’t think you actually carry around that much cash. You keep most of it at home 🙂

      1. Jen

        Much easier to do with a family of two! My grocery bills are like small car payments. 🙂

        1. I actually think most people who have cash budgets have larger families 🙂

  16. Cash diet is essential when you are on a budget, if you pay aways with cards well you can easily overspend and have no leftver money before next paycheck, while if you have abudget and pay cash always you will think several times before spend that money. You can use cards but having limits on it.

  17. Great points about a cash budget…although the rewards payoff for use of credit cards and rewards program portals, which require credit card use, are toooo yummy for me to overlook. The key is to payoff the cards every month otherwise the interest offsets all of those benefits.

    That said, a “candy box” with a little cash has worked in the past for me to maintain a strict budget. Good post. Really got people talking about it!

      1. Kylie Schamens

        Michelle can you do an article on the credit card rewards programs you use and recommend the most?

        1. That’s a good idea! I’ll have to do that soon.

          1. Kylie Schamens

            Thank you! I don’t even want to try it for fear of getting the wrong cards!

  18. Luke Fitzgerald @ FinanciallyFitz

    All great reasons to use cash. My wife and I are big believers in a cash budget.

    I think the biggest benefit is how it makes Opportunity Costs more apparent. When you use cash, you see (and feel) money going to one thing which means that money CAN’T go to another thing. Credit (even debit) cards give us this illusion that opportunity costs dont apply; that a starbucks coffee isnt related to a vacation, or a car, or a house, and so on. But in reality, nce a dollar is used its used. Understanding this has helped us spend more wisely.

  19. We switched to cash about 2 years ago. Before that we were using credit cards and paying them off every month. I thought that the cash system didn’t apply to us because we were always paying off our cards and had savings. Boy was I wrong. Cash has made a huge difference. We have paid off twice as much. I agree with the psychological impact. Another thing I wasn’t expecting was the impact that the balance of our credit card had each month on me and my husband. We would get upset seeing that big number every month. We switched to cash and even though we were spending the same amount we didn’t have that oh that’s a lot of money feeling every month looking at the credit card bill.

    I just can’t say enough good things about the cash system. I love it so much I started making my own pretty envelopes. I even sell them on Etsy. If you have a chance stop by and take a look.

  20. Ryan Fraley

    I’m trying cash for a while because I want to see what the difference is. I’ve already made an impact on my debit spending when I keep a ledger like what we would do back in the era of writing checks. On debit I was making too many small purchases. Credit isn’t a real issue for me, I have a card or two but use them very rarely.

    Not doing the churning thing until I have a significant large cash reserve built up. Not making enough to meet net spend for that anyway. I’m saving my Chase applications up for when they might mean something.