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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