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Does Switching to a Cash-Only Budget Make Sense?

When you regularly reach the end of your money before the end of the month, it’s probably time to consider revamping your budget. Writing down everything you’re spending can help you keep tabs on where your hard-earned dollars are going, but sometimes you might need to go a step further. If you normally use credit or debit cards to pay for things, switching to cash-only can improve accountability and make it easier to stay in the black.

Find out now: Is It Better to Buy or Rent?

How Cash-Only Budgeting Works

Setting up a cash-only system begins with writing out your monthly budget. This includes adding up your fixed expenses, like housing and utilities, as well as those things that aren’t set in stone, like groceries, entertainment or gas. Anything that doesn’t already have a recurring payment set up can be included in your cash plan. If you have bills that are being automatically charged to your credit card, you may want to consider switching them over to your checking account.

To figure out how much you have to spend each week, you simply divide the total amount you’ve budgeted for each category by four. For example, if you regularly allow $500 a month for groceries, that comes out to $125 per week. Once the money’s gone, you can’t spend anymore in that category until the new week starts. You may need to do a little tweaking for months that have five weeks. Many people prefer to separate their weekly cash into envelopes or an accordion folder, which is also good for keeping up with receipts.

Related Article: Should You Use Cash or Credit for Summer Travel?

Benefits of Switching to Cash-Only

Does Switching to a Cash-Only Budget Make Sense?

Using cash instead of plastic has some definite advantages, especially if you want to keep up with your spending in a tangible way. When you’re charging things to a credit or debit card it’s much easier to overspend and you don’t feel the impact as much when you’re not parting with your money in a physical way. Seeing how quickly your cash can disappear if you’re not careful encourages you to be more mindful about how you spend.

If you struggle with sticking to your budget each month, using cash makes it easier to prioritize your purchases so you don’t end up spending frivolously. Once you run out of money, you have to make a conscious choice to go over your weekly or monthly cap. If you’re constantly trying to keep up with the Joneses, a cash-only system can provide a much-needed reality check.

Perhaps one of the most important benefits of using cash is that it reduces your reliance on credit. If you’ve been struggling with credit card debt for years, switching to cash gives you an opportunity to break free of the cycle. Once you take a hard look at how much your preference for plastic is costing you, you may feel more motivated to start chipping away at your debt.

Related Article: What is a Cash Balance Plan?

Why It May Not Work for Everyone

Does Switching to a Cash-Only Budget Make Sense?

No budgeting system is 100% perfect and the cash-only method isn’t necessarily a good choice for everyone. If you’re not very organized, keeping up with multiple envelopes of money may result in disaster if you lose track of one at some point. Using a rewards card to pay for purchases is a good way to earn points or cash back but you won’t get any added perks by using cash. Credit cards can also be useful for building your credit score if you use them wisely, an advantage that plain old dollars and cents don’t provide. Finally, getting to the bank each week to withdraw cash may not always be feasible.

The Bottom Line

Using cash may seem a little old-fashioned but it could end up being a serious time and money saver if you’re able to make it work for you. Making the switch usually involves an adjustment period but you may be surprised at how much simpler managing your money becomes. Have you ever tried it? Share your experiences in the comments below.

Photo Credit: ©iStock.com/CatLane, ©iStock.com/studiocasper, ©iStock.com/MarsBars

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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