Do you have a hard time sticking to your budget? Are you constantly wondering where the money is leaking from? If so, then you may be having trouble planning and following a traditional budget.The solution? A cash-only budget. In this situation it provides an added amount of will power that may be just what you need to accelerate your journey to financial freedom. With the help of the cash-only strategy, you only spend cash and never think about swiping your credit cards. When the money is gone, it’s gone.
Very excited to announce that this week’s post comes from an accomplished financial blogger, Good Nelly. Nelly shares her articles on tips and tricks of finances in your every day life over at her blog My Way of Viewing. Nelly’s clear, concise articles will have you touring her blog for hours. Filled with just enough information to keep you coming back for more. She was kind enough to offer some tricks for the popular cash-only budget, and we’re excited to share it with our readers!
Cash-only budget – What does it mean?
It is basically living a cash-only lifestyle. That is, spending everything in cash instead of swiping your credit cards.
Whenever you have to purchase anything, you have to do it with cash. You won’t even carry your credit cards with you. Even better if you don’t use your debit card. You will only carry cash with you.
There is a psychological effect as well. When you use cash to buy something, you tend to spend less. But, when you swipe your credit cards, you don’t realize how much you’re spending; you only realize what you’ve done when that hefty bill comes at the end of the month. By then, the damage is already done.
*The Chicago Tribune had an incredible article explaining the psychological connection – or disconnection – our brain has with credit cards.
Advantages of a cash-only budget
It will help you understand better if we discuss a bit about the advantages of using a cash-only budget and leading a cash-only lifestyle.
Here are some advantages:
You are forced to lead a cash-only lifestyle
This is a great way to reduce impulse shopping. At the end of the month, when you’re left with $40 in your grocery envelope, you become creative. You plan your expenses with the remaining amount because you know that $40 is all you have left.
Over time, you’ll find yourself to be more balanced.
You become clear about your priorities
When you have a definite amount to lead your lifestyle, your priorities become clear to you. It also becomes clear t you where your budget is leaking, and you can take preventative measures to seal the leak for the following month.
You can pay off your debts even faster
The cash-only budget strategy will help you save a significant amount every month, which you can use to repay your debts faster. Also, once one debt is paid off, you can accelerate your other debt payments on other accounts. This way, you’ll repay y0ur credit card and other unsecured debts much earlier.
*The key is that by using the cash only budget, you are paying yourself first. You plan for your debts and the cash that is left over is what you use to live on for the month.
-Related: How to Create a Personalized Budget
Your credit score will improve
Using a cash-only budget to get out of debt will not decrease your credit score as some may have you believe, it will actually improve it. How? When you are saving a decent amount of your income and able to pay off your debts, the accounts update as “paid in full”. This reduces your debt-to-credit ratio.
You develop better spending habits
By opting for a cash-only lifestyle, it forces you to adopt good spending habits. You tend to embrace good habits for a lifetime. This kickstarts your journey towards a better financial future.
Stop spending when there is no money left in a category
When you are using the envelope system for cash-only budgeting, you need to stop spending when the money is gone. There simply is no more money when the envelope is empty.
You may be tempted to spend more than you budgeted at the grocery store when you see one of your favorite items on sale. However, when you’re faced with this situation, check your grocery envelope. See just how much you have left and decide whether that impulse buy is worth it. You may only have a few dollars left and quickly change your mind.
It may be a bit difficult during the initial months, but with time you’ll learn to love this budgeting method as it’s improving your financial conditions significantly.
*Also, you’ll learn to work your budget. Stock up on items when they’re on sale, and even see fun ways you can reduce the amounts you spend in each category.
Related: How We Cut our Grocery Bills in HALF
How to pay off debt on a cash-only budget
Here are a few tips for living a cash-only lifestyle. To lead such a lifestyle, first you need to follow the old school method of taking money out of the bank.
Plan a cash-only budget
When you want to pay off debt using the above-mentioned strategy, first of all, you need to create a cash-only budget.
To do so, list your expenditures along with your total income. Now, divide your spending in to various categories like groceries, clothing, entertainment, miscellaneous, and so on. (We’ll get to the debt portion in just a minute.)
Now, allocate a definitive amount for each category. Put that amount in to separate envelopes labeling them as grocery, entertainment, and so on.
When you have to spend on a particular item, make sure you use cash from that particular envelope only. (No, robbing one category to pay for another.)
While planning the budget, you also need to plan to save! Pay yourself first. In the beginning this will go towards paying off debt, but as your debt becomes obsolete, your savings will grow and grow.
Calculate the total debt amount and designate a dollar amount to repay the debt
While creating separate envelopes, create and envelope for ‘debt payments’. It is better if you set aside this amount first and then budget your remaining spending with what is left over.
However, make sure your necessities (food, shelter, transportation) are met first.
Select a suitable strategy to repay debt
When paying off debt is your main goal, you need to choose a suitable strategy.
If managing multiple bills is what you’re worried about, you can choose bill consolidation. Through this strategy, you can make a single payment every month to repay your multiple debts.
To consolidate and repay your bills, you can enroll in a consolidation program, take out a loan or opt for a balance transfer.
*This program works well with those who find multiple debts overwhelming or unmanageable. Just like the cash-0nly system, it creates a level of will power and control that you may have been lacking. It is not ideal for everyone, but the great part about budgeting is that it is 100% individualized to each person’s needs.
Now, if you’re struggling to make the payments in full, you can opt to settle your debts.
You can talk to a financial adviser or opt for counseling in a debt relief company. They can guide you on which option will suite you the best.
For the majority of people out there, debt is very easily managed on their own, but for some debt has become something that has consumed them. At that point, it’s time to reach out for help.
Budgeting is something that is so individualized. The cash-only method may not be right for you, but for many it is just the boost of will-power and restraint they need to get their financial journey on the right track.
The envelope system has been used in the cash-only budgeting program for a long time, and allows you to easily organize each category. The envelope system is best explained by guru Dave Ramsey here. While we don’t agree with all of his methods, ideas or financial advice, you have to admit that he’s got the basics down.
The cash-only budget and envelope system provide a basis for those in need of a system, for those in need of those rules. “Do this and get out of debt” – like it or not, it works!
So thank you again to Good Nelly for providing us with the down and dirty on cash-only budgeting. Check her out on her website at MyWayofViewing.com and catch up on some articles simplifying the idea of paying off debt.
You can also find Nelly on Twitter @GoodNelly1 and on her Facebook page where she helps her readers plan for their financial futures by analyzing financial happenings and closely working with Debt Consolidation Care.
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