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11 Guidelines For Using Cash In Your Budget



1. You don’t have to use cash for everything. Here’s how to tell in which categories you should use cash.

To reap the benefits of using cash in your budget, you don’t have to go exclusively to cash. Some may choose to go exclusive, but it’s not necessary. Instead, identify which categories will be most effective for using cash using the tips below.

Use should use cash for categories where either you tend to overspend or where there are a lot of transactions in a month. Groceries is a main perpetrator of both those criteria which is why I absolutely recommend funding that category with cash. Other problem categories are ones relating to household spending (light bulbs, cleaning products, etc), eating out, personal, and entertainment.

There are actually some categories where it is easier to NOT use cash. Specifically I’ll mention gas for your car. At first Emily and I used cash for gas but found it to be significantly more inconvenient, especially during the winter. After looking at our gas spending we realized that we don’t tend to overspend on gas. Our gas budget went up and down depending on the price of gas, but we weren’t more likely to drive less by using cash. I still had to commute to and from work no matter what and we don’t take a lot of trips. Gas purchases also weren’t hard to track in our financial software. We knew that if the transaction was at Texaco it was gas so it didn’t add any confusion at the end of the month. In the end we decided that it wasn’t worth it to use cash and now use a debit card.

Some categories are on the edge and could go either way. For example, haircuts is a category that I think should not be cash, but Emily likes it in cash. From my perspective it’s not hard to track haircut transactions. A transaction at SportsClips is self-evident. There aren’t a lot of haircut transactions. At most I will get one and Emilyi will get one. I’m also not likely to overspend and get haircuts more often if I’m not using cash. For me, this category doesn’t need to be in cash.

For Emily that’s not the case. She is more likely to get a haircut or styling if there’s money available for it. She also will let money accumulate from month to month and then get her hair colored with the extra money. She likes having the money in cash because as it accumulates it gives her permission to do something extra without guilt. Therefore, Emily prefers to have this category in cash.

In the end we do our haircut money in cash, but we could just as easily split the category into “his” and “hers” and do one in cash and the other not.

2. You have to commit for cash to work.

When starting to use cash for chosen categories, you have to be willing to totally commit. If you have some transactions in cash and some on credit/debit card at the end of the month, you’re going to run into the same headaches you’ve always had. This means that ideally both spouses are on board. If your spouse resists, see if he or she is willing to give it a try for just a month.

This also means that if you go to the store and forget the cash, you won’t make any purchases until you go home and get it. That’s the level of commitment it takes. I’ll admit that on rare occaisions Emily or I will break down and use the debit card, but it’s usually only if we’re far away from home and are buying something we can’t get close to home. Even then, we’ll try to borrow cash from other places first. One of us usually has some personal money with us and so we can use that cash and then get paid back from the correct category when we get home.

3. Calculate what denominations to withdraw ahead of time.

When withdrawing cash, you’ll likely be pulling it out for multiple categories at once and you’ll want to make sure you have money in the right denominations to easily fund each category. For example, if a category needs $50 and the bank only gives you your money in $20 bills, it will create an inconvenience to then have to get smaller bills.

This problem can be easily avoided by figuring out ahead of time what types of bills you need ahead of time and then requesting those bills from the banker.

4. How to keep track of my cash

There’s no right way to store and keep track of your cash. The most common method is to use envelopes.

There are three types of envelopes you can use.

  1. Regular envelopes from an office supply store. Unfortunately they don’t have sizes customized for cash so you’ll have to find the closest size that fits.
  2. Envelopes your bank gives you when making a withdraw. These are still a little large for my taste, but are smaller than regular envelopes and are free. Don’t be shy about asking for an extra envelope or two when making a withdraw.
  3. Custom budgeting envelopes through Dave Ramsey. These are great, but cost a little extra. There are two different version which you can find using the links below.

Financial Peace University Envelope System
Deluxe Executive Envelope System

We have altered how we manage our cash from time to time. Sometimes we have an individual envelope for each category. Sometimes we keep all the cash in one envelope divided by index cards or post it notes. Feel free to experiment and find a way that works for you.

For men, using paper clips can be an easy way to separate your cash into categories. Often men won’t have as many categories as women so this is manageable. You can buy multi-colored paper clips and use a color for each category. You could also cut out a small piece of paper, write the name of the category on it, and stick it in the paper clip with the corresponding cash.

Feel free to leave any comments or ideas on your favorite way of managing cash.

5. Pull out grocery twice a month if you need to pace yourself.

A common problem, particularly when first starting to use cash is to spend too much money in the grocery category too quickly. You may be excited to have all that cash in hand and go overboard on your first shopping trip. Then, you end up on the 20th with no cash left.

To avoid running out of money prematurely, you may want to take out only half the grocery money at the beginning of the month and the other half mid way through the month. This helps you pace yourself and ensures you don’t run out of money with too much month left. If you want even more control or pacing, you could even take out a chunk once a week.

6. How to deal with purchases that go across multiple categories

Sometimes you’ll be at a store like Walmart or Target and want to make a purchase that covers multiple categories. For example, you might be buying groceries, home improvement items, and personal items all at once.

There are two main ways to deal with this situation. The first and cleanest option from an accounting perspective is to split the items apart and have the cashier do multiple transactions. I’ve done this many times and it takes hardly any extra time. The cashiers can do it easily and usually the people behind me in line don’t even notice.

The second option is to make one purchase and combine money from the appropriate category envelopes. This really only works well if you have a few items. If you have a lot of items you often don’t know how much to total will be for each category and therefore how much money to take from each category. The other disadvantage of this approach is that you might not have exact change in your categories. But for some scenarios this may work well.

The third option is to pay for everything from one category and then look at your receipt afterward, total the amounts spent in other categories and move that money to pay back the original category you spent from. I don’t prefer this method because it’s just too much work. But again, it may come in handy on occasion.

7. Get used to planning ahead.

By committing to use only cash, you have to plan ahead at times to ensure you have the cash you need with you when you need it. For example, I often keep most of my personal money at home and only take what I need when I leave the house. If I forget to take some with me or run out while I’m out and about, too bad. I have to wait to make that purchase.

8. Give both spouses cash for a category if needed.

For the most part Emily does the grocery shopping, but sometimes I’ll be out and Emily will call needing me to stop and get something. For these instances, it’s nice for me to have $20-40 of the grocery budget on hand. The rest Emily keeps. If I don’t end up needing to use it, I’ll give it back to her towards the end of the month or when she needs it.

9. Don’t be tempted to use accumulated funds improperly.

Some categories, like clothing, may accumulate significant amounts in them before they’re spent. Don’t be tempted to use those funds for something else unless you truly don’t need them. One way to prevent temptation is to leave those funds at home in a safe place rather than carrying them with you. That way you only spend the funds when you truly need them. It also decreases the likelihood they’ll get lost or stolen.

I live in a safe place and will sometimes leave the funds for these types of categories in my glove compartment. They’re convenient to get at when needed but not constantly visible to me. Out of site, out of mind.

10. Only carry what you need with you

I’ve already referred to leaving some of your cash at home or in the glove box. There’s really no use in carrying cash with you all the time if it’s from a category that you may only spend in once a month or less.
By keeping money at home, it also discourages impulse spending. You have to consciously take the money before you make the purchase.

11. You must trust and be honest.

Using cash, there is some room for dishonesty in moving money between categories or using money from another category for personal purchases. If you don’t have a trusting and honest relationship with your spouse, using cash may pose some problems. However, it’s ok to use incentives when using cash. For example, my wife and I agreed that if she underspent on groceries, she could use the remaining money to build up our food storage. It was a good incentive for her to cut coupons or save a little extra and we all got the extra bonus and security of food storage.

Do you use cash in your budget? What tips do you have?


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