You’ve likely heard of the “cash envelope system", the idea of which is to use cash for everyday purchases such as groceries and eating out. I’m a huge advocate of using cash for daily spending but it must be done right. Saying “I’m going to use cash” is one thing, doing right is another. Before I tell you the tricks to doing it right, why even do it at all? “Because Kelsa said so” doesn’t seem to work!
Why Use Cash?
There’s a Dunn & Bradstreet study that showed people who used cash instead of debit or credit spent almost 20% less. If you spend $500 monthly on groceries, that’s very quickly a savings of $100 or $1,200 annually.
But ignore the number-crunching side of this discussion. The most important reason why you should use cash is because it frees you from worrying about your spending. If your budget is $500 for groceries each month, take out $120 each week and as long as you’re spending cash, you have nothing to worry about. You don’t have to keep a running tally in your head of how much you’ve spent so far, you don’t have to worry when you swipe your debit card whether or not you’re spending money you don’t really have, and you don’t have to feel guilty! I don't want you worrying about where every dollar goes (contrary to popular money management strategies). I want you focusing on the big picture and essentially not sweating the small stuff.
This is where you tell me your reasons for not using cash.
1. “But if I have cash, I spend it.” This is normal when the cash you have is not properly defined which we’ll talk about below. If this is what you think, keep reading!
2. “But I get rewards on my credit card.” I typed a response to this argumenthere but the gist is that no rewards credit card pays you 20% which is how much you save yourself by using cash. At most you earn 4-5% so it’s actually costing you more than you earn.
3. “I don’t want to be restricted, I want to live my life.” Using cash is incredibly liberating once you get the hang of it. You’ll actually enjoy life and can be more present in the moment when using cash.
I’ve convinced you it’s important and worth trying right? So let’s make sure your next attempt is a success!
Here are the tricks to making it work-
1. Determine which categories and how much you need. The two most common categories are “groceries” and “eating out” but everyone lives their life (and thus spends their money) differently. Some use cash for gas, kids’ allowance, spending money, etc. These are not set in stone. Get started with what you know but allow yourself to add other categories if necessary. Do what works for you based on where you spend money regularly.
2. Determine how long this money must last you. Are you taking cash out weekly, bi-weekly, on the 1st & the 15th? You must know the exact date when you’re allowed to replenish your funds in order to stick to it. If you run out of cash and only have 1 day left, you know you’re okay. If you run out of cash but have 4 days remaining, you have to get creative!
3. Determine what expenses the cash can be used for. If there’s no clearly defined purpose for the money, it will be gone before you know it.
4. Don’t carry all your cash on you. If you find spreading it out a challenge, keep some of it at home in the kitchen or bedroom drawer. Only take with you what you’re willing to spend that day.
5. Allow yourself a few chances to get it right. Don't give up if you run out of cash in the first week. You may have set an amount that looked good on paper but wasn't realistic. Change the amount and try again.
Switching to cash is one of the hardest things I ask my clients to do. It’s extremely challenging at first but once you figure out the proper amounts to use, it becomes the simplest way to handle these day to day expenses.
Give it a shot and let me know how it goes!