Using cash can be a game changer when it comes to stopping overspending and sticking to your budget.
We have come across studies (I wish I could find them right now) that have shown you save between 12 and 20% when you use cash compared to credit cards. Part of it comes down to the money actually being tangible and in your hand so you are more mindful about what you spend with cash and not so much with credit cards. And another part of it is a pain center in your brain that is triggered when you use cash but is not triggered when you use credit cards. That’s right…spending cash actually causes pain while credit cards don’t!
In this episode of The Saver and The Spender, Jill explains the how and why to use cash for day to day spending.
Notes from the Episode:
- The “cash envelope system” is a great place to start but over time most of our clients find it to be cumbersome and inconvenient. Also they tend to “rob from Peter to pay Paul” between envelopes anyways.
- It takes around 3 months to really get into the rhythm of using cash effectively and a majority of clients say, “I can’t believe I ever didn’t use cash”.
- Cash should be used for day to day spending
- Eating out
- Miscellaneous house things like cleaning supplies
- Gas station snacks
- Possibly pet food/ supplies
- Dry cleaning
- Haircuts if you get them every 4-5 weeks
- Entertainment/ movies/ happy hours
- Using cash doesn’t mean you have to live in scarcity and pinch pennies. Be realistic and honest with yourself and take a good look at your past few months of “day to day spending” to determine how much you need to take out every paycheck.
- Sometimes just seeing what you have spent, on average, over the past few months on the above expenses is a great exercise to get some clarity on your spending habits.
- Get your pre-determined cash amount on payday and that is what you have to use for the above expenses until the next payday
Strategies for using cash:
- Use www.Mint.com or www.personalcapital.com to determine what you have been spending each month on “day to day spending”. Let’s say it averages out to be $400 and you get paid every two weeks
- On pay day you would take out $200 in cash and then use that for your “day to day” expenses until the next pay day. Repeat this every pay day.
- You can use cash for gas if you want. Another option is to have a separate gas savings account with a predetermined amount to use. You use a credit card to actually pay for your gas and then once you go home transfer the amount you paid from savings to checking and when it clears into your account you pay off that credit card.
- Have a weekly meeting and conversations with your significant other about money, goals, wants and needs.
Want to learn more about time blocking? Here are a few resources to get you started:
- To determine your monthly/ per pay period cash amount you can sync your accounts with www.Mint.com or www.personalcapital.com
- You can check out our blog post on How to Budget the Fiscal Fitness Phoenix way.
- RELATED BLOG POST: Better than Grandma’s Cash Envelope System
- RELATED BLOG POST: Tricks to Using Cash
- RELATED BLOG POST: Using Cash to Dine Out