I've shared quite a bit about how we use the Dave Ramsey budgeting system, and those familiar with this method or Financial Peace University know that cash is heavily emphasized. Although I wouldn't call our budget a cash-based budget, we DO use cash for a lot of things and I want to share exactly how we factor cold, hard cash into our monthly budgeting system!
First of all, I was floored to learn in FPU that statistically speaking, people will spend more when swiping a credit or debit card than they will when handing over actual cash. I've found this to be totally true for me personally as well! When I have to actually hand over six REAL dollars to pay for my Starbucks, it makes me think about it a little more than when I hand over my little plastic debit card. We notice the difference mostly at the grocery store; we spend WAY less when we stick to cash + a calculator than when we use our debit card.
As Dave Ramsey quotes often, "Finance is 80% behavior and 20% head knowledge." With the knowledge that we are less likely to overspend using cash, it's all about making the little choices day by day that add up to changed behavior. Here's how we use cash in our regular, monthly budget.
- GROCERY SHOPPING | We budget monthly for groceries, but pull cash out to shop weekly. We've found this to be the best option, even though our pay periods/income doesn't come in weekly. We've tried shopping in bulk (Costco), shopping every two weeks, shopping every few days, and shopping weekly seems to be the best option. Occasionally we'll have to run to the store in the middle of the week to grab something we run out of or forgot, and we don't buy every item every week (things like eggs, milk, etc., will last us longer than 7 days) but meal planning + shopping on a weekly basis has really helped us keep our costs down. Right now, we are spending about $50/week to shop for the two of us. We eat very healthy and try to buy organic and free-range/grass-fed when possible. I'll share more details about our grocery budget soon! At the beginning of each week, I pull $50 out of the ATM and it goes into our cash envelope labeled "food." Matt and I shop together usually, and Matt will keep a running tally on a calculator of every item I put into the cart. If we go over what's in the envelope, we don't get it. Period. This has really helped us not overspend, waste way less food and stay on track with our financial goals!
- POCKET MONEY | Matt and I each get a set amount of personal spending money each month, sometimes called "pocket money" or "blow money." We are free to use that money on whatever we want - Starbucks (me), lottery tickets and fountain drinks (Matt). We don't get to call each other out about what this money gets spent on, and that is KEY in sticking to our budget system and being a team. If we had zero pocket money, I think there'd be a lot more fights about how money is getting spent. Even though we are budgeting very tightly and working very hard at savings and paying debt (thanks to two new cars last month) the pocket money line is still essential for us. It is a very low amount, but it's still crucial that we feel like we have some freedom to spend a tiny amount each month totally how we want. I'm a big advocate of factoring in personal spending into your budget if you're budgeting with a spouse--even if it's only $10! We each get the full amount of our pocket money in cash at the beginning of the month and once it's gone, it's gone! Matt is WAY better at rationing his pocket money than I am; mine is usually gone by week two. Oops!
- PET SUPPLIES | We buy our dog food from a local business, and we buy him a bag every 6 weeks or so. We put that amount in an envelope labeled "Scout" and pay for his food in cash when we buy it. If we know he needs treats, toys or anything else, we budget for that and then put whatever we budgeted in cash into the envelope. The only exception to using cash for all Scout's supplies/needs is when we board and groom him, and for his vet visits. Typically we will pay for that with a debit card.
- DATE NIGHTS | We budget a set amount for date nights every month ($50) and pull cash out of the ATM to put into the "date night" envelope at the beginning of the month. We can divvy this up however we want - 5 little dates or one nicer dinner date, whatever we feel like doing. If we want to go grab ice cream together or see a movie, we check the date night envelope. If there's enough in it, we can go. If not, it's plan b and finding something cheaper or free to do instead.
- TOILETRIES/HOUSEHOLD ITEMS | We started separating this from our grocery budget last month and it's been a huge help! If we need household items like paper towels or laundry detergent, or run out of something like shampoo or deodorant, those purchases will come from the "household" envelope. We put the full month's amount into the envelope at the beginning of the month and just draw from it whenever we need something.
Occasionally we'll also use cash for gift purchases or house purchases, like when we went to IKEA in May. We budgeted for the IKEA trip in our regular monthly budget, then withdrew the amount we agreed to spend in cash and took that with us. I know we would have absolutely overspent if we hadn't had this plan in place to use cash. We walked around IKEA with a calculator and only got what we could afford - in cash - even though there was more than what we brought in cash in our checking account. It is totally about self-discipline!
If there is something I want to buy from my pocket money that's on online purchase, like something from Etsy, I'll use the debit card to buy it online, then deposit the cash amount from my pocket money cash. It might seem silly to go to the bank to make a $12 deposit, but it's really important to us that we stick to the system and don't mess it up by mixing online and in-person purchases without accounting for them. The same is true for every other category - sometimes we'll buy grocery items from Amazon (all the praise hands for Amazon Prime) but we make sure to deduct the total amount in cash from our grocery envelope and put it right back into the back to make up for swiping the card.
When there is money leftover in the envelopes at the end of the month (which has only happened once - in June!) we made the decision to put the extra towards our upcoming Hawaii vacation. We are trying to save a good chunk of change to use as our spending money during our two-week vacation without adjusting our monthly budget whatsoever. So this means that all of our "extra" is going towards the Hawaii fund - selling things on Craigslist, our upcoming garage sale, cashing in our change jar, and any extra from our cash envelopes at the end of the month. So far we've managed to save almost $400 for vacation without having to draw a penny from our regular budget!
So that's how we use cash. We pay bills online for the most part, write checks to our church for tithing and use a combination of debit/credit for gas. Matt wanted to keep his one credit card because we get $100 back every 3-4 months for using it, and he pays it off in full each month. We agreed to ONLY use it for his gas, and we've been doing so for over two years with great success! I use my debit card for gas. So I'd say our budget is about 50/50, 50% cash and 50% other (credit, debit, checks). It works great for us! I'd love to hear how you guys do things - do you use cash? Credit? A combination? There's a million ways to do things, and I'd love to hear any tips + tricks you might have! xo!
PS. if you're up for more reading, my financial coach Will Ray has a great post on using cash - as well as a host of other great finance topics on his blog. Definitely subscribe to his posts if you're working on your finances - he is so wise and his advice is super helpful!