How To Start Using Cash Only

I am constantly making an effort to save money in all of my daily endeavors. One thing I noticed about my spending habits was how differently I use and treat cash when I have it. I hold onto it longer, I think harder about a purchase before I make it, and if I have a bigger bill, I’m reluctant to break it and use it. I started asking a couple of friends if they have felt the same way before, and we all agreed. When we have cash on hand, we spend it differently than when we have our credit or debit cards.

This got me to start thinking about how to incorporate the use of cash in my daily life to prevent myself from living beyond my means. I know a lot of people do the cash only system! Of course, it’s not going to work for everyone, and there are some downsides to an all-cash-no-card lifestyle. If you’ve been thinking about switching over to the use of cash mostly, give it a try for two weeks, or a month and see how you feel about it. A test run is always a smart idea. Here are some plus sides to cash only, some downsides to cash only, and a few ways to get started on your own…

Stick to a solid budget, and separate each category into separate envelopes. This practice is commonly referred to as the envelope system. One envelope for your food budget, one envelope for your gas and transportation money, one envelope for your entertainment money, you get the idea. Each envelope has the exact amount of cash that you allow for that category of spending, and it shows you exactly how much money you have on hand.

You can see exactly how much money you have. No guessing games here. Unlike credit cards, your cash supply won’t give you an endless stream of spending power (even though we know that isn’t actually endless). Thankfully, cash gives you a limit because what you have is all you have. Overspending is a lot easier with a card. Sometimes keeping a running tally stored up in your head isn’t the most effective way for discovering if you’ve gone over in certain categories or not. Cash will show you when you have nothing else left to spend in any given category.

How to really make it work. You have to be strict with your envelope system. Cheating the system defeats the whole point of it! If you forget your grocery cash envelope at home while you’re on your way to the store, you probably better turn around and get it. If you bend the spending rules for one category, it will mess up the other. Don’t just overspend anyway. If you see you have a few too many things in your cart, you probably need to put a few purchases back, don’t dip into one of your other categories. You’ll have to be strategic with timing too – you don’t want to overspend your food budget in the first two weeks. So if that happens, work on raiding the fridge and getting creative with what you’re eating for the next two weeks. If you get paid on a bi-weekly schedule, then every two weeks you’ll need to get more cash and restock your envelopes. You can split your monthly budget into a bi-weekly budget if that helps you separate things a little better.

The downsides to only using cash. There are a handful of issues you could run into with the cash envelope system. First of all, booking travel is something you won’t be able to do with cash. If you’re running a business, you probably can’t get by using cash only either. Paying your credit card bills, car payments and mortgage or rent payment might also be something that can’t be done in cash. If this is the case, sit down for your weekly money meetings with yourself (or your partner or family) and pay off the items that absolutely can’t be paid with cash. Do these first thing each month or each week, and mark them off your list. After that is taken care of, take a good look at your budget and pull out the cash that’s necessary for all of your other categories, and then proceed with business as usual.

Take a good look at what a cash-only system does for your spending habits. Do you have extra money left over in some of your categories? If so, think about adding your leftovers to savings at the end of the month and starting over with your new cash envelopes. If the system works for you, you might end up saving yourself way more money than you anticipated. Share some of your cash system success stories, or even some of your failures if you’re able to! Perhaps we can all learn from a little bit of trial and error.