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I am all about the budget! AND, I’m all about getting the most freebies you can to make every dollar stretch further! I’ve written a bunch of posts on how I take advantage of credit card rewards, and like to use my credit cards for every purchase to get some sweet bonuses. And I always pay them off on time, and don’t pay a cent in interest. But having been a Dave Ramsey disciple, I always have the quote in the back of my head “people, on average, spend 12-18% more on credit cards than they do with cash.” And to keep our spending in check to make sure we’re not spending more than we should be, I like to give myself “the cash gut check.”
What Is It?
It’s really simple, actually. About every 6 months, Michelle and I switch back to using cash for a month. Now, most our bills are automated, so those stay on the cards. But, all of our discretionary spending (food, baby stuff, spending cash, etc) is spent with cash only. We (Michelle) use the cash envelope system to organize our cash by category, fill it up with our budgeted amount at the beginning of the month, and set off on our merry way. I pocket my $20 in spending cash (YES!) and Michelle rocks the rest in her little plastic cash/coupon organizer.
How Does It Work?
I’m glad you asked. Here’s how it works:
- Spend only the cash allotted for each category.
- See the video below. This pretty much sums up my entire blog. So I’m quitting now.
Did It Make a Difference?
I’m glad you asked, again. Seriously, you are a GREAT interviewer! We last switched over to cash a while back, and I want to report that it did NOT make much of a difference in our spending habits. Maybe it’s because we started our first year of marriage on the cash envelope system, or because I am super OCD when tracking our budget, but our spending fell right in line with our previous months and the months after it. Now, I’m not saying we came in under budget. We did go over on the food budget a little (as usual, until we upped it to a more realistic level based on our seasonal budget), but most everything else was business as usual.
Why Keep Doing It?
We are going to continue to do the “cash gut check” about every 6 months here at the iHB household. Just because we didn’t see a huge difference in spending doesn’t mean it was not valuable. I like the idea of setting a hard budget on something and trying to make decisions throughout the month that help you stick to that budget. I also like physically handling money to let me know it’s not just numbers on paper, but a physical commodity that I can save and spend. I guess I just like it to be tangible. Now, I know Michelle would rather not touch money because it’s absolutely filthy with germs and cocaine, but she also agrees that it’s nice to see the money disappear.
Plus, who knows, 6 months from now we might see that our spending habits have slipped and the cash gut check could be just what we needed. I suggest everyone give this a shot at least once a year, if not more. It can really help you gauge the accuracy of your budget, and give you a literal feel for the amount of discretionary money you are spending each month. It might shock some of you, and heck, you might even find ways to make your dollars stretch further as a result.
Comments: Have you ever done a cash gut check? Do you currently use cash only right now? Do you find that you spend more using cash or using credit cards?
I find that I spend more when I use only cash. I’m not sure why, probably because I never carry it!
I’m seeing that a lot around the PF blogs.
I have to admit, I’m a card snob and rarely use cash, but only because of the sizable cash rewards at the end of the year.
But I DO like handling money, which I buy one ounce silver coins from time to time as a part of my investment strategy.
Next interview question, can you dunk a basketball?!
I can dunk a basketball.
I’m my kid’s plastic hoop.
I have never done it because I absolutely hate carrying cash. In fact, I’m kind’ve irresponsible with cash! No cash for me =)
Haha, you’ve written about your “cash adventures”, so I believe you 🙂
I’ve never done this. It would be interesting to do this for our ‘general spending’ category which is where trips to Target and the like come in.
It’s a great test if you can put the cash for the month in your envelope, and then stop spending once it’s all gone.
I see the point, but I am terrible with cash. Besides my “allowance”, I never carry any and envelopes tend to get lost in my house. I’m glad you aren’t spending more with the credit cards. I don’t think we are either, but I guess this would be a good way to check.
Cash in your wallet allocated for each category could work as well. It just helps see if you make better decisions with a strict cash limitation, because once it’s gone, it’s gone and you *shouldn’t* spend any more in that category.
I also find that I spend more when I use cash so I rarely carry any on me unless we are traveling.
Interesting. I’m seeing everyone say this. Maybe the study is outdated, and nowadays cash is worse?
I find that I spend far more using cash than credit cards. However, if I use the envelope system, I’m really good about cash. However, commingled cash in my pocket? ….that’s ice cream money, baby!
Another one of those “cash is harder” folks. Hmmm…good to know.
Great tips, we also use the envelope system for the 3 “g’s” … gas, groceries, and gifts.
Nice. We did that for a while as well, and it worked out pretty well. I guess it helped us hone our spending, because after we switched to cards, not much has changed 🙂
I wrote about this topic recently and was (and am still) intrigued by Jacob’s idea to try cash with only discretionary categories. Currently my wife and I are using debit only to help keep our spending in check, which we find to be a great middle-ground, but cash would be a good test for us.
Debit doesn’t quite have the same effect, as you are still swiping a card that is attached to ALL your monthly money, not just one category of money. Cash for each category can help your more accurately gauge if you are on track or not.
outside of a “weekly allowance” or if I’m shopping at a mom & pop store, I don’t like to use cash. I do shop at the occasional place that is cash or debit pin only, but even then I’ll use debit. I lose track of cash if I only used it to spend.
Yeah, digital money seems the norm, I’m finding out. I like to take it analog every now and then, but it hasn’t really made a difference. We’ll see how it goes next time.
Now that is a novel idea! Love the idea of using that month as a check in.
Cash is not for me. Can’t handle it. I forget where it went and it is too easy to spend. But my hubs is the opposite; he needs a cash only allowance.
It really does just shock the system, ans can help show if we’re becoming complacent with our discretionary spending. But also, Mint.com shows up with big red line graphs when we overspend as well. 🙂
I have a problem with cash! If I have it I usually will spend it. I use my credit card exclusively for all purchases. I earn miles for flights and hotels. I have never paid any credit card interest and never will! If I could not pay my bills off every month, I would put it on my line of credit.
Cash is becoming a novelty these days, and more and more I’m with moving away from it as well. Mostly because my kids will have no idea what it is, and I’ll need to teach them that credit cards ARE real money.
That is a good idea. I don’t do it myself because spending money on my credit card is just as real to me as spending cash. I’m confident that any difference in my spending is minimal.
Your expenses are pretty minimal, not sure if switching spending methods would even make a difference. 🙂
Pretty cool idea. We’ve never tried this before but I can definitely see how it would be worthwhile. I hate using cash mostly because a) I never have it on me, and b) it’s so annoying to track. But this is definitely a cool way to keep yourselves honest.
Thanks Matt. It’s fun for a month, and you don’t miss out on TOO many rewards 🙂
I spend more if I have cash with me and it gets difficult to handle. Sometimes I miss to keep a track with cash. Cards provide benefits of rewards and cash back too. But I really like your cash envelope idea, I am thinking to give a try…. Nice idea
Thanks Rita. It helps to just try it out for a month. But only if you set a budget and put the money in a labeled envelope or area in your wallet/purse. Then, once it’s gone, it’s gone for the month, and no more spending in that category.
Ha ha… seriously you are a great interviewer. Mate, that just made my morning. We don’t use cash nor want to check if we can lol. We know we spend it like water if we have it and it doesn’t really work that well for us like a credit card does. We seem to be more mindful with credit cards, crazy isn’t it?Many people love the cash envelope system and it works for them. I say go for it you can do it. Glad it works for the both of you.