Happy Wednesday Friends!
Several of you have asked how our cash budget is going since I wrote here about several of the changes our family made in 2015 which we have called “The Year of The No.” This is the first of a two-part blog on using a cash system. Today, the nuts and bolts.
THE NUTS AND BOLTS OF A CASH SYSTEM
Why a cash system? For our family, it is a way to keep us on budget. It is SO easy to overspend each month, especially when you are raising a family and you feel like a walking ATM. We overspent the most in our grocery and eating out budget–we had a budget, but used our credit cards and tried to keep general track in our heads about how much we had left to spend each month. That is a wonderful idea if you are a millionaire. Our goal was to pay the credit card off each month but we realized our overspending was not allowing us to do that all the time.
Side note: We used credit cards because we wanted the points, which we used to do all of our traveling. It seemed like a great plan! But in reality I realized if we just set aside the amount we were earning in points each month for our vacation budget and stopped using our cards, we would fare far better in controlling our spending.
On the cash budget, we have a finite and tangible picture of how much we have left. If the eating out cash is gone, we wait another week or so until the paycheck comes. This is NOT easy, and we don’t do it perfectly all the time.
For those of you wondering how this type of budget works, here is the skinny.
On the 5th of every month (when my husband gets his bigger paycheck), I pay all of our bills which I have set up to process at that time. I then head to the bank with a total amount of cash withdrawal that will carry us through the month. They know me by name now…
I take the cash home and separate it into several categories:
Grocery : you can break this into smaller categories–Costco, Whole Foods, etc.
Non-food items : toilet paper, cleaning supplies, dog food, wrapping paper
Miscellaneous : the unexpected each month
Eating Out/Entertainment : date nights and family meals
Sports : we pay a golf coach in cash so we need this category
Gifts: some months need this more than others, so you can just keep adding
Allowance : for each family member–Jon and I get allowance too!
I divide all the money up into a mini-file folder (I’ll call these “envelopes” here). I carry this file-folder in my purse at all times~ and I’ve had to swallow my pride about how silly it looks pulling this blue plastic thing out to pay instead of my wallet, but hey, maybe I’ll start a trend.
I have a few other categories where I stash cash each month–these are things that may not be monthly but we want to have money set aside when the time comes to pay:
IMPORTANT TIPS TO MAKE THIS WORK
1. It should be noted that I SPLIT the grocery, miscellaneous, and eating out into two amounts and set one aside for the second half of the month. I have learned the hard way that it is way too easy to use it all up in the first two weeks.
2. Figuring out how to put in each category takes research. I recommend going through bank and credit card statements for the past three months and itemizing what you spend where to get a general idea. You may have to tweak it for the first few months to get it just right.
3. You can create whatever categories and amounts work for your family–I know some folks who break everything down into very specific envelopes.
4. What about gas and other categories? We use our cards for gas, and then pay all of our bills with checks or auto pay. We also have a college savings and regular savings category, but these get transferred directly from our paycheck to a savings account by our bank on a set day of the month.
5. Once the cash is gone out of a certain category, do you best to not borrow from other categories. For example, if you want to go out to eat but that envelope is gone, try not to borrow from the grocery envelope which still has money in it. This is where the discipline happens. The better you can get at being patient until the next paycheck to fill the envelopes back up, the better you will stick to your budget.
This has been challenging for us, because we tend to feel constrained and run out of money faster than we would like to! However, we know that this is the best way to keep financial peace in our lives. In my next post I will share some of the ways I have learned to cut spending and live within this cash system.
Come visit GraceFULLhome on our blog if you are an email subscriber! Just click here. There is a lot more to check out AND you can comment there! Please comment if you have tips to add–many of you already do the cash budget and our community would love to hear how it’s going for you.