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Why Cash Is Still King of the Monthly Budget

Last week I blogged up 10 tech tools to help you budget. This week, I’m going to suggest why you might want to through them all out the window.

The point of having a monthly budget is to set a maximum amount of money you want to spend that is less than your income.

Most of the time, we compartmentalize that money by category (housing, transportation, food, debt, etc.), but the overarching goal is still to spend less overall that we bring home.

As I wrote last week, there are no shortage of tools – from intricate personal finance software packages like Quicken and MS Money to online tools like Mint – that will let you arrange your credit or debit transaction into categories, set limits, track your spending, and even create nice little graphs and reports showing where your money is going.

That’s all very impressive, but the bottom line is: using these tools, do you actually stick to your budget?

Chances are, unless you enjoy spending a few hours each week going over your expenses and tweaking how they show up in your budgeting program, fancy budgeting programs may not help you control your spending, they may just let you know you have spent too much when it’s already too late.

Budget With Cash Instead

It’s true our economy is getting less cash-friendly. I see more people swiping cards to pay for $2 coffees than paying with cash (it may be faster), and the last time I paid for something that was over $200 in cash, the clerk had to do five minutes of paper work for the cash transaction!

Still, cash has the powerful benefit of being tangible. And tangibly finite.

When we have $100 in our pockets to cover spending for the next week or two, we can always see and touch how much we have left. In addition, if we are ever tempted to overspend, if we make ourselves go to an ATM to take out the cash, we make ourselves ever-more cognizant of our decision to spend that money. Not so when we simply swipe our debit card and go.

Also, cash doesn’t bounce. If you’re not careful of keeping your checking account balanced, you could bounce a debit card transaction, resulting in nasty overdraft fees.

While it is possible to earn rewards by using a credit card responsibly, you might ask yourself: Do these rewards make up for the amount I might be overspending because I use a credit card instead of cash? Even if you pay your balance in full each month to avoid finance charges, did you buy something last month you wouldn’t have if you had to go to the ATM to get the dough?

Tracking Cash Spending

True, another benefit of debit and credit cards is that they provide a neat little summary of your transactions each month. There’s no work involved in remember what you spent where.

Spend with cash, and there is an extra step involved. It’s not difficult, however, as there are little pieces of paper available everywhere you spend money. Receipts! You can now even mail in your receipts to be scanned by a service like Shoeboxed so you have an electronic record of your cash spending.

When you track your spending with cash, it does take a little bit of time, maybe twice a month, to jot down your purchases. I have found, however, that even when using computerized budgeting tools that automatically pull credit and debit card transactions, I needed to spend just as much time tweaking the categories each transaction was filed under. So six of one, half dozen of the other, I guess.

What do you think? Do you – or have you ever tried – budgeting and spending in cash? How did it go?

I post to the budgeting category every Wednesday. Next week stop back to read: “Receipts: Do You Keep Them or Chuck Them?”. Need a reminder? Please subscribe to my RSS Feed.

Published or updated on March 20, 2008

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


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  1. nancy says:

    Using cash is the best way for me. If I only have x dollars that’s all I can spend. If I have to dig out a card I have to think about the purchase do I really need it or is it a want?? I also agree that I overspend when I use a card.

  2. Randy says:

    I’ve always been opposed to regularly using cash. For starters, Rob makes some good points regarding the lost interest that could have been earned. But my biggest beef with cash is the loose change that accumulates with every purchase.

    One of three things happens with change:

    1) We lose it
    2) We waste it away frivolously (sodas, candy bars, Starbucks, etc.) for no reason other than to get rid of it, else it continue to pile up.
    3) We save it in an empty coffee can and cash it in after a couple years.

    The only sensible use of loose change is #3, but once again, that money could have stayed in an interest-bearing account all those years. For some people, cash may have some psychological benefits, but it sure isn’t the most efficient way to go.

  3. Aaron says:

    Randal, I care about maximizing my resources, therefore I care about online deals… Also care about the 1-3% cash back I get from my credit cards…

  4. Randal says:

    Rob- 1. who cares about missing out on online deals!!!
    2. Interest lost clearly outweighs the result of over draft fees

    I take out 200 bucks every pay period for my budget of 2 weeks

    I have found for me personally to be just enough for random daily purchases and 1 meal for lunch each week; Groceries are budgeted out of my card purchases– which is the only item on the card purchase budeget

    this has worked for me and it took 2 years to develop and standardize…seriously

  5. Rob says:

    Your rational for using cash as a budgeting mechanism is flawed for the same reason why you claim your readers are unable to effectively budget with plastic: irresponsibility.

    True, physically handing over five $20’s *can* feel more potent than using plastic, but absconding plastic also results in missing out on deals found online.

    Additionally, by using cash pulled directly (and pre-emptively) from your checking account, you’re hurting yourself twice in comparison to using a credit card in terms of interest.

    First: By keeping the money you spent in your checking account until the end of the month, you are accruing interest, effectively giving you an immediate “Cash Back” reward.

    Second: By deducting money out of your checking account in the form of cash, you are giving up the interest that you could be earning on your assets until the purchase is made (compared to debit cards). In this sense, you are effectively paying a cash advance fee.

    Another penalty you may face is coming across something on sale that you regularly use and need to restock on in the near-future, but are unable to because an ATM is not near-by.

    Like I stated above, I understand the psychological effect of physically handing over greenback after greenback and seeing, then and now, how much money you have to spend. However, there is no substitute for responsible money management, and if someone cannot manage their money responsibly with programs that are effectively registers, regularly withdrawing cash from an ATM is unlikely to address, let alone solve, his or her problems.

    • Josh says:

      hmmm… if I were seeing any interest of consequence from my checking account than you’re right.

      I also think the plan is to not use your plastic. which doesn’t mean leave it at home, does it?

      either way seeing the stash spend down over the course of the month might give a needed visual context to the less conceptual spenders among us.

  6. Ryan says:

    I have not tried budgeting with Cash, but this coming month I am going to go ahead and do it. I too have an electric orange account and have been using the same method as you. I recently just setup electronic payments to my roomate a.k.a landlord. Another benefit of banking with ING. Great blog you having going here!

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