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?