In this day and age, it is easier than ever to spend money - just whip out your debit card and buy whatever you want. The problem with these nearly frictionless transactions is that it is difficult to keep track of your money. When most people wrote checks for every day purposes, at least they had transactions recorded in their checkbook. Every time a check was written, the person writing the check would be forced to write down the amount and see how much money was left in his account (assuming the person kept his checkbook balanced). Nowadays, it seems like very few people use checks for anything but monthly bills and very large purchases. Meanwhile, cash gets drained from their bank accounts while they use their debit cards without discretion. If this situation describes you, then you should pay close attention to the cash-based budgeting system discussed below. A cash-based budget can go a long way toward helping you get your financial situation under control.



In a nutshell, a cash-based budgeting system is one in which you take cash from your bank account for cash transactions and then divide that cash into categories. Each cash category receives its own envelope to hold the cash. That is all of the money that you are allowed to spend in that category until the next budget cycle begins.

To begin the process, you need to decide what your spending categories are going to be and how much cash you should allocate to each category. Common categories would include groceries, clothing, eating out, and entertainment. To decide how much to allocate for each, it will be helpful to look at your past spending patterns. You will probably be surprised at how much you spend on non-essentials, so it is very likely that your budgeted amount will be less than you have spent in the past. This will free up money for saving, giving away, or paying off debt. At the start of the month, withdraw the required amount of cash and divvy it up among the category envelopes.

Now comes the hard part. During the month, when you find that all of your cash for a particular category is gone, you cannot spend any more on it. If you find that it is impossible to get by on what you have budgeted for particular categories, then you need to adjust your budget for the next month. But until the next month begins, do everything you can to avoid spending more money on the category. If you have excess cash in other categories, then you can move money from one envelope to the next. The one thing you do not want to do is use your debit card to get more cash. That throws this whole system out of whack.

There are some items that will not fit into a cash system, mostly monthly bills that require a check for payment. But if you can get to the point where all of your bills are paid with check or on-line, and all other spending takes place in the context of your cash budgeting system, you will find that you have much more clarity and control of your finances.

The reason this system helps to control spending is that seeing your pile of cash disappear has much more emotional impact than using your debit card to make payments. You will be much less likely to over-spend. Even in the twenty-first century, when most transactions are done electronically, cash is still king. It is probably going to take some time to adjust to your new system. You will probably fall off the horse a few times. But if you force yourself to be disciplined and stick with it, eventually you will become a money managing machine.