It's a simple concept - pay certain bills with cash! Pretty novel idea. So from your budget worksheet you need to figure out what you can pay cash with. I think it is everything that is not a bill you pay each month (all the residual bills and credit card bills) should be paid with cash. So on my budget worksheet I take cash out for the following lines: Grocery/Going Out, Pet Care, Personal Care, Home Care, Medical, Entertainment, Clothing, and Miscellaneous.
The one thing you are probably asking yourself right now is what about Gasoline for my vehicle. I think takings cash out for this has gotten to hard since we have to pay up front now for it. So make sure you leave enough in the bank account to cover this - which should be easy since you budgeted for it already.
Once you figure out your monthly amount of cash you get to take out to cover the above expenses then you need to divided that in two. Why two you may ask? Well you are going to take half out on the first of the month and the other half out on the fifteen of the month. You might be asking why not take it all out up front? Think about this...you blow though all the money in the first two weeks. What are you gonna do now? And if you just said put it on my credit card - slap yourself. If you take it out in two payments to yourself you'll be able to budget better.
Then you should create an actual envelope for each category and put the cash in it. The goal is to not steal from one envelope to pay for another. If this is the case you need to go back and look at your budget again to see what needs to change for next month.
When an envelope is empty it's empty. You have no more to spend in that category for the month. Now from time to time you might need to shift between envelopes because something happens - do that I am not saying you can't. But note when all the cash is gone you are done spending for the month. You might find you need a better budget or there are things you need to stop buying.
Now if a true emergency happens and you are out of cash in your envelopes what do you do? That's when you turn to you savings (we'll talk about in a upcoming post) to pay for it. Do not reach for the credit card to pay for it - again if you do slap yourself.
You might be asking why can't it just leave my cash in my bank account and swipe my debit card - it's the same thing. Wrong! It's not the same thing. A funny thing happens when you physically have to let the cash leave your hands and give it to a retailer. It's harder to do that just swiping a piece of plastic. You start to rethink each purchase and if it is really worth it. You might think I'm crazy now saying it but it true. Just you wait.
One other funny thing happens. It starts to become a game. What type of game? A game to have money left over at the end of the month. Again, I might sound crazy but I love seeing that I have cash left over at the end of the month. I like it so much that towards the end of the month I get even more tight about what I will spend it on.
Here's to getting financially fit!!
Rustie J
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