I was thinking today about people who only use cash to pay all their bills. They withdraw their paychecks and segregate the money into “envelopes”. Then they stay on budget because they can spend only that “preset” amount.
What would worry me is carrying around that amount of cash. One thing that made me wonder about this system is how many different cash envelopes do you really need to curb your spending? Because personally many bills are automated and a set amount.
For example I have a mortgage, insurance car and home, natural gas, electric, cell phone, and cable as set bills. We do budget billing for electric and natural gas so during the winter when we use more, we pay for it throughout the year. It’s been a breeze to say I will pay $200/month for gas and electric and our companies have been dead on within a $10 overage or underage. I find it easier to plan on a budgeted monthly utility amount than paying a variable amount during the winter.
Also, our cable, cell phones, mortgage, and insurance as set bills as well. We have a $59.99 plan with taxes is $70/month and has been that way for 4 years now. I discussed earlier why we keep a cheap cell phone plan. The same goes with our cable, internet, and home phone plans. So pulling out cash doesn’t really make sense to pay these recurring monthly bills. These bills can be automatically paid from our checking accounts because they don’t vary unless something is wrong.
The variable categories are gas for the car, groceries, clothes, entertainment/fun, or eating out. Although personally I notice our gas usage is the same monthly, with exception being when people visit. But wouldn’t it be easier to pull out cash for maybe 2 or 3 categories?
I think the hardest categories to budget are groceries, eating out, and fun. Those are hard to curb and can easily get out of hand. But do the rest of the categories need to be on a cash only basis? If they are recurring bills?
Share your thoughts on how you manage your cash budget. Do you use multiple categories or do you just use cash for specific categories like groceries and eating out?
11 responses so far ↓
1 Kristy // Oct 14, 2008 at 9:59 am
I don’t really budget, per se. However, when I was tracking my spending I found that we were spending a ton on groceries. Typically, we charge everything and then pay the credit card every month. But when I noticed how much we were spending a month on groceries I decided to do cash only. I now give myself $75 per week for a family of 3. When its gone, its gone, unless of course we need milk or bread. Otherwise we make due with what we have. Since I started this, we have done pretty well on our grocery budget. Every once in a while, especially now that football season has started we will charge a little bit and go over budget. But its rare and I feel better overall about spending on our groceries.
Personally, I would do cash only for just a few things, like groceries, eating out, fun money, etc. I don’t think its necessary to go all cash.
2 LAL // Oct 14, 2008 at 10:07 am
I tried a cash budget in February, turns out for groceries and eating out I’m so stingy it’s bad. I barely spent $100/month for both for 2 people. Instead we ate almost entirely from the pantry and didn’t go out to eat.
So cash makes me way to stingy. I heard from a professor recently, naturally frugal people during a downturn don’t need to economize more.
They already economize and maximize their spending to happiness ratio. I think this might be true for us.
3 Jim ~ mydebtblog.com // Oct 14, 2008 at 11:13 am
I think the old envelope system of cash to pay bills, while still possible, isn’t used much today. I’ve finally got to the point where I no longer have to write checks to pay a bill, everything can be done online or auto draft. Good luck finding people to comment on the cash system though, it’s an interesting topic.
4 Prince of Thrift // Oct 14, 2008 at 11:26 am
I do that, but all my envelopes are savings accounts, so I don’t have to carry around cash. My “grocery envelope” is an online checking/savings at WaMu (now Morgan-Chase).
My household bills come out of my regular checking, then the other occasional items are in savings scatered amongst local credit unions. When I want to pay car tags or taxes I simply withdraw the money from trhat account and transfer to my local checking account and pay the bill.
5 LivingAlmostLarge // Oct 14, 2008 at 5:46 pm
Yikes sounds counfusing with multiple checking accounts.
6 Rini // Oct 14, 2008 at 5:54 pm
I use the multiple-checking-account system.
My ING checking gets my paychecks and is used for all regular bills. Extra money in that account goes to one of a set number of purposes - plane tickets to see the kids, snowflaking our debt, etc.
My local brick-and-mortar bank get my husband’s paychecks and is used for “everything else” - gas, groceries, entertainment, eating out, clothes, haircuts, oil changes - everything that doesn’t send us a bill in the mail.
Next fall, when our income improves and we relax our budget a bit, we plan to open a third account. The current brick-and-mortar will become a “needs” account - gas, groceries, oil changes, required clothes. The new account will be for “wants” - eating out, entertainment, discretionary.
It’s really not that complex to manage, as long as you can already break up your income into these categories. My check is direct-deposited into the bills account. My husband’s is direct-deposited into the discretionary. If there’s money in the discretionary, we can buy groceries. If not, we eat the Ramen in the cabinet. It works for us…
7 LivingAlmostLarge // Oct 14, 2008 at 5:59 pm
I’m going to be honest here, I think people who need multiple checking accounts and making money harder to access have serious money issues.
I’ve noticed that people who aren’t in debt and are pretty good about their spending habits can use one account and live within their means. They don’t have to use methods to curb their spending.
They say I will spend $75/week on groceries. They might pull it out in cash to be sure, they might also just say I will track all receipts and when it gets close I will stop. But I notice that those with self control don’t need to use multiple accounts and special controls.
But I could be wrong.
8 fengshui // Oct 14, 2008 at 8:29 pm
I would find multiple accounts confusing and also frustrating. Having several accounts that have frequent transactions would make me feel as though I don’t have much money in the bank. I get paranoid if I have less than $2k in my checking. (I don’t even count this as an EF- the EF is a separate savings account). I just like a HUGE cushion, just in case something goes wrong…. But, everyone is different. I also can’t restrict myself by saying I can only spend $60 at the grocery store this week. What if I get up to the check out and it is $70. Do I have to put items back? So, I just go and get what I need, and if it is $80 one week and $50 the next, so be it….. It would really help if I meal planned, but I don’t. I’m more of a fly by the seat of my pants kind of person, which makes budgeting near impossible…..
9 Shawn Knight // Oct 14, 2008 at 11:11 pm
There is nothing wrong with the envelope system, if that is what you need to get your spending under control. And why worry about carrying around cash? It’s not like a robber has x-ray vision goggles and can see into your wallet / purse.
10 LAL // Oct 15, 2008 at 11:02 am
Nope, nothing wrong. But I’ve seen quite a few people, especially women shopping with kids who post about losing or forgetting their wallets, cash, or purse. I can only imagine the stress of trying to shop with 2-3 kids and rushing around.
It would be very easy to misplace an envelope or even lay down some coupons/cash without thinking. And from what I’ve heard it happens at least once to most people who use envelopes.
11 Fabulously Broke // Oct 16, 2008 at 12:16 pm
Lately I’ve just tried budgeting amounts for fixed costs, and then just taking out $200. If I spend it, I stop. If I don’t spend all of it, it goes into the next month… it seems to work better than the budgeting schtick (for now) because of my weird income
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