Challenges with a Cash Budget (and how we deal with them)

Challenges with a Cash Budget

 

Just about a year ago, Dory and I went through a bit of a financial awakening.  We made a commitment to paying off our debt (my car and Dory’s student loans) and to saving some money.  In order to help accomplish our goals, we switched to a cash envelope system, using cash to pay for most of our expenses (outside of mortgage, utilities, etc).

It was a huge adjustment and has been a continual learning process.  At first, it felt very weird to be paying in cash – we felt like we were the only ones, and cashiers definitely gave us some strange looks.  As time has gone on, either we’re getting used to this, or more people are paying in cash, including some of our friends. At this point, we’ve really gotten the system down and have been making huge progress!  Here are a few challenges we’ve encountered, and how we’ve dealt with them.

These were our old cash envelopes. We would carry them around in Dory's purse when we did our shopping. They were really bulky and awkward.

These were our old cash envelopes. We would carry them around in Dory’s purse when we did our shopping. They were really bulky and awkward.

You can’t spend it if you don’t have it (with you)

One thing about cash – you can’t spend it if you don’t have it.  There have been a few times that we’ve gone out to do something, and realized we left the envelope with the money at home.  This has really forced us to be intentional with our trips out, and has definitely decreased our impulse buying.  That’s really the whole purpose of the cash budget – to force you to be intentional with your spending.  Dory now carries a different wallet that is perfect for the envelope system (though I’ll just grab some cash out of it if I run out by myself…), which has also really helped.

 

We now use this Thirty-One Coupon Clutch (in a different pattern), which has several sections to organize the categories of our budget.

We now use this Thirty-One Coupon Clutch (in a different pattern), which has several sections to organize the categories of our budget.


You can’t spend it if you don’t have it (left to spend)

The second piece to “you can’t spend it if you don’t have it” can be extremely evident when it comes to the end of the month and don’t have much left for groceries.  Obviously, we’re not going to let ourselves starve, but treat this as a challenge – can we do it?  Can we stay under budget?

To do so, we’ve had to be creative with our meal planning.  Dory even created a menu board to keep us on track. Thinking through what’s in our pantry and finding simple, cheap and yet still healthy recipes, and doing some disciplined grocery shopping (even tallying up where we are as we add things to the cart).  It’s actually been a lot of fun, and we’ve come up with some great dishes.

“Allowances”

At first, both Dory and I managed out own separate checking accounts for our “allowance,” separate money that was allocated for us to spend however we wanted.  After we got used to managing cash, having that extra debit card and having to manage  a bank account with such a small amount of money just got to be a hassle.  We’ve gone to cash allowances, and we haven’t regretted it at all.  Most of what we buy using this money is something local (restaurants, clothes, etc).  The only issue with this is when we want to buy something online…

Online Shopping

So how do we buy things online when they fit into one of our cash budget categories?  Pretty simple, actually – we buy the item with our joint debit card and deposit the cash to cover it.  We always have a buffer in our checking account (or else we would make the deposit first), but we still try to do this pretty quickly, so we don’t forget and spend the cash elsewhere.  We used to write up deposit tickets and have to work with the tellers, until we discovered Wells Fargo’s Envelope Free ATM Deposits – I’ll post more on these later, but they are a huge time saver.

Anyone else out there using cash?  What issues have you faced, and how do you deal with them?

Envelope Budgeting – Cash is King

Envelope Budgeting Cash is King

For my first post…a boring financial post!  How exciting!

Pretty much any personal finance advice starts with one piece of advice:  you need a budget!  For most people, a budget is pretty easy to put together.  You have a pretty predictable income, and a predictable set of bills.  The hardest part to plan for are your variable expenses – groceries, entertainment, pets, shopping, etc.

Over the years, we’ve tried many different ways to track and stick to our budget.  We’ve saved receipts, balanced checkbooks, and even used tools like Quicken or Mint.  Through all of these systems, we’ve noticed two major problems with budgets for our variable expenses.

  • Time Consuming: It takes a good amount of time to tally up reciepts, balance and categorize spending in a checkbook, or to enter all spending into a program.
  • Allow Overspending:  if you haven’t balanced your checkbook or entered all of your transactions, you may have no idea how much you’ve spent/have left to spend.  This makes it very easy to overspend in a category using a debit/credit card.

Our newest solution: envelopes of cash for each spending category.  We started with a bank envelope with “Groceries” or “Pets” written on the outside, and withdrew cash at the beginning of the month for each spending category, putting the cash in the envelope.  This solves both problems we’ve had before – you know exactly how much you have left to spend, and it’s physically impossible to overspend in any category by accident.  If an envelope is empty before the end of the month, you need to either make do, adjust the budget amounts, or borrow from another envelope.

It’s taken us a little while and a few adjustments to our budget amounts, but we’ve really embraced the envelope system.  This past month, our dog Lucy had an emergency vet visit (~$500, ouch!).  She’s fine, and so is our budget – our pet envelope had enough in it to cover the cost of the visit.

This budget system is also a great way to balance responsibility across family members.  I manage our fixed expenses/bills, and Dory manages our envelopes.  When we were using some of the other systems, I was responsible for managing our entire budget.  That put me in the position where I had to say “No” to things that we both wanted to do – I felt like the bad guy all the time.  Now we’re on the same page with spending, and know what we can afford to do before we decide.

With any budgeting, the challenge is being specific enough without having too many categories that make it difficult to manage.  Our current envelopes are:

  • Food: Groceries, Dinners out, and general household supplies
  • Entertainment: Anything fun together
  • Home: Improvements, decorations, etc.
  • Pets: Pet food, toys, and vet visits

All of our other bills and expenses are pretty fixed or consistent (water/electric bills), and we pay online.

The system may not be perfect, and definitely has some risks (what if you lose an envelope?), but it definitely is working for us.  I’m sure that over time, our envelopes may change and the amounts definitely will, but our system is pretty much humming along for now!  I’d definitely recommend an envelope system to anyone and everyone.