Creating and sticking to a budget is crucial to developing good financial habits. With so many different types of budgets to choose from, though, you may be wondering how to find a plan that works best for your needs. Fortunately, this is where cash-only budgets come in.
A cash-only budget is a unique type of financial plan that changes the way you think about money. Not only is a cash-only plan easy to adopt, but it also paves the way for better spending and saving habits. Here’s everything you need to know about creating a cash-only financial plan and saving money.
What Is a Cash-Only Budget?
As the name implies, a cash-only budget is a budget that consists solely of cash. When you follow a cash-only budget, credit cards, debit cards and checks are off-limits. You’re restricted to paying in cash, no matter which product or service you aim to purchase.
A budget entirely made up of cash is typically divided into monthly envelopes. At the beginning of each month, you designate one envelope to that month and fill it with a set amount of cash. You can only spend whatever amount of money you placed inside the envelope over the course of that month. While this strategy may seem too difficult or restrictive for some people, there are some significant benefits of adopting a cash envelope system that will help you save money.
One of the most lasting benefits of a cash-only budget is that it encourages you to plan ahead in terms of spending. Because you only have a set amount of cash to spend each month, you’re more likely to think twice about what you purchase. By limiting your spending habits to items that really matter to you, you’ll save a lot of money that you might have otherwise spent on products you didn’t really need.
Evaluating Your Priorities
The act of creating a cash-only budget enables you to think about what’s most important to you. For example, if you’d rather spend more money on clothing than eating out at restaurants, you can simply add more cash to your clothing envelope. Once you have a clearer idea of what your spending priorities are, you’ll only be spending money on products and services that have a positive impact on your life.
Getting Out of Debt
If you tend to make most of your purchases with the swipe of a credit card, a cash-only budget will force you to slow down and consider what you’re about to buy. This is a healthy habit for those who are currently trying to get out of debt and live a life free from financial stress. A cash-only budget empowers you to gain more control over your finances, which is the most important step towards getting out of debt.
Using a Cash-Only Budget to Your Advantage
Making the transition from a traditional budget to a cash-only budget can be a major adjustment. However, by taking it one step at a time and sticking to your financial plan, you can start saving money and living in freedom.