Does the Cash Method Really Work?

One of the many ways that people try to curb their spending habits is to go to an all-cash budget. The reason for making the adjustment is that it helps you weigh the actual cost of each expense because it is actual bills leaving your pocket. In other words, the idea is that if you leave the all too convenient plastic cards at home, and using cash budgeting, you will reduce your spending.

Yet, as you know, my wife and I live by our credit cards. We strategically use our credit cards in order to get cash back rewards. Without doing any additional spending, my wife and I earn about $500 a year in cash back rewards. So, if there is anyone to critically evaluate the cash method (a.k.a the envelope budgeting method), I would be the guy.

cash budget

When the Cash Method is Helpful

Despite the reluctance to give up using my credit cards, I do understand that some people struggle with controlling their spending. My wife and I recently created a fun budget, allowing us to spend a few hundred dollars each month without having to feel guilty. Yet, as you all probably know, starting to spend money on things you WANT (not need) is like pulling the plug on a bath tub full of water. Once you pull the plug, it is hard to stop the water from draining all the way. Side note: Sometimes I think it is easier to control your spending by not allowing yourself to do it at all. Once we started our fun budget, and living a little, I started to want a new TV. We currently have a small 19in flat screen that is just a little bit bigger than our computer screen. From a distance, it actually appears smaller than setting our computer on our coffee table. So, you can understand why it would make sense to buy a bigger TV. In truth, however, we don’t need it and we could easily spend the money on something more valuable to our social life.

To put it simply, I have realized how letting go of the tight spending limits has increased my consumerism. Imagine how tempted other people might feel who aren’t used to controlling their spending. The cash method may be their only way of escaping perpetual debt. For people who have trouble visualizing the impact of numbers on a computer screen, the cash method makes sense. It is a strict way of budgeting because once you run out of cash, you can’t spend any more money.

The cash method also has many benefits. If you separate your cash at the beginning of the month, you will even be forced to prioritize your spending – similar to setting up a budget, only a little more tangible. Obviously, you would set aside money for the necessities: housing, payments, insurance, etc. Then, everything else you are forced to weigh its importance.

Do I really need this? 

What’s more important to me: this or that?

Can I really give this up?

These type of questions are important for anyone to ask. It forces you to recognize the limited nature of your finances and not be tricked into believing debt is a viable option to pay for your consumerism. This is why I think the cash method could be a viable option. For those struggling with their finances, it can be a shocking reality to only spend what you have.

Why I Won’t Be Going to a Cash Method Anytime Soon

While it can be beneficial, it’s not to say that it is helpful or necessary for everyone. My wife and I are still prioritizing our finances as any young family should: emphasizing savings for retirement, maintaining an emergency fund, paying our bills on time, and then enjoying a little of what’s left over. Since we are in control, we are reaping the benefits of credit rewards. (Get the Discover® More Card today if you want to start earning 5% back on rotating categories).

The method of budgeting is all about being honest with yourself and realizing what is necessary to get the job done. If you are struggling to spend less than you make, why not try the cash method. If that helps, see if you can slowly incorporate credit cards responsibly to reap the benefits of cash back rewards.

Have you ever used the cash method for budgeting? What has worked for you?

25 Responses to Does the Cash Method Really Work?

  1. Michelle says:

    We’re using the cash method just for our fun money. We are trying to limit our fun money, and using our cards for it just doesn’t work. Hopefully it works for us, as we just started a week ago.

  2. Jai Catalano says:

    My wife and I do the same thing. We use our cards for financial gains. It doesn’t always work for people but some it is great.

  3. bogofdebt says:

    I use the cash method because it’s far easier for me to let money slip away if I use a debit card or credit card. I don’t view it as “money” for some reason. However, the envelope system works for me right now–I don’t like to let it go when I see it. Eventually I want to move away from the cash system but right now it’s working well. And for the fun money, I have been working on a system where I spend half of my fun money but the other half is saved for something I want but is a larger purchase. It’s going well.

    • Corey says:

      Glad to hear it is going well. Do you feel like you have to spend all of hte money in the envelope? What do you do with money left over? Just curious…

      • bogofdebt says:

        Depending on what it envelope it is, it either gets put into savings at the end of the budget period or rolls over. Fun money rolls over but grocery money goes into efund or wedding fund. Gas money goes into the car fund.

  4. We use cash for fun, groceries, and personal spending. That way we don’t have to feel guilty and our spending is cap each week. The cash method helps up spend a little less. When I was using credit card, I tend to spend more money overall. It works for us, but probably not for everyone.

  5. I only use cash when it is advantageous. Some vendors give 2-3% off a purchase when paying in cash. Another area I’ll use cash, is when I’m negotiating a price for a big ticket item. Somehow flipping through a stack of greenbacks gives you more negotiating mojo. :)

  6. Christian L. says:

    Corey,
    I’d agree that it’s better to just tighten up your spending. However, for some that means sticking with cash.

    I’ve stuck to a cash-only budget for a few months before. It helped me break some bad habits, like shopping online or buying several rounds for friends at the bar. No two consumers are the same, so budgeting methods that work for one may not work for all.

  7. I primarily use my credit card for cashback like you do. I see the merit in using cash, but it just isn’t for me at this time.

    • Corey says:

      At least you know what works for you (right now). Do you do anything special with your cashback or just deposit into the account?

  8. I only use cash for cover charges and giving away money to people who ask for it on the side of the road.

  9. The cash method doesn’t work for me for some reason. I’ve always used my credit card to budget, so when I have cash I feel like it’s outside my budget tracking and thus I spend it quickly.

    I tend to spend more evenly with a credit card. I can’ explain it. I’m a weird creature.

    • Corey says:

      I like to think of the credit card statement as keeping me accountable. With cash, you could forget where you spent the money.

  10. I avoid cash when at all possible. Like JP, it’s always been outside of the budget. For some reason, it’s easier to keep the debit card in my wallet than cash. Besides, the reality of the situation is that the overwhelming majority of my spending is on things that don’t take cash, like the cable bill and the mortgage payment.

    • Corey says:

      Very true – so much of our finances is electronic these days. It would be a pain to mail in cash (and scary for fear of theft).

  11. John says:

    Using cash does indeed make your expenses more tangible. Actually having to pull bills out of your wallet and hand them over can give you a better sense of what something actually costs. Credit cards can be very tempting these days with many stores installing readers that let you swipe your card yourself. Also, you don’t actually see money change hands when paying with credit. Perhaps one method people could try is when you get your paycheck, pay all bills that are currently due or will be before your next check. What’s left is what you have to live on. Having that money in cash can make you spend it more wisely.

    One possible downside is transactions for less money that a convenience store’s credit card minimum. If you’re thirsty and next to a convenience store, you might go inside and spend a dollar or two on a bottle of water. Since many such stores have minimums for credit purchases, you might just wait until you get home and drink the (nearly) free water out of your tap if you don’t have any cash.

  12. Michelle says:

    I can’t be trusted with cash! If it’s on me, it’s gone really quickly.

  13. I am with you. I have never used cash for decades, sans a few emergencies that demanded it. I find that using credit cards you can take advantage of their grace periods of no interest and then can maxmize your cash in your savings accounts quite well.

    I feel that more people will be looking to use more digital methods (paying with their phones) and moving away from cash even more

  14. Mrs. Pop and I use Mint for budgeting; cash can throw a wrench in things unless you take the time to classify it.

    Like Michelle said, when I was younger I couldn’t be trusted with it, so I made sure it was in the bank instead of in my wallet!

  15. Oscar C says:

    Similar to using cash for fun. I just use a seperate checking account for fun and my main for everything else. Direct Depotsit goes like this:

    -Long Term Savings
    -Short Term Savings
    -Bills and Rent
    -Fun Money

    Any fun money is limited by what’s left at the end.

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