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.

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?