Cash budgeting with a simple cash budget
I mentioned last week that I would tell you how I created my cash budget. I created the simplest budget I could possibly create, because I wanted something that would work for not only me but my husband. I’ll outline it here.
How I implemented a cash budget
1. I listed all my bills that I would be paying by check or that are auto drafts from my checking account.
I converted anything that wasn’t monthly into a monthly amount.
If you pay an amount:
Weekly multiply by 4.3333
Twice a month multiply by 2.1667
Every three months multiply by 0.3333
Every six months multiply by 0.1667
Twice a year multiply by 0.1667
Once a year multiply by 0.0833
My goal was to have a comprehensive list of money that would be coming out of my checking, for regular bills. What I didn’t include was my gas, grocery and entertainment money, because all these things can be paid by cash and honestly, although I don’t like the idea, if I’m short of money, these are the expenses that will have to be cut. I can’t very well not pay my debts or my utilities, or anything I’ve committed myself to paying, such as my cell phone and my satellite television.
I believe strongly that when I create an obligation to pay something, that I should actually pay it. I get mad at people who think they can sign a two year contract for a phone and then just not pay because they no longer have the money to pay it. These people have only themselves to blame for buying something they couldn’t afford.
I’ve done it myself.
I like my cell phone, and sometimes I even think I need it, but when I pay that bill every month, I get a little disappointed in myself for having taken on that obligation. But you know what? No one twisted my arm. I had a choice, and I made it in favor of a two year contract for a low cost cell phone.
2. The next thing I did was to list my monthly income.
3. I subtracted my monthly checking expenses from my monthly income. That’s the amount of money I could take out each month for cash expenses.
Since my husband is paid weekly and I’m paid bi-monthly, I converted that amount to a weekly amount that could be withdrawn from the bank and split between us based on our gas needs. After that it just depends who is going to be doing the grocery shopping for the week and who needs dining out and entertainment money. We do a lot of stuff together, so for us the division of the money isn’t that big a deal.
We’ve been doing this for several months now, and it’s been the easiest budget I’ve ever set for myself.
I do have to keep an eye on the variable expenses like electricity and telephone so that I’m comfortable there’s enough going into the checking.
By not funneling the majority of our spending through the checking account, I’ve cut out loads of data entry of receipts for purchases that don’t really matter. I’ve been able to keep my husband from dipping into the account based on the idea that if he takes money from the checking we won’t have enough money to pay our bills.
In short, I’ve been able to relax.
We’ve already seen one benefit to this way of doing things.
I got a raise shortly after we started, and because we were used to withdrawing only a certain amount of money from the checking each week, that additional income is building up in the checking account as our cushion. My husband has worked some overtime this month and that money too is sitting there.
Future benefits
As I pay off debt, I’ll easily be able to “snowball” the money simply because it’s going to sit in checking undisturbed otherwise.
My biggest challenge with this will be my husband’s desire to replace one payment with another, but I’ll cross that bridge when I come to it.
What I had to get used to
- Paying cash at the pump meant prepaying for gas (I learned that most stations will let you fill up and pay after the fact if you just ask)
- Paying cash in the grocery meant adding my bill in my head as I added items to my cart (I really started to pay attention to how much food I was buying and wasting)
- Buying online meant I had to add cash to my checking account as soon as I bought something (I shop online a lot)
Of course, this method may not be for everyone. My philosopy is that if you don’t try it, you’ll never know for sure if it would have worked for you.
March 7th, 2010 at 5:10 pm
Commenting on my own post here, but it’s now over a year later and I still find this to be the most effective and simple budget I’ve ever created. I find it so much easier to work with cash. It’s amazing how difficult it becomes to create and maintain a working budget when you have too many “accounts” and split your expenses between them. Too many details actually makes it so much harder to budget effectively.