How To Switch to Cash-Only for Your Budget

Woman taking cash out of wallet
••• Brand X Pictures/Getty Images

If you are having a hard time sticking to your budget, you may find it beneficial to switch to a cash-only budget. For one, when using a cash-only budget, you may be more likely to stick to your budget because of the psychological impact of using cash as opposed to a debit card to pay for something—you realize just how much it really costs. Here's how to make the switch.

Choose the Categories to Switch to Cash

The first step in switching to cash is to determine the budget categories that you are actually able to switch to cash-only. Some categories (such as a mortgage or your student loan payments) may only be able to be made online via direct debit.

But for those categories where you are able to use cash, determine which you are consistently overspending on. This may be groceries or entertainment, eating out, or clothing. Everyone has their problem areas when it comes to spending. Once you know what yours are, you can switch them over to cash in order to curb your spending.

Stop Using Your Debit Card for These Categories

The next step is to stop using your debit card, credit card, even your checkbook to pay for anything in those categories, no matter what.

If you are not able to do that, you may consider leaving your debit card at home for a few weeks and disconnecting any automatic payments you can access online, such as those through Paypal. This will help you break this bad financial habit.

Create a System to Separate Cash and Track Receipts

When using a cash-based budget, you need a way to track your cash purchases and also keep the different areas of your budget in which you'll be using cash separate.

A simple way to do this is to use the envelope system. You a certain amount of cash into envelopes labeled with each budget category. You can only spend that amount on that area of your budget each month. You should also put your receipts into those envelopes so you can see where you spent the money at the end of the month.

Another strategy is to keep a running ledger as you spend the money.

Set Up a Time to Take Out the Cash

In order to be successful at a cash-only budget, you need to actually get the cash and separate it into categories. This may mean a trip to the bank or the ATM on payday, or another set day.

You can request that the teller gives you the money in the correct denominations, such as all $20s or $10s, so you can easily separate the money into the correct categories.

Plan Ahead When You Go Shopping

This type of budget requires that you learn to plan ahead. Generally, it’s not a good idea to carry huge amounts of cash around with you all of the time.

So you leave your grocery money at home unless you are going to the grocery store, and take only $20 to work if you plan on eating out that day. You get the idea. Bonus: This will also help to cut back on your impulse purchases.

Stick to Your Limits

As with any budget, this requires the self-discipline to not spend all the money in one category. This also means that you do not use your debit card or your credit card to cover shortfalls.

However, you can switch money between envelopes if you find that you have overspent on your grocery budget, but you are out of food halfway through the month. But this means that you will have to cut spending in other areas.

Adjust Your Categories 

You should adjust your budget once you have followed it for a few months. You may find that you don’t have enough budgeted for groceries, but you always have money left over in the gas category, or you that you may need to sacrifice some of your entertainment money so that you can pay for groceries.

Other Tips:

  1. Using cash may not always seem very convenient, but it is a great way to stop yourself from overspending. It makes you think about your purchases, and consciously consider how much you are spending. This type of budget can also help you to stop using your credit cards, as well.
  2. Consider using an expanding pocket file that fits into a purse to put your cash in, but separated according to the budget category. However, this does mean carrying all of your cash, so it might not be the best option if that makes you nervous. Consider carrying all your cash for the week instead of all the cash for the month instead.
  3. If you are married, budgeting as a couple can be very difficult. A cash budget can help make budgeting easier. You can divide the money between your individual categories, and leave the grocery money or entertainment money where you can both access it if you need it.

Updated by Rachel Morgan Cautero.