Forcing Mechanisms: Cash Budgeting

The Darwin household has now been operating for about four months on a modified version of Dave Ramsey's budgeting ideas. This means that we've basically stopped using the credit cards (though contrary to Ramsey's advice, we still carry them for emergencies and have a few recurring bills that post to them each month) and even the debit card, and instead pull out an allotment of cash for all in-person purchases each pay cycle.

This at first felt very alien to us, as both of us have, by habit, not been people who carry much of any cash around. Going down to the bank and withdrawing anywhere from 500 to 900 dollars in cash still feels strange, this compounded by the way that the teller's eyebrows go up as she says, "And what kind of bills do you want for that?"

However, of all the Ramsey suggestions, cash budgeting is the one that we've found the most useful and followed most closely. The reason is that it makes keeping to one's budget very, very easy.

As inveterate planners, we are both very fond of budgets. There's a precise pleasure to planning out exactly how things will work for the next several months and seeing the rows and columns neatly add up. The problem is that while we both enjoy planning a great deal, we are both very bad at actually following a routine consistently. Self denial we can handle, and so a couple weeks of very low food spending and no "extras" is easily accomplished. But saving receipts and totaling them up every night is something we have never been able to do consistently. And so the analysis as to how closely we were meeting our budget would fall by the wayside, and after the initial burst of frugality, things would fall apart and we'd go back to that magical equilibrium in which outflows equal inflows and extra loan payments and extra savings don't seem to be happening.

Pulling out an allotment of cash based on planned in-person spending makes budgeting pretty much automatic. If you know that you have $500 to make all in-person purchases during a two week period, you don't need to to keep receipts and do nightly tallying-up in order to see how you're doing. Every time you open your wallet, it's clear how much money remains. Indeed, though we have a spreadsheet where we keep track of in-week spending by category to compare with our budget, we've stopped using the "envelope method" of splitting cash up into allotments for each spending category (thus avoiding the discussions of "Are diapers grocery or household if I buy them at the supermarket at the same time as groceries? Are gardening supplies household, home maintenance, entertainment or personal spending?) and started simply using a single slush fund of cash for each pay cycle which we split between the two of us based on who is doing the major weekly shopping runs. We have spending broken out by category in the budget, in order to arrive at the total amount of cash to withdraw, so we have a basic idea of what we can and can't afford in the current paycycle. But actual budgeting within the paycycle does itself by means of the simple "How much do I have left?" calculation.

Thus, while I don't share Ramsey's horror of credit cards themselves, cash budgeting is probably one of the tools that we will continue to use most consistently from here on out. It acts as a forcing mechanism in regards to budgeting. You no longer really have to put any thought or effort into staying in budget, so long as you don't spend more cash than you took out.