Give yourself a cash allowance
One of the toughest things about managing money is ensuring that you stick to your budget. Taking a lesson from your kids and giving yourself an allowance can help.
The benefits of carrying cash
Cash has a very different emotional impact than a card. Cards are intended to make spending money an easy and thoughtless act. Cash has a viceral impact, especially when the bill is a larger amount. Carrying cash means that you have to stick to a limit, especially if you are not also carrying a card. Cash also gives you an immediate balance – no checking your balance online. Either you have the money or you don’t.
Start with discretionary cash
Discretionary cash, the money you have budgeted for entertainment or morning coffee or any other item that you may define as a “want” rather than a “need” can be a great place to start using cash. Make a resolution to spend only cash on your wants. When you run out of cash, then you are done spending on wants for that budgetary item. Pull cash out of the bank at regular intervals and only at those regular intervals. If you are on a biweekly budget, then that means visiting the bank every other week. If you are on a monthly budget, this means once a month.
The biggest problem with giving yourself a cash allowance is that it makes tracking the money you spend more difficult. You have two options in this case. First, you can make it a point to keep your receipts for every penny in cash you spend. Your other option is to maintain that cash as your discretionary expenses, and record them as such. You may not get as clear of a picture of your spending habits, but if those spending habits are fairly established, then that may not be as tough.
Create an envelope budget
A middle ground between spending only cash on discretionary expenses and tracking every penny would be to create separate cash accounts. If you keep this cash in physical envelopes in your wallet, or if you load that cash onto a gift card, these separate cash accounts can help you track how much money you are spending on each particular type of account.