If you are looking to avoid debt, you may be looking for creative ways to stop your spending habits and start chipping away at the huge numbers. One of the most popular ways to get out of debt and continue to live debt free is to go with an all cash budget. An all cash budgets offers many benefits for people struggling to control their spending, but it’s not perfect. Find out the pro’s and con’s of the cash budget here. It’s also known as the envelope method.
Benefits of Cash Method
There are many benefits to following an all cash method of budgeting. If you are wanting to live debt free, this could one of the easiest ways to learn how to do so because it forces you to do so. In fact, this is the major benefit of an envelope budgeting system. Instead of being tempted to spend money that you don’t have (i.e. credit), you are forced to live with what you have. You aren’t given the option of spending and telling yourself that you will make it up later. An all cash method is the “tough love” of budgeting.
Another benefit of using the cash method is the ease of tracking your spending. Instead of not easily knowing how much you have spent in a certain category throughout the month if you are using credit cards, a cash method allows you to track it easily. At any point in the month, you can look at how much money you have left to spend.
Lastly, some people consider spending money with cash to be harder. Meaning, that if they fork over physical bills at the cashier, instead of a swipe of the card, they will feel more guilty. This has some truth to it. Despite what advertisements would like us to think, avoiding debt does not always have to involve fancy, sophisticated plans. Sometimes it could just mean switching to an all cash method of budgeting.
Is the Envelope Method Really Better?
Yet, even though it does have a certain degree of simplicity to it, the envelope system is not for everyone. In fact, using a cash budget comes with certain limitations. It means that if you are ever robbed, your money is not protected. If you decide not to carry as much cash to avoid such an occurrence, it means you have to go to the bank or atm more frequently – and this can get old.
These aren’t the only disadvantages of the cash method. Another negative consequence is that you are forfeiting the rewards that come with credit cards. You are, in essence, missing out on making an extra 1%-5% back on your everyday expenses. This can mean the difference of $400-$500. Talk about a disadvantage!
Even though you are giving things up by going with an all cash, you have to remember that budgeting is about more than numbers. There is a lot of psychology that comes into play when you are managing your finances. It’s just like when you are depressed, you tend to eat more. Likewise, when you are over your head in bills, you are not likely to control your spending. It sounds counter-intuitive, but it’s often how it works. Sometimes, making the tough decision to use the envelope method is the best way to learn how to be debt free – once you’ve learned it, it will be easier to maintain if you choose to use credit again.