Tips to Make Living on Cash Possible
If you have a lot of debt and you’re working on paying it down, one thing you’ll want to do is not add on additional debt. Paying off debt is difficult enough on its own, and you don’t want to make the situation even tougher by continuing to use your credit cards and accumulating more debt. This is where living on all cash can be very helpful.
Even if you’re not in debt, living on cash can be a good idea. When you pay for your expenses in cash, it becomes impossible to spend more than you currently have in the bank. This can help you stay on track with your budget. However, living on cash also takes more awareness and planning. If you accidentally overspend in one area, you could find yourself running out of money before you’ve paid all your monthly expenses.
Here are some tips that can help you live on cash and avoid debt.
Determine Where Spending Cash Makes Sense
While it’s a good idea to avoid using credit for purchases when you’re trying to live within your means or pay down your debt, there will be some instances where paying in cash isn’t possible. For instance, you likely won’t be able to pay your rent, mortgage, insurance, or automobile loan payments in cash. However, you probably can pay them by cheque, debit, or direct withdrawal.
Figure out where these methods may be required and switch all of your automatic payments (such as your mortgage payments but also subscription services like Netflix or Spotify) so that they’re coming out of your bank account as opposed being charged to your credit card. While you’re at it, review which payments come out of your account automatically and decide if you actually use the service you’re paying for. Many of us pay monthly for things that we no longer use. If you’re living on cash, you’ll need to watch your expenses and unsubscribing from services you don’t use can be a good start.
Have a Budget
Living on a budget and sticking to a financial plan is important for everyone, especially for people who are trying to avoid using credit cards and other loans. To prepare your budget, you’ll need to figure out what you spend on your various expenses. Looking at previous debit and credit card statements can help.
Then you’ll need to make sure you can afford to pay all your expenses without borrowing money or using credit. This could involve cutting costs so everything fits. Once you’ve created your budget, come up with a plan for how you’re going to stick with it and make it work.
Track Your Spending
Tracking where you spend your money is especially important when you’re living on cash. If you overspend in one area, you’ll need to adjust the rest of your monthly budget so you don’t run out of money. Use an app on your phone, a pen and paper, or a spreadsheet on your computer to track spending and be sure to record purchases shortly after you make them, so you don’t forget anything.
Adjust your Budget
A budget isn’t something that you create once and then never touch again. You’ll need to make modifications as you go to ensure you have enough money to pay for your essentials. If you realize, for example, that you’re frequently overspending in the entertainment category and that is leaving you without enough money for groceries, adjust your budget to make it work for you.
Use Only Cash
For expenses where paying in cash is possible (such as shopping, grocery purchases, gas, etc.) commit to using actual cash and not your debit card. While debit cards take money out of your bank (as opposed to putting you in debt) they’re often too easy to use. You’ll be a lot less likely to make “impulse purchases” if you’re paying with real cash than if you use a debit card.
To make this work, you’ll need to plan when you’re going to take out cash and determine how much you’re going to carry with you. Carrying too much cash can be dangerous (not only could it be lost or stolen, but you’ll also be more tempted to use it if you have it) but carrying too little could leave you unable to pay for things you need.
You may wish to take out cash once a month or whenever you get paid. Then, divide up your cash into various categories (groceries, transportation, entertainment, etc.) based on the numbers in your budget. If you’re planning on going grocery shopping, for example, only take the money you’ve budgeted for groceries. This is prevent you from overspending and keep you on track.