How to Live on Cash
One of the best ways to avoid going into debt is to live on cash. This means only spending the actual money that you have in your bank account. It means no credit cards, no cash advances, and no borrowing of any type. The reason this method works is that, if you’re only spending money you actually have at the moment, you can’t overspend.
However, a possible issue with living on cash is that you’ll end up spending what you have before you’ve paid off all of your monthly expenses. To avoid this, you’ll have to be careful and pay attention.
Here are six tips for living on cash.
Have a Plan
If you’re going to live on cash only, it’s vital that you have a plan. Otherwise, you’re very likely going to run out of money before you’ve met all of your financial obligations. If you don’t already have one, sit down and write a budget. Include everything that you spend money on, from your monthly expenses to day-to-day costs such as groceries and gas. Write down the estimated monthly costs for each category and then make sure you have enough cash to afford everything. You might have to make cuts to make everything fit.
Know That There Will Be Exceptions
You likely won’t be able to pay your phone bill or utility bill with cash. Some creditors will take cheques, but others will only take credit and debit. That’s okay. When you’re creating your budget, deduct these expenses from the overall total.
The same is true for some services. In today’s society, there are some vendors that simply won’t take cash. If you end up in one of these situations, don’t stress. Just deduct the amount that you spent from your budget and pay off your credit card as soon as possible.
Keep Your Records Updated
When you’re spending mostly (or entirely) cash, you won’t have a record. With a credit card, you get a monthly list of all of your purchases and this can be helpful when you’re tracking where your money is going. With cash, you’ll need to keep this record yourself.
When you’re spending only cash, you need to write down everything you spend money on so that you can spot if you’re spending too much on one area. Use a pen and paper, an app on your phone, or a spreadsheet on your computer to track what you spend.
When you’re living on -cash, there will be times when you’ll need to prioritize one purchase over another. You might not have enough money in your budget to afford both items right now, so you’ll have to make a choice.
Learning to set priorities and recognizing that you’ll have to give up certain things so that you can stay on budget is an important financial skill to learn. Living on cash helps you develop this skill.
If you lose your credit or debit card, you can call the card issuer and have the card cancelled pretty easily. However, if you’re living on cash, this option doesn’t exist. If you lose a large amount of money, that money is gone.
For this reason, it’s important to be careful with your cash. Don’t carry your entire monthly budget around with you at all times. You might want to carry only a few days worth of cash and leave the rest at home or in the bank.
Put Some Aside
Having an emergency fund is even more important when you’re living on cash. If a sudden expense comes up, or an aspect of your budget turns out to be more expensive than you assumed, having some extra money set aside for emergencies can help you a lot.
When you’re making your cash-only budget, make sure to leave some room for emergency savings. It may not be possible to save a big chunk of money all at once, but saving even a small amount each month can help and it will add up over time.
Remember to only dip into your emergency fund for actual emergencies, however. Resist the tendency to use this fund to make up for regular budget shortfalls. If you find yourself regularly running out of money, it’s time to review and adjust your budget.