Cash Only Budgeting - How to build a realistic budget

Cash-Only Budgeting

Consumers who relied on credit have had to contend with loss of credit during the recession. In some ways, that has helped many to learn how to build a realistic budget. The cash-only lifestyle clearly shows a family where they are spending money and how to save it on unnecessary expenses. Even if you still have options for credit, it can be a good exercise in getting an in depth view of your expenses and income to build a healthier future on a realistic budget.

One Month on Cash Only

This is going to take some discipline, but the insight you get into your finances is going to be worth it. Put the credit cards and even your debit card away. Sit down and write out a budget of what you think you spend in a month, and then set up cash envelopes with that amount. Label them so you know where your money is going. Have one for utilities, another for rent, one for food, and one even for entertainment. When you get paid, distribute the money into the envelopes and try to stick with a cash-only diet to pay your bills. If this is difficult because you pay online or with a debit, use a prepaid credit card that you load with the money to pay a bill, but do not use any form of credit. Another way to do it is to load your debit account right before you make a payment by transferring the money from your envelope into your checking account. If you use bank services you'll also have to factor in some bank fees.

By the End of the Month

You may find that you budgeted $100 for entertainment and ran out of cash by the middle of the month. This tells you that either you need to reduce your entertainment expenses or earn more money. You may find that there were envelopes you didn't create for expenses that showed up. This tells you that you have to create another envelope for emergency expenses and include that in a realistic budget. Continue the experiment until you get a good idea of what you are actually spending, where you can make cuts, and how much income you need to produce to cover your expenses comfortably while saving for a rainy day.