Working with a Cash Budget

Over the years we have tried many different methods for controlling our spending and working on a budget. By far the most successful method for us is to work in cash. I have worked out what we need each week and I withdraw that amount of money.

The following are our ' cash categories'.

Scarlet Ribbon ( clothing shoes etc)
Kids Banking

You can see in the photo that I use resealable plastic bags with the category and the amount written on it. Each week I go to the bank or post office and I have a little card in my wallet that says " 3x $50, 4 x $10 etc and get the exact breakdown. When I come home I give the cash to our young sons and they go through and put the amounts into the bags. Then, when we want to do something like hire a DVD or buy a present etc, we just go to the appropriate bag.

Having the money in cash is great for a couple of reasons. When you have cash in your wallet you are much more careful about spending it. My sons have also learnt the value of money because they control it. We are also empowered by the fact that we have money in advance for needs that may arise.

I call one category 'scarlet ribbon' because of the proverbs 31 woman who has no fear for her household for when the winter snows come her household is clothed in scarlet. It is a very old proverb but one that has always stuck with me.

I have also calculated how much we require for bills. You can do this by looking at what your bills are over a year and dividing the amount by 52 or 26 depending on when you get paid. Then I transfer that amount into an account we use for bill paying.

So.... what do you do when you finally sit down and add it all up and the results are frightening ? When I did this the first time I was totally shocked at our living expenses. Son number one was about 12 months old and I was faced with the prospect of going back to work. I was a school teacher then and was going back to work just two days per week. I hated the thought of it! So, we sat down and worked through everything in a huge amount of detail. I called it my " Plug the holes audit". By this, I meant that I thought the ship ( our house) would sink by the little holes that were in it, not the gaping big holes. So I set about saving money on little things, $2 here, $1 there. I changed phone plans, shopped for cheaper insurance, worked out a price book to track specials and calculate unit pricing, worked a cash budget etc etc. The results were amazing and I gave up teaching at the end of that year.

I often hear people talking about how difficult it is to make ends meet ( while they are watching pay TV and smoking and eating take away food). My answer is to be totally honest with yourself and live within your means. Take control of your money so it doesn't control you. It is such a wonderful feeling to jump in the car and go for a holiday with the freedom of knowing that you have the cash for it all and you won't have to face the credit card bill when the holiday is over.

If you can't be bothered with the hassle of micro-managing it all then you will need to be happy with staying in debt and having no money and having lots of stress. The choice is yours to make, so which path will you choose ?


Michelle said...

I too am a ziplock bag budgeter!! Rhonda-Jean clued me into this over at ALS and I have become a dedicated convert. I have tried many methods over the years and this is the only one that has worked for me.
I am amazed at how much I have shaved off our spending by being diligent with tracking my spending and always asking myself if I really 'need' it. Seeing that cash in those bags makes me think twice before I spend it.
I now feel confident we will be able to save up for our retirement.

Ames said...

This kind of budgeting sounds like a great Idea. I tried it a few years back but wasn't very dilligent at it and it got a bit messy. I think because I didn't really sit down and work out my budget properly, I kept borowing from bag to pay for another.

After reading your post I feel inpired to give it another go. But this time to do it properly.

Polly said...

I'm afraid a cash budget doesn't work here. We've tried it and failed because we have a tendency to borrow from those little bags and never pay it back. Pathetic, I know.

I do agree though that it is very important to have a good budget. It really takes the pressure off and it is so good to know that you have the money set aside to pay for the necessities.

Minni Mum said...

I did the same as yourself when faced with the same prospect of having to go back to work - I decided that I didn't want to go so the only way around that was to budget carefully. Now I find it easy to stick to my budget because there is a direct correlation between having to work and getting to stay at home with the littlies! It's no contest :-)

Lis said...

Thanks for your great blog :)
I think this is a system I might have to try. I've tried doing a spreadsheet but in the end it was all too hard to enter the figures every day...will go over and read ALS to see their thoughts too.

Lis said...

I hope you don't mind that I have linked from my blog to yours as I seriously trying to do the budgetiung thing! My next step is menu planning :)

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