Our cash system

I have had several questions from friends about how we do our budget/cash system, so I thought I would write it out and offer it to anyone who is considering switching to it....

When I resigned in May 2007 from my full-time teaching position, we "switched" over from plastic to cash because money was going to be really tight.  One of my friends (thanks Faith) gave me some advice that has really made the cash system work.  We saved up for quite a while and got to the point where we were a month ahead in our finances.  Whatever your monthly income is, save up until you have that amount of money.  It does take a while but is the only way to make the cash system work for you.  This way you are not taking out $200 out of this check and then 2 weeks later, taking another $200 or so.  If you are a month ahead, you can get out all of your cash at the beginning of the month that you will need for the entire month and don't have to wait to "get paid" to get more out to eat that week.  When we deposit our monthly checks at the end of the month, we go ahead and get out our EXACT amount of cash we have designated for that next month.  

As far as cash, we sat down and decided exactly how much we were going to need for daily in/out activities for that month.  For example:

Car Maintenance $30 (1 $20/1 $10)

Hair Cuts $36 (3 $10's/6 $1's) 

Lunches $80 (4 $20's)

Entertainment $50 (2 $20's/1 $10)

Doctors/Pharmacy $50 (2 $20's/2 $5's)

Gift Fund $30 (1 $20/1 $10)

Groceries $400 (4 $100's)

Total Cash $686

When you get cash out, of course they will ask you how you want it.  So I have it written out and it is easy.

4 $100's

10 $20's

7 $10's 

2 $5's

6 $1's

Then when you get home, put it in your envelope system for your use.   

The cash system works well because you spend less and you have told each dollar where to go (Dave Ramsey).  Somehow when you pay cash for something, it hurts worse than if you swipe the plastic.  

As far as monthly bills that have to be paid, I called or rearranged all of our bills to be automatically debited at the first of the month.  Since we are a month ahead, I like for bills to be paid at the beginning since the whole month's income is sitting in the bank.  When this happens, bills are paid quickly and you don't think that you have more money to "spend" than you really do.  If there is no money in the account, you won't spend it.  Of course, any money that is "extra" can be transferred online to a savings account (we have ours linked).  Banking online is so easy and convenient. 

It is quite easy and convenient.  I rarely have to write checks or pay bills (because they are all automatically debited) and we know exactly where our money can be spent.  Sometimes, you might go beyond what you have budgeted, and when that happens, you can shift around money in the envelopes as needed.  However, be careful not to make a habit of it or the system will start to fail.  But make it work for you.