Cash Budgeting Method Explained

Posted on by Ryan

How Does The All Cash Budgeting Method Work?

The all cash budgeting method is simple and straightforward. Here’s essentially how it works.

You get paid.
You convert the entire amount of the check to cash.
Pay all of your bills in cash.
You set aside any cash that you want to save in a semi-safe place (the proverbial jar in the closet).
With your remaining cash you cover your day-to-day living expenses. If you run out of cash, you quit spending.

Who Is The All Cash Budgeting Method Best Suited For?

Cash Budgeting Method Best Suited For You

As appealing as the all cash budgeting method is in terms of its simplicity, it’s only a practical money management solution for a limited number of regular people. Why? For one thing, it’s a significant (not to mention stressful) issue to keep cash – especially large amounts of cash – safe and secure. Also, while you might be able to walk down to the property manager’s office to pay your rent in cash, it’s much more of a pain to do so for things such as your utilities and phone bill. Despite its drawbacks, the all cash budgeting method can be useful for the following categories of people.

Young kids living at home.
Students away from home whose primary expenses are largely covered for them (room, board, insurance, etc.).
Those who are living with relatives or friends due to age or personal hardships.
Those with a lack of understanding and/or a great fear of banks and the financial system in general.
Those who have lost checking account privileges by doing things such as bouncing checks or continuously over-drafting. It can also be from not settling up with the bank, either due to excess, abuse, mismanagement, or a lack of understanding.

The all cash budget method of budgeting is also used by the following categories of people, who I would not broadly characterize as “regular people!”

Illegal immigrants or others who do not want to provide the necessary identification to open a bank account.
Criminals who do not want their identity or whereabouts to be traced.
Anyone else who wants to remain anonymous for whatever reason.

Is the all cash budget right for you? Check out our article on The Budgeting Cash Envelope System.

7 Effective Budgeting Strategies

Posted on by Ryan

For effective budgeting strategies, it’s important to understand the difference between budgeting principles and budgeting methods. When talking about budgeting principles I am referring to the underlying reasoning and rationale behind effective budgeting. The principles aspect has to do with the “why” behind approaches to budgeting. Effective principles of budgeting do not change over time, just as principles of mathematics do not change over time. After all, no matter how much the technology around budgeting advances, $3 less $2 will always equal $1.

When talking about budgeting methods I am referred to the “how” in terms of the tools, systems, and resources one employs to apply budgeting principles. But budgeting methods also has to do with various systems of budgeting one chooses to use to manage their money. The budgeting methods are as follows: the all-cash budgeting method, the envelope system, as well as check, debit card, and credit card budgeting methods. What this means is one person may track their budget using a pencil, paper, and their checkbook. Another may do so using credit cards and the latest integrated cloud-based personal finance software.

You can also take advantage of our budget calculator, which will assist you in creating a monthly budget. Yet despite the use of vastly different budgeting methods, each of these individuals could be equally proficient in applying principles of effective budgeting strategies. And what are these budgeting principles I’m referring to?

7 Effective Budgeting Strategies

A budget needs to tie to how much money you actually have in the bank. It does no good if you’re budget says you have $100 to get through the month, but in reality your checking account is overdrawn $200.
A budget needs to be realistic. Your estimated income and expenses need to be as close an approximation as possible to your actual income and planned spending.
A budget should cover a specific period of time. Monthly budgets are best in most cases, but other budget periods (such as annual budgets) can also work if they more logically track your income and expenses.
You should be able to update your budget quickly and easily. While this may sound like mere convenience, it’s important because if you find your budgeting method to be excessively cumbersome there is a danger you could stop doing it altogether.
A budget is a vital communication tool, so it should be intuitive and easy to understand. Specifically, you should be able to clearly tell where your money is coming from, and where it’s going.
A budget’s format should be flexible. This will allow you to easily modify it as your preferences and circumstances change over time.
You have to be committed to and respect your budget. If you’ve budgeted $40 for entertainment and you spend $400 then you’re wasting your time.

This is okay, because as long as you follow effective principles of budgeting there are many different budgeting methods to choose from. Having effective budgeting strategies will allow you to better manage your finance to meet you financial goals. As long as you incorporate the principles outlined above, you can employ the budgeting method that best reflects your own personality, preferences, priorities, and circumstances.

Pay in Cash, Checks and Debit Cards Comparisons

Posted on by Ryan

Pay in cash, writing a check and using a debit card are three different ways to do the same thing: to transfer some of your money to someone else. Let’s explore the advantages and disadvantages of each method of payment.

Pay In Cash

Stores (and people) are almost always happy if you pay them in cash. Here are some disadvantages if you pay in cash.

Security – If you have a significant amount of cash on you there’s always a risk that it can be lost or stolen, and if that happens then it’s gone forever. Businesses like when custom pay in cash, at a certain point even they can have security concerns as well. For example, you generally can’t bring a suitcase full of $100 bills to a reputable car dealer to pay for a vehicle in cash. Why? Because that much cash is a pain for a business: they’ve got to count it, store it, guard it, transport it to the bank, etc. In summary, while cash is good, too much cash is a problem.
Trans-portability – When you pay in cash you generally need to do so in person, because there are risks obvious involved in sending cash in the mail or in providing someone else with cash so that they can pay a financial obligation on your behalf. In other words, while there’s no harm in putting a $5 bill in your nephew’s birthday card, it wouldn’t be wise to send your daughter to school with a sack full of cash so that she could pay her out-of-state college tuition. No, in that case you would have to make the long, inconvenient trip to the tuition office.

“If You Pay In Cash While Traveling Be Extra Careful To Hold On Tightly To Your Cash!”

Record-keeping – When you pay in cash it can be very difficult to remember where it all went. For example, let’s say that you recently got $100 in cash from an ATM, but now you have just $30. Where did the other $70 go? Hmmmm, let’s see. You got some gas and you grabbed a bite to eat…but it seems like there was something else. Was there? Again, with cash it can be hard to remember.
Supply – If you underestimate how much cash you need then your purchasing options will be limited (unless you can easily obtain more cash). On the other hand, if you overestimate how much you need then you’ll end up with too much, and that could create security and/or record-keeping issues discussed above (not to mention the temptation to just spend it).

Note that I’m not suggesting that you should never pay in cash. In fact, I think it’s a good idea to have a certain amount of cash with you at all times, because sometimes there really is no substitute for it. However, for the reasons listed above, I don’t believe that using cash is a safe, efficient or effective means for paying most of your financial obligations.

Paying With A Debit Card Versus Writing A Check

You should be aware that if you pay in cash you know this isn’t the best way to pay for most things. Now let’s explore the advantages and disadvantages of using a debit card versus a check.

Convenience

A debit card is a more convenient means of paying for things than a check for several reasons.

A debit card is more compact than a checkbook, which makes it easier to carry around with you.
When you pay with a check you have to take the time to write out who it’s to, the date, the amount, etc. When you pay with a debit card all you have to do is swipe it though the payment processor and enter your PIN and, voila, the transactions is done (although waiting on the payment processor can sometimes take awhile).
You can run out of checks, but if you have a debit card then you can make as many purchases as you want as long as you still have money in your account.

Despite the convenience of debit cards, there are simply times when using one won’t work. For example, try paying the babysitter with a debit card and see what kind of look you get. No, if you’re out of cash in a situation like that then only a check will do. Also, while practically all major stores have payment processors, some small businesses still don’t. In any case, despite these examples to the contrary, more often than not debit cards are a more convenient means of payment than checks.

Related Article On Budgeting Methods Using Debit Cards

Store Returns

A store return goes more smoothly if you made the purchase with a debit card rather than a check. For example, let’s say that you bought something at a store and the next day you realize it’s defective. Assuming that you choose to return it (as opposed to simply exchanging it for the same item), if you made the purchases with a debit card then you can immediately get a refund in 1 of 2 ways.

The store will put a credit back on your debit card equal to the amount they charged you for the item or
The store will give you a cash refund.

By contrast, if you paid for same item with a check then your experience would likely be much different. That’s because many stores have a policy that they won’t issue refunds for check-related returns until 10-14 days after the purchase, primarily because they want to make sure that your.

Record-Keeping

Are you now sold on using a debit card? Well, don’t toss away your checkbook just yet. Knowing how much money you have to spend at any given time is a critical element of effective money management, and keeping complete and accurate records of your financial transactions is an important part of that. For example, if you start out with $1,000 in your checking account then it’s pretty obvious that you have $1,000 to spend. But how much money do you have left after a few days? What about after a few weeks, or even a whole month? The only way you can know for sure is to accurately update your checking account balance based on your records of deposits and withdrawals.

Now keeping your checkbook updated may sound pretty easy. After all, it’s just a little addition and subtraction, right? Yes, that’s true in theory, but in practice it can be very challenging to stay on top of how much money you have (or don’t have!), because financial transactions tend to generate piles of paper that you have to sort through: store receipts, ATM slips, billing statements, contracts, warranties, disclosures, bank statements, etc. Thus, the more you can do to simplify your financial records, the easier it will be to maintain a handle on how much money you have at any given time.

Record-Keeping Benefits From Checks

Now, assuming that you have carbon checks, writing checks is one of the ways that you can improve your record-keeping. What are carbon checks and how do they help? A carbon check consists of an actual check (meaning the check you give to someone for payment) that is affixed to a carbon copy of the check that you keep for your records. Thus, whenever you write a check that has an associated carbon you end up with two records of a transaction. The first is the store receipt, and the second is the carbon copy of the check. By contrast, if you pay for something with a debit card, the only record you have of the transaction is the store receipt.

Another thing that makes checks better than debit cards for record-keeping purposes is that they’re sequentially numbered. This is useful because it makes it very easy to tell if you’ve missed accounting for a transaction. For example, let’s say that you have carbons for checks 1000-1010 in front of you, but upon closer inspection you realize that the carbon for check 1006 is missing. What does that tell you? It means that you need to figure out what happened to that check, because until you account for it then you won’t know for sure how much money you actually have. But what if you still can’t find the carbon for check 1006 after searching through your financial records? How are you going to figure out who yo`u made it out to and how much it was for? By accessing your bank account online you should be able to view a photographic image of any check that you’ve written.

Related Article On Cash Budgeting Method Explained

Summary Of Record-Keeping

In summary, if you’re able to keep perfect records of all of your financial transactions then, theoretically, it shouldn’t matter whether you pay for something by writing a check or using a debit card. However, life is real, not theoretical, and it’s not uncommon to periodically (or even frequently!) lose track of some of your ATM or debit receipts over the course of a month. As a result, paying for things with a check is a safer bet from a record-keeping point of view.

Security (Identity Theft)

Identity theft is when someone illegally uses the personal information of someone else to fraudulently obtain money, goods, or something else in the victim’s name. For example, you would be a victim of identity theft if someone ordered a credit card in your name and then used it to make purchases. While both checks and debit cards carry risks as far as identity theft is concerned, thousands of people use them every day without any problems. If that’s true, to what extent should you use (or not use) checks and debit cards as a method of payment?

A full discussion of identity theft is beyond the scope of this article, but for now I will say that determining the degree of security you need for identity theft isn’t much different than determining how much security you need for your car. For example, is it enough to lock your car doors when you go into the store, or do you need a full-blown security system? The answer depends on many factors: how much your car is worth, its make and model (some cars are more prone to theft than others), the incidence of theft in your neighborhood, as well as (and probably most importantly) the degree of protection you feel that you need in order to have a reasonable degree of comfort/peace of mind.

So when it comes to identity theft, my recommendation is to educate yourself on how it can happen as well as the various strategies you can employ to minimize your risks. That will enable you to make an informed decision on how to handle your finances in terms of security.

Summary of Pay in Cash, Checks and Debit Cards

While it can feel really good from a psychological point of view to “pay in cash” for everything using cash, checks or a debit card, there are significant advantages to making purchases with a credit card if you can pay off your balance in full and on time each month.

The important thing is to be aware of the strengths and weaknesses of the each payment method and to adopt the one that best suits your needs for a particular transaction.

Monthly Budget – How & Why To Create One

Posted on by Ryan

Creating a monthly budget really has to be one of the most useful things that you can do. Essentially, you need to really understand how much you earn, from where and when and where it all goes to! If you are careful and honest about your tracking of spending habits, it will be very revealing I’m sure!

Once you have created a monthly budget template, it will probably offer some useful insights into squeezing more from your monthly income. You’ll also be aware of all of your monthly expenses that you may have forgotten about.

Monthly Budget – Income

The first step to basic budget planning and debt management budgeting is to calculate your income. Personally, I would calculate this as a monthly figure, but you may prefer weekly, I shall leave that up to you.

How many sources of income do you have? Perhaps you have a regular salary, overtime payments or bonuses, maybe social security payments or a second job. What about your spouse? Does he or she work? How much does this partner bring in to the household finances?

Try to be as accurate as you can here. It is very important that the numbers are compiled carefully. Accurate numbers will enable accurate decisions later on. If you receive a variable amount (perhaps you earn commission or tips) can you try to calculate an average? Do you have old payslips or bank statements that you can work from?

Our goal here is simply to arrive at a number which you consider to be your usual monthly income. Total it all up. Obviously, use the net income figure since that is what you actually see in your pocket.

Monthly Budget – Outgoing Expenses

Here comes the scary part! No matter how much you may earn, and how satisfied you may or may not be with that figure, we all wish that we were spending less.

The monthly spending calculation is going to take either a bit of guess work or a lot of hard work. This is because some of your outgoings are small and cash based. For example, your daily sandwiches at work, sweets for the kids, renting a video or DVD are all payments out that are potentially difficult to track. Try using our Excel Budget Planner Template to track your monthly budget expenses. The expense calculator will help you identify all your expenses you may have otherwise missed. In addition to an expense calculator, we also have an in-depth monthly budget template. This monthly budget template has a lot more features that allow you to track all of your expense quickly and efficiently.

However, the bulk of your spending will be on large, known and regular items. For example, your rent payments, household insurance and loan repayments would all fit into this category.

Ideally, you will work out your income and expenditure over the course of two or four weeks. This way, you will be able to see how you are spending money and understand the pattern. Accuracy in completing this debt management budgeting exercise will prove to be very valuable indeed. With this knowledge, you will be able to understand you finances completely.

Why Should You Use A Monthly Budget Template?

You may be reading this, thinking to yourself about the pathetic and basic things that I have started with. You might be right. However, I am constantly amazed at the number of people that have never actually tried to accurately calculate their monthly budget.

For example, I have been writing this over two days (an afternoon and the following morning) and on the evening of the first day I met a friend that wanted to discuss finance with me. She is in her mid twenties, a bi-lingual expatriate who works for a major international bank and someone I look up to as being really quite bright. She wanted to talk about making some monthly savings. Yet, as we chatted she realized that she had no idea about her spending patterns and whether or not she actually has any disposable income. Who would have guessed it? So even if this is too basic for you, give it a go to humor me.

Now that you have completed this little debt management budgeting exercise, you will hopefully be able to see areas where your spending can be controlled a little. You will also be able to see whether your income is actually covering your outgoings each month. If it doesn’t, you need to make some drastic changes to your lifestyle to get back on track!

If your debt management budgeting exercise has shown that you are overspending each month, it is vital to make changes. Without changes, you will never be able to become solvent unless you win a lottery. That should worry you.

Top 5 Frugal Living Tips – Living On A Budget

Posted on by Ryan

Why pick a frugal life? Most people are now deferring becoming parents and instead opt for getting a mortgage, traveling and preparing for retirement. For some of us it’s about taking charge of our personal finance in order to achieving financial freedom. This means being in a financial situation where we aren’t stressing every day about how we are going to pay the monthly bills.

How Do You Start The Frugal Lifestyle?

Well, if you’re reading this for the first time scratching your head and pondering this very question understand that you’re not the first. You most certainly won’t be the last couple to face this dilemma. It’s a big decision and you are probably already adding up all the creature comforts (the daily latte, magazine subscriptions, 2-door coupe) that are going to be side-lined when you start on your frugal living path.

By living a frugal lifestyle it doesn’t mean you can’t spend money and still enjoy the things you use to. Spending money is the easiest and biggest way to have an impact on your free cash flow. Now, reducing the working hours of one partner can free up some more lifestyle choices as well. Holidays are easier to juggle (albeit harder to pay for), socializing time is freed up and odd jobs around the house can be accomplished without spending weekends rushing around.

If you planning on living on one income in the near future, or want to achieve financial independence, you might want to peruse the 5 frugal living tips.

5 Living Frugal Tips

Address Your Spending Budget

Procrastinate in creating a budget will only mean delayed, and harder, results of limited spending. You can’t keep the same spending habits when your family income goes from 100K to 50K. Some immediate savings are going to come from work-related expenses for the partner who has left the workforce such as parking, transport fees, fuel, cafe lunches etc. Other areas that might need to be pruned are non-essential items such as the weekly manicure, daily newspaper, cable-TV subscription. Look at your cell phone bill and see if there are services you are not using or if there’s a cheaper plan that can still meet your needs.. It may seem like you’re giving up a lot but in essence your just removing what you filled your double income up with.

Consolidate Any Loans or Credit Cards

Read How To Improve Your Credit In 5 Easy Steps

This is an area where you can make huge immediate savings. Your credit score will have a big impact on how much savings you achieve. If your mortgage length is 25 years try extending it over a 30 year time span. Of course you will end up paying more interest but it is better to have a mortgage that is achievable than default on one that’s not. Provided you don’t fix the interest rate you can supplement payments as and when you receive extra money. In the long run this will save you money and can help you on a path to becoming debt free.

Buying in Bulk & Thinking Ahead

This seems like one of the most obvious frugal living tips, but the mind set of most individuals is well it’s only $1… that’s not going to make a difference. Let’s say you purchase two diet cokes every day at work from the vending machine for $1 each. We’ll assume you work 5 days a week for the whole year (260 days). You’re spending $520 a year on diet coke from the vending machine. Now assume you purchase the diet coke from the grocery store when it’s on sale for $4 for a 12 pack. Now you’re average price per diet coke is $.25, so you’re spending $130 annual. You’d save yourself $390 a year. Being prepared and buying in bulk is one of the best frugal living tips, since it doesn’t impact your life style. This can also help individuals stop impulse buying.

Find Supplemental Income Sources

There are so many opportunities today for stay-at-home moms or dads. Be creative and use your time well. You can make extra income from home, even an extra $50 per week can help out the family budget. It might not be a lot of money, but it’s an extra $2,600 a year.

Increase Your Salary Insurance

The risk losing one salary while both partners are working isn’t too detrimental. This should only be considered if you’re only living on one income. Salary Insurance protects the main income in case of death, disablement or if the breadwinner has contracted a terminal illness. Work related accident insurance is covered by your employment (unless self-employed) but Salary Insurance protects against things you can’t.

Make some wise choices and frugal living on one income shouldn’t be too hard. Ignore the fact that your lifestyle will need to change and you will find that problems will continue to mount regardless of your nonchalance.