Thrifty Thursday: Pay in Cash

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When I tell people I pay for everything (okay, not everything) in cash, they look at me like I’m speaking a different language.  In the age of credit cards, using cash seems like an ancient form of payment.   I’ve learned that using cash makes my life easier and helps keep me on budget. 

Why should you pay in cash?  You will know where you’re money is going and how much you have to spend each month, just look in the envelope.  Plus it’s a lot harder to hand over a wad of cash than it is to swipe plastic. 

How to start a Cash Budget System:

1.  Set a budget and plan your expenses at the beginning of each month. 

2.  Establish categories for cash payments within your budget.  Your fixed expenses such as mortgage, car loans & utilities can be paid online each month.  Your variable expenses such as groceries, entertainment, household expenses, etc. would be ideal for your cash budget.  If you’re like me, having multiple categories works best.  I have 12 cash categories.  You might not function well on such a strict budget, so you might want to divide your cash into food, clothing and entertainment.   Do what works best for you!

3.  Make an envelope based on each of the cash categories you establish.  Label each envelope and determine how you want to carry your cash.  I have a simple pocket file from a local office supply store.  You can also purchase a Deluxe envelope system that is a bit prettier than mine.  My economical system involves plain security envelopes with a printable label fixed to each so I can record my spending*.

4.  Withdraw cash from the bank each pay period and divide it into your envelopes.  If you spend $400 per month on groceries and get paid twice per month, you can either add the entire $400 at the beginning of the month or add $200 twice per month.  Your other monthly bills & personal spending habits will dictate how you allot for your cash budget. 

5.  When it’s gone, it’s gone.  Once you spend all the money in an envelope, you don’t get to add more until the next pay period.  No trips to the ATM, no purchases on the credit card. 

6.  Evaluate your cash monthly.  Just like managing your budget, you need to manage your cash.  If you’re always out of cash before you get paid, you need evaluate your spending habits and if you’re being realistic with your budget. 

7. Give it time.  You’re not going to adjust to a cash budget overnight.  It will take a few months for you to learn to manage your cash.  You’ll also need time to build up cash in your envelopes.  I roll my extra cash each month (except my grocery).  I may not need to buy the kids clothes every month, so the cash is available if I happen to run into a great sale or want to buy tickets to a baseball game.

*When I first started my cash budget, I recorded every transaction I made on the envelope.  I was able to determine where exactly my money was going & find ways to cut my spending.  After about a year I stopped recording transactions on my envelopes; however,  I have friends that continue to write it all down.

Make sure to check out Dave Ramsey for more information on the Envelope System

Do you use a cash system?

This post is linked to Madame Deals, My Coupon Teacher & Life as Mom

Disclaimer: I am not a financial advisor. This post is based solely on my personal experiences and opinions. Please consult a professional to discuss your individual financial situation.


  1. K says

    I like this post. Needed the reminder that paying with cash and the envelope system is a great way to handle your money.

    We shoved our Dave Ramsey books in storage 5 years ago. We spent those years making a mess of our finances.

    We pulled the books out as part of our new year financial plans and we started at square one…obviously part of that being the envelope system, cutting up the plastic, and going to cash only. It’s still early in the process, so yes, it is a difficult adjustment…and the reminder of why it is beneficial is appreciated. Let me say, #5 is definitely the hardest!

    • Dana says

      I’m glad you’re working on getting your finances back in order & dusted off those old Dave Ramsey books! Using cash really helped me. I hope it can help others as well. I thought using my debit card instead of credit was enough but swiping the cards doesn’t hurt as bad as handing over all the money left in my envelope.

      You tend to re-evaluate a potential purchase when you have to pay in cash. Do I really need those new jeans?

      #5 is hard! Just say “no” :)

  2. D says

    I will never understand the “cash in envelopes” thing. I’ve known some people who use these Dave Ramsey methods, but frankly, having a bunch of cash in envelopes in the house scares me more than any credit card. Different strokes for different folks…

    Paying in cash just seems like dead money to me. As a naturally frugal person, why not collect cash back/points/miles for the things you’re going to buy anyway(at the lowest price possible)? Those reward systems can really add up.

    I think with the fallout of the economy in ’08 ,credit cards have become a dirty word; synonymous with “financially irresponsible”. But what about the person who follows a budget, spends frugally, and pays all credit cards in full every month? No interest was charged. There’s technically no debt as long as, pscholgically, the person understands that the balance he/she is carrying is “not available”.

    I read an article by Mr Ramsey here:
    where he slams rewards cards pretty hard. The sentence “When you play with a multi-billion dollar industry and you think you’re going to win at their game, you are naive. You cannot beat the credit card companies.” is utter nonsense. The merchants and the ones carrying the balances are subsidizing the savvy person’s freebies. I do agree with the statement though that “Personal finance is 80% behavior. You need to cut out habits that make you spend more. You do not build wealth with credit cards”

    With all that being said, I like your blog and it local flavor… been reading almost a year.


    • Dana says

      Thanks for your comment D. This gives me my post for next week. I don’t think credit cards are evil. I have a credit card for some purchases where I don’t want to use cash or when Derrick makes purchases for work (& we get rewards).

      Most people (not all) don’t have your dedication to know when to stop spending. I do have a friend that follows Dave Ramsey but uses her debit card, not cash. She records every transaction immediately and this works well for her.

      I am personally more visual and need to see my money. It helps me to look at the cash. I’ve noticed even though I will monitor my debit card spending, I spend slightly more with my debit card than I do with cash.

      I also only carry a small amount of cash, so I’m not missing out on interest from the bank. I regularly pull my cash from the envelopes and put it into the bank.

      I think people need to do what works best for them. If you can keep yourself on budget using your credit cards that is fantastic. Unfortunately, most people don’t have that much control over their credit card behavior.

      Thanks so much for reading & I appreciate differing opinions

    • Dana says

      You’re a lady that know what works best for her situation. I’m not as dedicated to tracking my spending as I should be.

  3. Ginger says

    Had to chime in on this one too. I do know people who use the envelope system and it works well for them. I will say, when I go over budget (like last month on groceries) I wish I’d used the cash system. However, I use a credit card which gives cash rewards (1 pt for ever $1 spent, 3000 pts = $25) for almost everything I purchase and as many bills as I can pay via that method. (with I could pay our mortgage w/my credit card. Talk about some points!) I earn cash for money I would’ve spent anyway. No annual fees, no balances carried so no interest paid. It means free money for me and that makes me smile! I will admit you have to be willing to follow a budget and pay attention to your spending w/this method but it does have it’s merits. I use (free budget site) to track my spending on a weekly basis. When I see my line graph going toward yellow I know I need to back off.

    • Dana says

      Thanks for letting us know what works best for your family! I love free money too. I’d say you’d get a lot of points paying your mortgage with a credit card! That’s great that you’re able to keep yourself on track with your credit card. I’ve heard a lot of people like for tracking their finances.


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