Mailbag: Go Cash Only and Zero Based Budgeting

by RJ

in Money Management

This question came in from one of my email subscribers:

I feel as if money flows from me just as fast as I make it, and I would like to be able to budget without feeling like I lose money every day.

What I would do

The awesome reader, who submitted this question, isn’t the only one with this problem. Having more month left than money, is a very easy habit to get into.

Fortunately, it’s also a very easy habit to break. There are two different approaches, I would use if I were in this situation.

In the comments, if you have any advice to share, please do.

Method # 1: Go Cash Only

Electronic banking and other electronic transactions, make it very easy to lose track of money going in and out of your life. There is a difference in mindset, when you’re physically handling a $50 bill to pay for this week’s groceries, compared to just putting it on a credit or debit card.

If it seemed like if money was going out, just as fast as it was going in, I would halt all electronic transactions except my direct deposit. I would freeze my credit cards and only use my debit card for emergencies.

By going cash only, I would get a better idea exactly where my money is going. Plus, I would also pay attention to my emotions when I hand over the cash or write a check. For example, if I cringe when I’m making out the check for the car payment, it might be time for me to sell the car.

Method # 2: Zero Based Budgeting

Another approach that I would use, which can be implemented simultaneously with using all cash, is a zero-based budget.

A traditional budget has you set limits on your expenses and your goal is to stay under those limits at the end of the month. A zero-based budget, takes the opposite approach. Instead of setting limits on expenses, you assign every dollar you earn to an expense on the first of the month.

While researching a little more about this concept, I came across the blog Getting Finances Done, which wrote an excellent post on zero-based budgeting. I know many people who have used this concept to get their finances back in order.


In the comments let me know if you agree or disagree with the changes I proposed.

Plus, if you have any questions of your own, please contact me. If it’s a problem that I believe enough people are having, I will write up a post on it.


Photo by: bfshawdow

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{ 1 comment }

AndraeNo Gravatar October 1, 2010 at 1:53 pm

It’s true that using a debit card/credit card/ or even paypal can make you forget that you are spending real money.

I often have to give myself a time out from ebay and not go overboard with the deals I find.

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