The Discipline of Using Cash Simplifies Budgeting

I am a big fan of a budget being low effort. There are too many other things I'd rather do than to rigorously track my spending numbers. In To Budget or Not to Budget..., I wrote that I "paid myself first" in place of keeping a detailed budget and in A 60/40 Approach to Budgeting Money, I shared a three bucket money management approach that we used in place of a budget. In today's segment, I'd like to share how living on a cash basis also helped me keep budgeting simple.

For reference, I learned about spending on a cash basis because I lived without a credit card until sometime after college. That's because I graduated in the dark ages :-), before credit cards were offered to college students. Back then, everything I spent was by cash or check. When the money was gone, I had to stop spending.

Spending on a cash basis forced me to make choices. If there wasn't enough money, I had to choose between item A or item B. I couldn't have both. The discipline of cash basis spending evolved into a habit even as I started using credit cards for convenience.

In A 60/40 Approach to Budgeting Money, I shared that we used three money buckets for our funds, before I took early retirement. First, we put 24% in our retirement savings accounts. Second, we put 16% in our saving for large purchases account, enabling to pay cash for all items up to a car. Finally, the remaining 60% was put in our spending account, which for is our joint checking account.

Admittedly, we did not strictly adhere to cash basis spending since we used a credit card for daily expenditures and paid off the balance each month. However, we still operated as if we only used cash, since we only put a fixed amount to our checking account each month and we kept the amount spending below that level.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial advice. Please consult a professional advisor.

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