Budgeting with Cash: The Cash Diet Method

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Having a credit or debit card is very convenient for a number of reasons. However, using a bank card can make it difficult to visualize your money. When your funds are just numbers on a screen, you might be more likely to spend money in frivolous ways. Some people swear by the “cash diet” method of money management.

“Cash diet” budgeting refers to a method where you only use cash to make in-person purchases. When you receive your paycheck, does it come to a direct deposit? Or do you have to cash it in-person? Either way, you could consider using the cash diet to take out the amount you plan to spend on in-person purchases.

How it Works

First, you take some cash from your paycheck to pay for things like gas, groceries, entertainment and the like. Things that you could pay cash for are things you should avoid paying for with your bank card or credit card.

Instead, use your card only for things that you can’t normally pay in-person or with cash. Bills, online transactions and the like typically require having a credit card or bank account on file.

However, for everything else, try to use exclusively cash. The trick is to get out enough cash to match your budget. So, let’s assume you’re trying to live by the 50/30/20 rule.

Under this rule, thirty percent of your money should go to the stuff you want to buy. You could enforce this with a cash diet by getting thirty percent of each paycheck in cash. Then, you use that cash for the stuff you want to have, like video games and new clothes.

Why it Works

If you stick to this plan, what you’ll find happening is that you’re more conscious of your spending money. When your money takes up physical space in your pocket, and you can actively count it, you perceive it differently. It’s harder to drop hundreds of dollars at once on something like clothing or electronics when you’re looking at the money.

Ideally, you should use this method in conjunction with another budgeting technique. The aforementioned 50/30/20 rule is a good one to pair with cash dieting.

Under that rule, you should set aside half of your money for necessities, thirty percent for fun stuff, and twenty percent of your money should be saved.

By applying a cash diet to your finances, you impart weight and space to your money. That makes it easier to handle and easier to visualize. Hopefully, it also makes it easier for you to save money!