This story is part of thatan online community dedicated to financial empowerment and advice, led by CNET Editor-in-Chief of Large and So Money podcast host Farnoosh Torabi.
Have you heard about the “cash-in” trend that’s taking TikTok by storm?
A recent survey finds that “cash stuffing,” where you put dollar bills in envelopes, packages, liquor bottles, or just about anything, is very popular among Gen Zers and millennials. The act of keeping dollar bills in creative placesduring the spring. Researchers at Credello, a personal finance platform, found that more than half of young adults regularly use cash to manage money, build savings and pay off debt.
And it warms my heart.
As a personal finance expert and parent, I know how using cash can encourage financial discipline over debt. I practiced this method at an early age and spent only what I carried in my wallet. Since cash has real and physical limits, I haven’t spent that much. It helped me clear thousands of dollars in credit card debt in a year.
A 2021 MIT study found that parting with cash at the register and tapping your credit card causes a higher degree of “pain.” This is actually a good thing. While credit cards have an intangible quality, when we use the almighty dollar, we only pay for things that improve our affordability..
But in our hyper-online world, where digital payments are commonplace and nearly half of consumers use mobile wallets like Apple Pay and Venmo for transactions, what does it take to successfully implement a cash-only strategy? Is it possible?
Podcast listener and So Money newsletter subscriber Ricky recently asked: I’m having trouble sticking to a budget and I want to start a full cash budget… If I have a credit card balance that needs to be paid off, how do I implement a full cash budget?
I have some best practices (and pitfalls) for Ricky and anyone who wants to get their way to “cash” savings.
1. Development of a real strategy
While some of the cashiers may try to pay for everything using dollar bills, it’s not possible for most of us, given how many merchants and services prefer or even require digital payments.
Paying cash for variable month-to-month expenses, such as food, gas, or utilities, works best where you can better control your spending.
Once you know what bills and payments you will use your cash for, make a plan. Understanding why and how cash flow can help you achieve your goalsor spending more consciously is an important first step to achieving success.
For example, if your hope is to save a certain amount each month, that might mean paying in your designated envelope each time (and keeping that envelope out of sight).
Or if you want to use top-up cash to get a better handle on your spending, you can set aside a limited amount of cash each month for essentials like groceries and gas, and then use the rest to pay off a portion of the loan each month. use the month.
As for Ricky, you can technically be on a cash-only budget when. You can pay your credit card balance monthly at the issuer’s physical branch or ATM, or pay virtually by check or deposit.
2. Calculate how much cash you need each month
Although this requires some tracking, it is important to know how much cash you should have on hand. I recommend reviewing your past bank statements to see how much you spend in each variable category, such as food, gas, utilities, clothing, and entertainment. From there, set a spending limit or savings goal and allocate that amount to the appropriate envelope.
Keep in mind that unlike variable expenses, many fixed monthly expenses, such as rent or mortgage, credit card balances, loans, or even a Netflix account, often require some form of online payment.
Pro tip: Keep 10% of each paycheck in a “savings” envelope to make sure you always end the month with extra.
3. Leave credit
One of the main reasons people use cash is to rely less on credit cards to pay for expenses. And as a federal reserveIt is good to try to reduce inflation sooner rather than later.
While top-up cash can curb the temptation to overspend in physical stores, it can’t prevent you from overspending online. So, if you need to pay for something digital that usually comes out of the cashier system, be sure to review your plan and adjust the cost accordingly.
Also, consider deleting the credit card numbers stored on your phone or websites, which makes it much easier to make purchases on your own. Entering your card information before making a purchase takes extra time and effort, which can reduce the temptation to spend.
4. Plan to spend more time shopping
When I think about how a cash-only budget affects my daily routine, it’s uncomfortable on multiple levels. First, I imagine going to an ATM to withdraw cash. Then, if the strategy is for cash to spend, I think going to a grocery store in person is more time consuming than ordering groceries online and paying with a credit card.
A cash-only system means more trips and a move away from the impulse purchase model that many of us have become accustomed to during the pandemic. And that’s not a bad thing — it’s just something to plan for.
5. Keep your receipts
Having a paper trail of cash purchases is important, especially for big-ticket items that you want to return or just keep as proof of purchase. Cash transactions are not tracked online like credit purchases. Always print, email or text your receipt after purchase.
6. Know that you are making a trade
Paying with cash can help you curb your overspending and build savings while getting rid of your debt a little at a time. But you also give up some benefits.
For example, if you use a credit card and pay off the balance in full each month, you can earn points or rewards that you don’t get when you pay with cash. You also earn no interest on your savings. And if you lose your cash, there’s no way to get it back.
Some credit cards also offer purchase protection, which allows you to get a return or refund if your purchase is stolen or accidentally damaged. Buying with cash won’t give you the same peace of mind if you don’t buy a warranty.
Finally, deciding not to use credit cards in any form can prevent you from building onewhich is important if you want to buy a house, rent a car or even move into a new house.
For more money tips, check out. Find ways to save more money with some of them and learn what to do if you do this month